It's the worst of times and the best of times for publicly traded real estate companies.

The bad news is all too obvious. The economy is shrinking, retailers are shuttering their doors and companies of all types are tightening their belts. Meanwhile, billions of dollars in commercial real estate loans are coming due this year, and new loans are incredibly difficult to obtain -- and expensive for those who can get them. "There's barely any credit out there, and credit spreads have blown out to wide levels," says David Lee, manager of T. Rowe Price Real Estate (symbol TRREX).

For many real estate companies, 2009 will be a year of struggling to survive. But for other companies -- those lucky enough or smart enough to have a lot of cash and low debt -- 2009 will be a year when they can start picking up distressed properties and companies at fire-sale prices.

Poised to thrive are the strongest real estate operating companies and real estate investment trusts (REITs). Stockholders will share in this bounty.

Here's why. Publicly traded real estate companies are, in general, better financed -- and have better access to capital -- than private companies. They also have lower debt levels than most private companies. "Any company that is in a position of relative strength in terms of its balance sheet has an opportunity coming out of this darkness to take advantage of some of this weakness," Lee says. "Public companies have the ability to tap the public markets."

In a world of "eat or be eaten," the publicly traded firms are in a better position to feast than many private firms, particularly those that are small and underfinanced.

Real estate stocks have already discounted much, perhaps all, of the damage to come. Stocks of publicly traded real estate companies have been collapsing for almost two years now. The Dow Jones Wilshire REIT Index has already plunged 14 percent so far this year through Jan. 15. In 2008, the index lost a record 37 percent. In 2007, it fell 17 percent. (Unlike real estate operating companies, REITs are required to pay out nearly all of their income every year.)

Never have REITs fallen so far. The index lost a mere 34 percent in the deep commercial real estate recession that accompanied the savings and loan bust of 1989 and the early 1990s.

Here's the interesting thing about that earlier REIT selloff. REIT stock prices hit bottom in late 1989 -- four years before commercial real estate prices began to turn up. During the early 1990s, REIT prices surged, as investors anticipated better times ahead. Continued...