Doug,
Here's how I think about it. Anytime you hold a stock of something, you're a part owner of that corporation. Anytime you hold a bonds, you're a creditor (or debter - I can't remember which term goes with whom) - anyway you lend your money to the corporation and have claim on their assets. If the company goes under, the bond holders are in front of the stock holders in line to get their money back.
I believe that preferred stock holders would be b/w the bond holders and the stock holders in line.
Therefore, I treat REITs, no matter how "safe" and "well run" as equity. They have equity like risks. Just b/c they can be considered a seperate asset class, like commodities, (according to people like Fama & French) does not mean that they are any less risky than equities.
I also like to think in terms of risky and not-so-risky assets. Equities, REITs, Commodities, High Yield bonds are risky assets, b/c they all involve a rather high amount of market risk. Do they move together? Not really, however that doesn't make them "less risky". Short Term bonds, Int term bonds, are the no-so-risky assets. I'm unsure about where to place preferred stocks, real estate (houses), and even TIPS. Most likely somewhere in the middle.
- Alec