What happened

Stocks are in a rout on June 11. At 1:00 p.m. EDT, the SPDR S&P 500 ETF Trust (NYSEMKT:SPY) is down a massive 4.6%. This marks one of the worst days for stocks in decades, even against the backdrop of a 2020 that's seen some of the most volatile trading sessions in history. 

Real estate stocks, typically viewed as one of the safer sectors for investors, are getting pummeled. The SPDR Dow Jones REIT ETF (NYSEMKT:RWR) is down 6% at this writing. Real estate investment trusts (REITs) that focus on hospitality and retail properties in particular are getting crushed.

Empty store in an outdoor mall.

Image source: Getty Images.

Here are four that are being hit especially hard today: 

REIT name Price change on 6/11/20
Simon Property Group Inc (NYSE:SPG) (12.3%)
Park Hotels & Resorts Inc (NYSE:PK) (12.2%)
Tanger Factory Outlet Centers Inc. (NYSE:SKT) (12.1%)
Macerich Co (NYSE:MAC) (12.7%)

As of 1:06 PM EDT. Source: yCharts.

So what

Since bottoming out in late March, the stock market has roared back even as the long-term implications of the coronavirus lockdown have become more apparent. From the bottom to the recent peak, the S&P 500 had gained more than 40%, recovering most of its losses even as the number of unemployed passed 20 million, and the death toll from COVID-19 passed 100,000 Americans. 

REITs -- particularly ones like the four listed here that focus on retail and hotel properties -- soared even higher. The chart below shows what happened from the March 23 bottom to the recent high:

SPG Chart

SPG data by YCharts

Today's sell-off -- responding to the Federal Reserve warning that it could take years to recover all the jobs lost and what looks like the beginning of a second spike in COVID-19 -- has thrown cold water on the market's exuberance. Today is the continuation of a downward trend for retail and hospitality REITs that started in earnest on Monday: 

SPG Chart

SPG data by YCharts

Types of retail properties most exposed to the potential implications of a protracted economic downturn include malls, hotels, and other retail outlets. While wide-scale closures of retail that have started to end are unlikely, regional lockdowns are seen as increasingly likely. This could put even more pressure on REITs that have seen much of their rent income dry up, as tenants have been forced to close their doors for an extended period of time. For hotel owners like Park, the story isn't that different: Travel for both business and leisure has dried up. 

Now what

Often the first resort of the risk-averse, REITs aren't usually so volatile and risky an investment during recessions (though hotels are more exposed to the ups and downs of consumer spending). Even if their retail tenants struggled, they were generally still paying rent. Needless to say, a global pandemic has changed all the rules. At this writing, more than 2 million Americans have been diagnosed with COVID-19, and the death toll has passed 110,000 in the U.S. with some projections that it could double by this fall. 

Beyond the awful human toll and the suffering COVID-19 is causing, the economic implications are worrying -- and potentially dire. Investors seem to be realizing this after having spent the past two months driving these REITs up sharply, shifting quickly from the expectation of profitability to fear. 

REITs have a hard 2020 ahead and potentially a challenging 2021 -- at least the start. Within that risk, however, all four have the balance-sheet strength to ride out the difficulties and emerge on the other side of the coronavirus pandemic in solid shape, if more indebted than when they started. 

Investors shouldn't count on any dividends for the foreseeable future: Even if a cut hasn't been announced, it should be a foregone conclusion that the payout is at risk. But the prospects for capital gains on the actual recovery -- which might not happen before next year -- should make all four of these REITs attractive. 

You just need to be willing to ride out what will prove to be a very volatile period, and possibly see the stock price fall even more before the recovery begins in earnest. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.