Let's get the party started: An overseas run-up in real estate funds is rocking.

International real estate funds are up 38 percent in 2009, or about 100 percent above their market bottom in March, according to Lipper Inc. Global real estate funds that also include U.S. companies are up 28 percent this year.

Their gains come from portfolios of real estate investment trusts (REITs) that own commercial properties, with the most robust gains occurring in other countries.

"We're seeing stronger pickup in economic growth outside the U.S., which will lead to stronger real estate fundamentals there as well," says Paul Curbo, portfolio manager of AIM Global Real Estate Fund (ARGYX), up 20 percent this year. "A portion of the U.S. and U.K. economic growth was fiscally stimulated, but there's more sustainable organic growth in places like Australia, Hong Kong, China, and Singapore."

While more than 30 percent of AIM Global Real Estate's investing is in the U.S., it also has 18 percent in Hong Kong, 14 percent in Japan, and 10 percent in Australia. Other countries included are the United Kingdom, France, Singapore, the Netherlands, Canada, and China.

Top overseas holdings in this 85-stock portfolio include Hong Kong's Sun Hung Kai Properties Ltd. and China Overseas Land & Investment Ltd.; Japan's Mitsubishi Estate and Mitsui Fudosan Co. Ltd.; Australia's Westfield Group; France's Unibail-Rodamco; and Singapore's CapitaLand.

On mixed expectations for the U.S. commercial real estate market, the 17 percent rise of domestic real estate funds in 2009 lags the 23 percent gain of the average U.S. diversified stock fund, Lipper says.

Most recently, Colony Financial and Apollo Commercial Real Estate Finance, two domestic REITs that plan to invest in troubled commercial real estate debt, had less-than-stellar initial public offerings because investors remain wary about the sector.

Since the upward movement in international real estate funds is following a market collapse, no one can say with absolute certainty how long this party will last.

Traded on exchanges like a stock, a REIT invests in and owns properties such as shopping centers, offices, apartments, and industrial facilities. Publicly traded REITs that provide dividend yields comparable to bonds are the primary holdings within real estate funds.

"We're coming off a fairly significant decline in global real estate securities, so a lot of the run-up has been making up for the previous decline," says Curbo, who emphasizes high-quality, publicly traded commercial real estate companies in his portfolio. "However, I think the valuations are reasonable for a long-term investor, and there is some upside to be gained from improvement in the economy."

Those companies derive a large portion of their income from leases, which means they are basically landlords, Curbo notes. A five- to 10-year lease under which the tenant is obligated to pay provides a little more income stability for investors, he says.

A year ago, no one was playing party tunes in any part of the globe, so current gains must be taken in stride.

"Real estate has done well because people are bottom-shopping and looking for good income distribution that isn't correlated with other classes," says Tom Roseen, research manager at Lipper Inc., in Denver. "You can own equities, bonds, commodities, and real estate."

Investors often mistakenly assume real estate funds are tied to homes, when they really have more to do with commercial space, office buildings, and retail space, says Roseen. But even if investors understand that these funds involve commercial buildings, that market doesn't justify the giddiness of some buyers of real estate funds. Doomsayers have been warning about upcoming commercial real estate problems for months.

"I really don't think there's a connection to the overall real estate market because you haven't seen a lot of deals come to market in which bigger REITs are buying up prized real estate from distressed competitors," says Andrew Gogerty, research analyst at Morningstar Inc., in Chicago.

There have been few deals even though companies have been suspending their dividends to conserve and build cash, he says.

"You won't find many people who are saying that the fundamental issues facing real estate have been addressed and solved," Gogerty says. "We're not nearly as positive on real estate as we used to be because of the direct headwinds of volatility in the sector and a lot of trading going on that isn't tied to fundamental changes."

The best bets in domestic real estate funds include T. Rowe Price Real Estate (TRREX), whose fine manager David Lee knows how to analyze REITs in terms of their cash flows and asset values, says Gogerty.

First American Real Estate Fund (FREAX) has a strong, experienced management team that has displayed the ability to perform well in a number of market environments, Gogerty says. JP Morgan US Real Estate (SUSIX) benefits from strong research and management as well.

"The real estate asset class is not for the faint of heart and should only be a small portion of investors' asset allocation schemes," Roseen cautions. "While real estate is an uncorrelated asset class and an investor's portfolio should contain it, the numbers indicate the party could be over because of the tremendous gains over the past 12 months."

As always, the real estate outlook will continue to confound and tantalize pundits and investors.