The downturn in the real estate market has presented an opportunity for long-term investors, according to UBS. Real estate is the only one of the 11 major groups in the S&P 500 index that is down in 2024, down 4.7%. UBS analyst Jonathan Woloshin wrote in a note last week that significant uncertainty remains in the commercial real estate market, including the path of interest rates and questions about refinancing the $2 trillion in debt maturing between 2024 and 2026. However, he said capital is still available and that the diminishing supply of new retail, multifamily and industrial properties points to stronger operating fundamentals in 2025 to 2030. There is also money on the sidelines in the private equity market, he added, with about $33.5 billion in new commercial real estate funds announced. .SPLRCR YTD mountain S&P 500 Real Estate Sector year to date Real estate investment trusts, or REITs, also pay attractive dividends, with an average yield of 4.2%, according to UBS. “Investors should remember that no one is ringing the bell at the bottom,” Woloshin wrote. “While headlines are likely to remain negative and further challenges will persist in commercial real estate, we believe patient investors with liquidity and a multi-year time horizon have an abundance of attractive risk-adjusted reward opportunities available in the commercial real estate market and REITs.” He strongly recommends focusing on quality — such as management, balance sheet, properties, geographies and earnings coverage to free cash flow — rather than chasing yield. Here are two REITs on his list: ProLogis shares have suffered this year, falling about 15%. Still, Woloshin said the REIT is the world’s largest owner of industrial real estate, such as warehouses — and the industrial sector remains strong. “PLD has a quadruple operating model consisting of owned and managed properties, development, earning potential for its core businesses, and strategic capital management that provides multiple avenues for value creation potential,” he said. Prologis also pays a 3.4% dividend yield. Alexandria Real Estate Equities yields 4.4% and has declined more than 7% year to date. The company owns, operates and develops a large campus of life science companies. Woloshin likes Alexandria Real Estate Equities’ strong balance sheet and limited near-term debt, as well as its well-covered dividend and broad access to capital. “ARE has a proven history of developing pre-leased assets with strong, diversified credit and tenant base,” he said.
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UBS sees 'attractive' opportunities in dividend-paying real estate stocks
