The total market capitalization, or the aggregate value, of real estate investment trusts could be as high as $42 billion and growing, according to an estimate from investment bank Keefe, Bruyette & Woods. REITs buy, develop, manage and sell real estate assets. REITs occasionally securitize those assets as well. They enjoy advantages over other firms, such as special tax exemptions and their ability to hold more capital under upcoming risk-retention rules. A recent spate of IPOs in the sector is stoking a reputation of invincibility, though warnings persist. Since the National Association of Real Estate Investment Trusts began tracking the sector, the market capitalization for these firms grew from $500 million in 1971 to $30.4 billion at the end of 2010. But with capital raising and book-value growth taking place since then, KBW pushed their estimate higher. "We believe that the key question this trend raises is whether this is a cyclical phenomenon driven by the high returns in the mortgage space over the past few years or part of a broader change," KBW analysts said. "We believe that it is a combination of both." REITs raised more than $9.5 billion in new capital over the last year, led by Annaly Capital (NLY). This New York-based REIT raised $2.9 billion through new stock offerings and doubled its earnings in the first quarter. More growth could come as the mortgage market becomes dependent on more capital. Currently, $1.5 trillion in mortgages and MBS sit on Fannie Mae and Freddie Mac balance sheets with another $1 trillion in MBS at the Federal Reserve. Assuming a run-off rate of 10% per year replaced by private capital, the mortgage market could need roughly $110 billion in private capital in the next 10 years. "If half of that was through the mortgage REIT sector, this suggests that the mortgage REIT sector capital could more than double over that period," KBW analysts said. Write to Jon Prior. Follow him on Twitter @JonAPrior.