In a recent interview with Chuck Jaffe of MarketWatch, I noted a few apartment real estate investment trusts (REITs) about which I had concerns. Those concerns extend to other types of REITs, too. The problem is that the REIT market isn’t what it used to be.

Real estate investment trusts originally came into being to provide individual investors access to investment properties that, alone, they could likely never afford. In addition, the REIT structure provided diversification and professional management of the properties it owned. Since investment properties are generally intended to generate regular and largely predictable cash flows, REITs live under very specific dividend guidelines and receive special tax treatment—REITs must distribute 90% of earnings as dividends and those dividends are not taxed at the REIT level, instead being treated as income for the shareholder.

The REIT market was fairly obscure for some time, largely attracting the intended smaller investors for which the corporate structure was created. Yields were between 5% and 10%, depending on the type of properties a REIT owned. Occasionally, yields would jump above 10% for reasons ranging from company specific to market related. It was, however, a largely boring niche of the investment world.

Over the last decade or so, institutional investors began to take notice of the space. This interest increased as the housing market ramped up and, along with it, other property types. Yields began to fall as share prices rose. When the financial crisis hit, many REITs either had to cut dividends because revenues were insufficient or because they could get away with it. Several years out from the crisis, many REITs still yield in the low single digits.

Note that funds from operations (FFO), a sort of cash flow figure, is the relevant metric for REITs; earnings are far less meaningful. Dividends, meanwhile, are paid out of cash flow, not earnings. So REITs can legally distribute much less than their cash flow would allow and still meet all of the legal requirements of being a REIT.

Historically, there were some growth-oriented REITs that chose the low-dividend path and investors were well aware of that decision. Now, however, more and more REITs seem to be following suit. Two and three percent yields from an investment meant to provide a regular, meaningful dividend stream seems far too little. Either the REITs themselves have chosen to hold back as much revenue as possible or the shares are simply too expensive. Neither option should be palatable to most retail investors that are in search of income.

This isn’t to suggest that all REITs are overpriced; there are certainly very good REITs that are trading at what might be considered fair prices. Some health care oriented REITs still yield in the mid-to-high-single-digits, along with a select group of others (see Value Line’s screen of highest-yielding REITs for a starting point). Some growth-oriented REITs, meanwhile, have low yields but extremely bright outlooks, such as American Tower (AMT). In this case, Value Line’s projections call for dividends to increase from about $0.80 per share annually in 2012 to $2.25 in three to five years. That level of dividend growth is well worth investing in. BRE Properties (BRE), meanwhile, with dividends projected to increase from $1.54 per share annually in 2012 to $2.16 in three to five years, isn’t nearly as compelling.

At the end of the day, however, the problem with REITs is that many have taken on a different role in the market than the logic that led to the corporate structure would appear to dictate. Thus, the sizable, regular, and reliable dividend payments that were once the hallmark of the industry simply aren’t there in many cases. Investors should tread cautiously.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.