REITs, the false nirvana for yield?

Reits are showing great yields and cap gains in this slow recovery with extended low mortgage rates. But what are the pluses and pitfalls in this environment? For example I hear there is some complex rule about holding too much REIT in an IRA can trigger a large tax which you wouldn't get if held in non-ira.
I had just doubled up on REITS, then got about a 20% crash on the new one in a couple days. I had heard a newsblurb that the US is going to lower some rather high taxes (some 1980 rule) on foreign investors on US reits. I suppose this is to reflate our market.
But now I see claims that Japan has been pursuing a dangerous scheme with bundled US reits with almost ponzi properties. They hold large percentages of US reits and have been paying their own investors huge dividends for UNREALIZED capital gains, this out of the inflows of their new investors. So I guess the prospect of this scheme blowing up and causing Japan to dump reits has jostled the market:
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I expect that you're referring to UBTI (or UBIT)
In most cases, typical REIT holdings do *not* generate UBTI.
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The biggest of the Japanese ones seem to hold as much as maybe $1billion worth. Just the Vanguard REIT index fund alone is nearly $20billion. It doesn't seem likely that japanese investors dumping their REIT holdings are going to have a huge impact.
Of bigger concern, I think, is the general yield-chasing across the board - US and otherwise - which has contributed to the huge runup in REIT valuations and depressed true REIT yields (not the phony ones that the Japanese funds discussed in that article are paying out). VNQ has a recent yield of around 3.3%, very much lower than historical patterns. When interest rates go up, one would expect yield-chasing investors to push down the prices of REITS as well as fixed-income securities. Take a look at this:

It isn't clear that REITs are in a bubble, but if you compare the price/FFO now against historical numbers, and compare that ratio to the P/E ratio for stocks over time, you'll see that generally the S&P500 forward P/E is a good bit higher than the REIT P/FFO. Right now, by that measure (and that's only one, single measure - there are others worth understanding), REITs may look a little pricy.
David S. Meyers, CFP® 
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David S Meyers CFP
Good reply all around. But maybe Japan will hit the more specialized reits, like those you buy like a stock with a ticker. I have a medical-building one that fell almost 20%, and only the Japan news seemed to be in play at the time. Others didn't fall as much, and maybe the mutual fund ones bundle a diverse group of real estate.
I did have another problem with reits many years ago. Put my IRA in a vanguard reit fund that locked up for 10 years of no early withdrawal, then it liquidated. Unlike their other reit funds, this one gambled on California commercial stuff that took a crash and shriveled my IRA during a time of high equity gains. This was disastrous as an early setback, but I recently clawed back a lot from rothifying then risky momentum trading (having little to lose in that case).
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