The real estate market has been experiencing a downturn in recent times, with the S & P 500’s real estate group being the only one to have fallen in 2024, recording a slide of 4.7%. This decline has been attributed to significant uncertainty in the commercial real estate market, particularly concerning interest rates and the refinancing of $2 trillion in debt maturing between 2024 and 2026. Despite these challenges, UBS analyst Jonathan Woloshin believes that there are opportunities for long-term investors in the market.
According to Woloshin, there is still capital available for investment, and the decreasing supply of new retail, multifamily, and industrial real estate indicates stronger operating fundamentals anticipated in the coming years, from 2025 to 2030. Moreover, there is money waiting on the sidelines in the private equity market, with approximately $33.5 billion in new CRE funds already announced. Real estate investment trusts (REITs) are also paying attractive dividends, with an average yield of 4.2%, making them an appealing option for investors looking for stable returns.
Woloshin emphasizes the importance of focusing on quality when considering investment opportunities in the real estate market. He suggests looking at factors such as management, balance sheet strength, properties, geographies, and dividend-to-free cash flow coverage rather than solely chasing high yields. Additionally, he advises investors to approach the market with patience, liquidity, and a multi-year time horizon, as the bottom of the market may not be clearly defined.
Two REITs recommended by Woloshin for investors to consider are Prologis and Alexandria Real Estate Equities. Despite facing challenges this year, both companies offer attractive investment potential. Prologis, the world’s largest owner of industrial properties, has a diversified operating model that includes real estate ownership, development, and strategic capital management. The company also pays a 3.4% dividend yield, making it an appealing choice for income-seeking investors.
On the other hand, Alexandria Real Estate Equities specializes in owning and developing large campuses for life science companies, offering a dividend yield of 4.4%. The company’s strong balance sheet, limited near-term debt, and well-diversified tenant base make it a compelling option for investors looking for stability and growth potential in the real estate sector. Woloshin also highlights the company’s track record of developing pre-leased assets with strong credit tenants, further solidifying its position as a strong investment opportunity in the market.
While the real estate market may be facing challenges and uncertainty in the short term, there are opportunities for long-term investors to capitalize on attractive risk-adjusted reward opportunities in the CRE and REIT market. By focusing on quality investments and exercising patience, investors can navigate the current market conditions and position themselves for success in the years to come.