The real estate market crash is creating opportunities for long-term investors, according to UBS. Real estate was the only one of the 11 major S&P 500 groups to fall in 2024, dropping 4.7%. UBS analyst Jonathan Woloshin noted in a note last week that significant uncertainty remains in the commercial real estate (CRE) market, including interest rate trends and questions about refinancing $2 trillion in debt maturing between 2024 and 2026. But capital is still available, he said, and the declining supply of new retail, multifamily and industrial properties points to a strengthening business base from 2025 to 2030. There is also money on the sidelines in the private equity market, with about $33.5 billion in new CRE funds announced, he added. .SPLRCR Year-to-date S&P 500 Real Estate Sector Real estate investment trusts (REITs) also pay attractive dividends, with an average yield of 4.2%, according to UBS. “Investors need to remember that no one rings a bell at the bottom,” Woloshin wrote. “While headlines remain negative and further challenges are likely to follow in CRE, we believe there are ample attractive risk-adjusted return opportunities in the CRE and REIT markets for patient investors with liquidity and a multiyear investment horizon.” He strongly recommends not chasing yield but focusing on quality: management, balance sheet, properties, geography, and dividend-to-free cash flow coverage. Two of the REITs on his list are: Prologis shares have struggled this year, down about 15%. But the REIT is the world’s largest owner of industrial real estate, such as warehouses, and the industrial sector remains strong, Woloshin said. “PLD has a four-pillar operating model consisting of owned and operated real estate, development, profitability of essential businesses, and strategic capital management that offers multiple potential for value creation,” he said. Prologis also pays a dividend yield of 3.4%. Alexandria Real Estate Equities’ dividend yield is 4.4%, down more than 7% so far this year. The company owns, operates and develops large campuses for life sciences companies. Woloshin praised Alexandria Real Estate Equities’ strong balance sheet and limits on short-term debt, as well as its well-covered dividend and broad access to capital. “ARE has a proven track record of developing well-pre-leased assets and has a well-diversified, strong credit tenant base,” he said.
UBS sees ‘attractive’ opportunities in dividend-paying real estate stocks
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