The real estate market is currently experiencing a significant decline, with real estate being the only group in the S & P 500 that has fallen in 2024, dropping by 4.7%. There is a great deal of uncertainty surrounding the commercial real estate (CRE) market, particularly in relation to interest rates and the refinancing of $2 trillion in debt that is set to mature between 2024 and 2026. Despite these challenges, UBS analyst Jonathan Woloshin believes that there is a unique opportunity for long-term investors in the market.
Looking ahead, Woloshin points to the diminishing supply of new retail, multifamily, and industrial real estate as a positive indicator for stronger operating fundamentals in the years to come. He also notes that there is capital available in the private equity market, with approximately $33.5 billion in new CRE funds being announced. Real estate investment trusts (REITs) are also paying attractive dividends, with an average yield of 4.2%.
Woloshin emphasizes the importance of patience for investors in the current market environment. He cautions against trying to time the bottom of the market, as no one can accurately predict when that will occur. Instead, he suggests focusing on quality investments that offer attractive risk-adjusted reward opportunities. This includes considering factors such as management, balance sheet strength, property locations, and dividend coverage.
Two REITs that Woloshin recommends for investors are Prologis and Alexandria Real Estate Equities. Prologis, despite experiencing a 15% decline in share price this year, is the largest owner of industrial properties globally. The industrial sector is performing well, and Prologis offers multiple avenues for value creation. The company also provides a 3.4% dividend yield.
Alexandria Real Estate Equities, with a 4.4% dividend yield and a more than 7% decline in share price year to date, focuses on developing campuses for life science companies. The company’s strong balance sheet, well-covered dividend, and access to capital are key factors that make it an attractive long-term investment opportunity.
The current state of the real estate market presents a unique opportunity for long-term investors. While there are challenges and uncertainties in the market, investors who are patient and focus on quality investments can find attractive risk-adjusted reward opportunities. By considering factors such as management, balance sheet strength, and dividend coverage, investors can position themselves for long-term growth and success in the real estate market.