The stock market is falling to levels not seen since 1997?and apartment REITs are not immune. A number of leading firms?BRE Properties in San Francisco, Chicago-based Equity Residential, Apartment Investment and Management Co. in Denver, Essex Property Trust in Palo Alto, Calif., and AvalonBay Communities in Alexandria, Va.?have all seen their stock values plummet to five-year lows, according to

And that's coming off 2008, a year where the sector was hit particularly hard. Last year, apartment REITs saw their total returns fall 25.1 percent and their price returns fall 29.3 percent. "Most of the value that has been created over the past 10 to 14 years has gone up in smoke," says Ed Pettinella, CEO of Home Properties, a REIT based in Rochester, N.Y. "In a matter of months, the wheels came off."

Pettinella isn't alone in thinking apartment stocks have suffered too much. "If you look at where our stock is trading, the stock price is discounting a lot of bad news?more bad news than exists today," says David Stockert, president and CEO of Post Properties, an Atlanta-based REIT. "There's a great deal of pessimism, nervousness, and worry that's baked into stock prices."

Jerry Brewer, executive vice president of finance at Colonial Property Trust, a REIT in Birmingham, Ala., thinks the collapse of the financial sector is also playing a major role. "REITs are highly correlated with financial stocks," he says. "REITs are reliant on leverage up to the 50 percent or 60 percent range. If the banks don't open up for business at attractive rates, it will hurt valuations going forward."

Eventually, Pettinella sees things improving. A big driver: the return of a group of investors that has fled the sector. "One of these days, institutional investors will wake up and see that these companies aren't going anywhere and they want to maintain an incredible dividend yield," he says.

If there is a bright side, it's that apartment REITs aren't doing as poorly as their peers in other real estate sectors, which were pummeled in 2008. During the year, all REITs saw their total returns fall 37.3 percent and their price returns fall 41 percent.

Apartment executives see two main reasons that their stocks are holding up. One is a steadier flow of tenants. "You have much shorter leases than at commercial assets," Brewer says. "When space goes dark, it's difficult to re-lease."

Then there's financing. Even though banks generally aren't open for business, there's still Fannie Mae and Freddie Mac. "The big question for every company is financing," Stockert says. "It's making sure you can meet your commitments as your debt matures. Multifamily does have access today to the agencies. That doesn't exist for office, retail, and industrial."