The real estate investment trust (REIT) space has been under severe pressure for over two years. Undoubtedly, the stiff headwind of higher interest rates has continued to weigh on shares of the entire REIT scene. 

The good news is that when shares of REITs go down, their yield tends to rise - opening up an excellent window of opportunity for investors brave enough to weather the storm. 

Although rates on the 10-year Treasury note(ZNZ23) have retreated from their recent peak (just short of 5%), there's still concern that rates could move even higher. Indeed, the Fed has conditioned investors for more interest rate increases at its meetings. But will they pull the trigger? 

For now, high inflation remains sticky. Meanwhile, interest rates continue to climb to levels that only the oldest and most seasoned investors have ever encountered. All this hawkishness is not the best news for the REITs, which have continued to crumble.  

Activist investor Bill Ackman recently argued that the Fed may be done with rate hikes, given evidence that the economy has begun to slow. If you believe that rates won't keep skyrocketing, it's hard to argue that many plays within the REIT space look more than enticing at current levels.

American Tower Corporation

American Tower Corporation (AMT) is a communications tower firm that leases to some of the country's top telecoms. The stock is down about 45% from its all-time high above $300 per share, briefly hit back in mid-2021. It's been a vicious decline, thanks in no small part to higher interest rates. 

Even if rates do finally peak, it's hard to tell when tower leasing demand will pick up again significantly, especially if the economy slows in such a way that we land in a recession - and perhaps in a bumpy fashion.

Along with its July earnings results, the company increased its full-year guidance by 2-4%. This indicates potential relief to be had going into year's end. Even with the upbeat forecast, investors don't seem all enthused about the firm - at least, not until we have more certainty about rate hikes.

In the meantime, AMT's yield of 3.78% is enticing for those looking to play the multi-year rise of next-generation wireless infrastructure. As the metaverse, cloud-based artificial intelligence (AI), and other trends continue to take off, it's not hard to imagine data usage surging over the next five years. 

For now, a recession could impact usage - but on the other side of the downturn, nascent technologies that go mainstream could drive demand for faster, lower-latency wireless.

BMO Capital Markets analyst Ari Klein is a significant bull on AMT, assigning the shares a rating of Outperform. Klein cites American Tower as "the best way" to play the space. He's also upbeat on the international prospects, which account for around 45% of sales.

Crown Castle International

Crown Castle (CCI) is another wireless infrastructure leasing REIT that's crashed hard in recent years. The stock has fallen over 55% from its highs, and the negative momentum isn't slowing down. 

Unfortunately, the company's latest (second) quarter, where funds from operations (FFO) of $2.05 surpassed the consensus estimate, did not provide any relief for the falling knife of a stock. Second-quarter revenue came at $1.87 billion, which was flat sequentially but narrowly above Wall Street forecasts.

The company was forced to slash its guidance amid disappointing revenue growth in small cells (a business that differentiates it from American Tower, which is all-in on cell towers). Although the firm expects double-digit sales growth days to return as early as next year, many investors are rushing for the exits. And it's hard to blame them as high rates and a sluggish economy weigh on CCI's results.

Looking ahead, CCI's latest quarterly report is due out this Wednesday, Oct. 18.

The main attraction to the REIT is the juicy 6.62% yield, which is safe and likely poised to grow from here, once small cells and towers experience a growth re-acceleration on the other side of this economic slowdown.

The Bottom Line

In many ways, Crown Castle and American Tower are up against it. If rate hikes pause or stop, we'll be faced with a sagging economy that has the alarm of the Fed. And if the economy continues going strong, more rate hikes will likely be in the cards. 

For investors, the two REITs are in a lose-lose scenario. Still, it's a mistake to overlook them at current levels, now that shares of both REITs have crashed so violently.