Property purchases by U.S. real estate investment trusts are likely to be curtailed after almost $36 billion of deals this year as a tumble in share prices makes a key source of capital costlier.

The Bloomberg REIT Index has dropped 11 percent from an almost six-year high in May as the yield on 10-year Treasury notes surged amid speculation the Federal Reserve would reduce bond purchases, which have kept borrowing costs low. The decline was three times the slump in the Standard & Poor’s 500 Index.

Just five U.S. property REITs have sold shares this month, down from 14 in May and eight in April, according to data compiled by Bloomberg, and Tom Barrack’s house-rental trust Colony American Homes Inc. postponed an initial public offering in early June. Because federal tax laws require REITs to distribute most of their earnings to investors through dividends, the companies rely on stock and debt sales to raise money for real estate purchases.

“For most property types, I think we’ve hit the pause button,” said Jim Sullivan, a managing director at Green Street Advisors Inc., a Newport Beach, California-based real estate research firm. “We’re going to see a period here where REIT executives are very careful in what they do with respect to new acquisitions.”

Purchases completed by U.S. REITs through June 27 were double the $17.6 billion in the year-earlier period, according to data compiled by Bloomberg. This year’s total was boosted by Lehman Brothers Holdings Inc.’s sale of apartment owner Archstone Inc. to Equity Residential and AvalonBay Communities Inc. for $16 billion, including $9.5 billion in assumed debt. The deal was completed in February.

Pending Deals

REITs also have $17.5 billion in pending acquisitions announced this year, led by Mid-America Apartment Communities Inc.’s planned purchase of Colonial Properties Trust for about $2.2 billion in stock.

A decline in deals may limit a rebound in commercial- property values. A Green Street index of prices, compiled from estimates of REIT holdings, had recovered all of its losses from the real estate collapse and as of May was 4 percent higher than its previous peak in August 2007.

With bond yields low, REITs have been an attractive investment alternative with their higher, steady returns -- an advantage disappearing with rising interest rates. Since REITs rely on the equity and debt markets to raise money for acquisitions, they are vulnerable to jumps in interest rates. They have access to capital through credit agreements that they can use for short-term funding obligations, said Keven Lindemann, real estate group director at SNL Financial in Charlottesville, Virginia.

Market Turmoil