10 Best Commercial Real Estate Stocks To Buy According To Hedge Funds

In this article, we discuss 10 best commercial real estate stocks to buy according to hedge funds.

There is still significant uncertainty regarding the future usage of office buildings as companies and employees adapt to hybrid working models even after three years since the COVID-19 pandemic disrupted the world. According to PwC, while companies and their employees are determining their preferred work arrangements, some firms are choosing to retain their office spaces as a precautionary measure or due to lease obligations. However, an increasing number of companies are downsizing or opting not to renew expiring leases. Consequently, vacancy rates in the office sector continue to rise gradually, which is in contrast to other major property sectors. Additionally, many tenants are resorting to subletting their office spaces until their leases expire. On the other hand, occupancy levels for logistics real estate in North America, Europe, and Asia Pacific are currently at or near all-time highs. There are also positive indications suggesting that the retail sector is experiencing a revival. Investment managers interviewed by PwC highlighted the robust operational performance of their retail portfolios in the United States and Europe. This upward trend extends beyond the more resilient sub-sectors such as convenience stores, grocery stores, and retail parks. Selected shopping centers are demonstrating strong performance in the market as well. 

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The commercial real estate sector continues to face significant economic uncertainty for the remainder of 2023, with several key factors impacting its future. These factors include the uncertain interest rate environment and the evolving nature of office spaces. Over the period from March 2022 to May 2023, the Federal Reserve increased interest rates consistently for ten consecutive times. However, according to JPMorgan, multifamily properties continue to thrive. While the rate of rent increases has declined, the national vacancy rate for multifamily properties was 4.5% at the end of 2022. Vacancy rates vary across different metro areas, but the median vacancy rate in the country as of April stands at 3.9%. 

Furthermore, JPMorgan noted that despite e-commerce comprising around 15% of retail, not all consumer needs can be met online. Certain services, like nail salons, barbershops, and sports bars, still require in-person visits. The industrial sector has experienced significant growth driven by e-commerce and the on-demand economy as well. The vacancy rate for distribution and warehouse spaces hit a record low of 4.1% in the second half of 2022, but it increased slightly to 4.2% in the first quarter of 2023. While demand for office space has been impacted by remote and hybrid work models, A-class office properties continue to perform well, especially those with leases lasting 10 years or more, which may be able to weather market corrections. On the other hand, B- and C-class office buildings, particularly those with shorter leases in non-prime locations, face challenges as the workplace evolves. 

The real estate industry is undergoing significant changes driven by technology advancements and increased capital. FortuneBuilders observed that online property listing platforms, smartphone apps, virtual reality, and blockchain technology are expected to have a profound impact on real estate transactions. Buyers and renters now have access to online platforms, leading to more informed property searches. Moreover, blockchain technology is likely to be utilized for legal components of transactions, such as transferring deeds and sharing important documents, increasing trust and reducing intermediaries. Virtual reality will also gain popularity, allowing potential buyers to virtually tour properties without physically visiting them. Meanwhile, millennials are entering the real estate market with a preference for suburban areas and walkable neighborhoods, presenting new opportunities for investors in mixed-use and retail spaces. Overall, the future of real estate will be shaped by technological advancements and shifting buyer preferences.

In this exciting real estate landscape, some of the best commercial stocks to invest in include CBRE Group, Inc. (NYSE:CBRE), Simon Property Group, Inc. (NYSE:SPG), and Alexandria Real Estate Equities, Inc. (NYSE:ARE). Investors can also check out Real Estate Investing For Beginners and 12 Most Profitable Real Estate Stocks. 

Our Methodology 

We selected the following commercial real estate stocks based on the hedge fund sentiment toward each stock. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the first quarter of 2023. The list is arranged in ascending order of the number of hedge fund holders in each firm. 

Best Commercial Real Estate Stocks To Buy According To Hedge Funds

10. SL Green Realty Corp. (NYSE:SLG)

Number of Hedge Fund Holders: 21

SL Green Realty Corp. (NYSE:SLG) operates as a real estate investment trust and is dedicated to acquiring, managing, and optimizing the value of commercial properties in Manhattan. In the second quarter of 2023 to date, SL Green Realty Corp. has entered into agreements for 31 office leases, which encompass a total area of 299,137 square feet. This brings the total office leasing volume for 2023 to 803,819 square feet. Additionally, the company currently has a pipeline of office leases exceeding 1 million square feet.

On May 18, SL Green Realty Corp. declared a $0.2708 per share monthly dividend, in line with previous. The dividend is payable on June 15, to shareholders of record on May 31. 

According to Insider Monkey’s first quarter database, 21 hedge funds were bullish on SL Green Realty Corp., compared to 20 funds in the prior quarter. Dmitry Balyasny’s Balyasny Asset Management is the biggest stakeholder of the company, with 1.14 million shares worth $26.80 million. 

Like CBRE Group, Inc., Simon Property Group, Inc., and Alexandria Real Estate Equities, Inc., SL Green Realty Corp. is one of the best real estate stocks to invest in. 

9. Realty Income Corporation (NYSE:O)

Number of Hedge Fund Holders: 22

Realty Income Corporation (NYSE:O) is a real estate investment trust that focuses on investing in and leasing independent, single-tenant commercial properties across the United States, Spain, and the United Kingdom. It is one of the best commercial real estate stocks on the radar of smart investors. 

On May 15, Realty Income Corporation declared a $0.255 per share monthly dividend, in line with previous. The dividend is payable on June 15, to shareholders of record on June 1. 

Stifel increased its price target on Realty Income Corporation to $71.25 from $71.00 and maintained a Buy rating on the shares on May 4. The firm informed investors that Realty Income Corporation reported its first-quarter Adjusted Funds From Operations (AFFO), which aligns with both the firm’s estimate and the consensus estimate among analysts.

According to Insider Monkey’s first quarter database, 22 hedge funds were bullish on Realty Income Corporation, compared to 24 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is the biggest stakeholder of the company, with 981,447 shares worth $62 million. 

8. Boston Properties, Inc. (NYSE:BXP)

Number of Hedge Fund Holders: 22

Boston Properties, Inc. (NYSE:BXP) is involved in the development, ownership, and management of high-quality office spaces in the United States. The firm primarily focuses on six major markets – Boston, Los Angeles, New York, San Francisco, Seattle, and Washington, DC. Boston Properties, Inc. is one of the premier commercial real estate stocks to invest in. 

On May 1, Argus reiterated a Buy rating for Boston Properties, Inc. but adjusted its price target for the shares to $70 from $82. According to the firm’s research note, Boston Properties, Inc. demonstrated solid growth in its Q1 revenues, and the management is actively prioritizing growth in sectors such as life-science buildings and co-working spaces. The recent decrease in Boston Properties, Inc.’s stock value presents an advantageous opportunity for investors to enter the market, especially considering the shares’ above-average dividend yield of approximately 7.4%, as highlighted by Argus.

According to Insider Monkey’s first quarter database, 22 hedge funds were long Boston Properties, Inc., compared to 26 funds in the prior quarter. Jean-Marie Eveillard’s First Eagle Investment Management is the largest stakeholder of the company, with a position worth $202.8 million. 

Here is what Diamond Hill Long-Short Fund has to say about Boston Properties, Inc. in its Q1 2022 investor letter:

“Commercial real estate investment trust (REIT) Boston Properties has a solid balance sheet and good assets. However, as the largest public office REIT, it operates in a challenging space due to high capital expenditure needs, the ease of adding new supply and tenant leverage. BXP is also concentrated in large coastal markets that have high taxes and burdensome regulations, and subsequently have seen population outflows. We believe the combination of a tough business and a marginally worse environment given the rising acceptance of at-home work will be challenging over the long term for BXP.”

7. Brandywine Realty Trust (NYSE:BDN)

Number of Hedge Fund Holders: 23

Brandywine Realty Trust (NYSE:BDN) is a real estate investment trust that focuses its investments on office buildings located in Philadelphia, Washington, D.C., and Austin. It is one of the top commercial real estate stocks to buy. On May 25, Brandywine Realty Trust declared a quarterly dividend of $0.19 per share, in line with previous. The dividend is payable on July 20, to shareholders of record on July 6. 

On April 24, Truist maintained a Buy rating on Brandywine Realty Trust but trimmed the price target for the shares from $8 to $7. In a research note to investors, the firm stated that investors may be overly concerned about potential negative impacts on Brandywine Realty Trust, even during an economic downturn. The REIT’s pipeline of projects is reportedly expanding, and the management has expressed that there will be a significant increase in net operating income in Q2 due to improved occupancy rates, Truist informed investors. 

According to Insider Monkey’s first quarter database, 23 hedge funds were bullish on Brandywine Realty Trust, compared to 22 funds in the earlier quarter. Cliff Asness’ AQR Capital Management is a prominent stakeholder of the company, with 2.6 million shares worth $11.8 million. 

6. Ryman Hospitality Properties, Inc. (NYSE:RHP)

Number of Hedge Fund Holders: 26

Ryman Hospitality Properties, Inc. (NYSE:RHP) is a real estate investment trust that focuses on upscale convention center resorts and entertainment offerings within the lodging and hospitality sector. On June 7, Ryman Hospitality Properties, Inc. increased the size and finalized the pricing of a private placement of senior notes due 2028, raising $400 million instead of the initially announced $300 million. The private placement is scheduled to conclude on June 22, 2023, and is anticipated to generate approximately $393 million in net proceeds. Together with funds from a public equity offering and existing cash reserves, the company plans to finance the $800 million acquisition of the JW Marriott San Antonio Hill Country Resort & Spa.

On May 9, Deutsche Bank analyst Chris Woronka raised the price target for Ryman Hospitality Properties, Inc. to $128 from $126 while maintaining a Buy rating on the shares. According to the analyst, Ryman Hospitality Properties, Inc. is still in the early stages of effectively adjusting the pricing of a significant portion of its revenue sources. Woronka believes that Ryman is uniquely positioned within the hotel real estate investment trust sector as it benefits from an increasing proportion of group and convention business, which is now being priced to reflect the post-pandemic cost environment.

According to Insider Monkey’s first quarter database, 26 hedge funds were bullish on Ryman Hospitality Properties, Inc., compared to 27 funds in the earlier quarter. Mario Gabelli’s GAMCO Investors is the biggest stakeholder of the company, with 1.15 million shares worth $103 million. 

In addition to CBRE Group, Inc., Simon Property Group, Inc., and Alexandria Real Estate Equities, Inc., Ryman Hospitality Properties, Inc. is one of the top commercial real estate stocks to invest in. 

Here is what Diamond Hill Small Cap Fund has to say about Ryman Hospitality Properties, Inc. in its Q4 2021 investor letter:

“Ryman Hospitality is a well-run, resiliently positioned REIT that has carved out a core competency in the group-travel business. The company owns 5 of the 10 largest convention-oriented resorts under the Gaylord Hotel brand, and it has a small entertainment business which owns iconic assets like the Grand Ole Opry and Ryman Auditorium. We believe the group-travel business will normalize and potentially be of heightened importance given the increase in remote work. Pandemic-related industry-wide disruptions coupled with the inflationary dynamic in construction should result in minimal new industry capacity over the next five years, favoring Ryman’s portfolio of assets.”

5. Jones Lang LaSalle Incorporated (NYSE:JLL)

Number of Hedge Fund Holders: 28

Jones Lang LaSalle Incorporated (NYSE:JLL) a London-based company in the commercial real estate services sector, offering a range of services including investment management, asset management, real estate development, advisory, consulting, leasing, and property management. It is one of the best commercial real estate stocks to watch. 

On March 15, analyst Andrew Rosivach from Wolfe Research upgraded Jones Lang LaSalle Incorporated to Outperform from Peer Perform, with a price target of $218. According to the analyst’s research note, the company’s cost savings and plans to resume share repurchases were highlighted as positive factors in its earnings report. Despite JLL’s relative multiple experiencing a decline, the firm’s cost savings have helped maintain earnings estimates at a steady level. Currently, Jones Lang LaSalle Incorporated shares are trading at a multiple of 10.6 times the expected 2023 earnings, representing a 39% discount compared to Wolfe Research’s coverage average. This discount has increased from a historical average of approximately 18%, as mentioned by the firm.

According to Insider Monkey’s first quarter database, Jones Lang LaSalle Incorporated was part of 28 hedge fund portfolios, compared to 26 in the prior quarter. David Blood and Al Gore’s Generation Investment Management is the biggest stakeholder of the company, with 4.3 million shares worth $637.6 million. 

Ariel Appreciation Fund made the following comment about Jones Lang LaSalle Incorporated in its Q1 2023 investor letter:

“Also in the quarter, we initiated a position in long-time Ariel holding Jones Lang LaSalle Incorporated, also known as JLL, which is a leading professional services firm that specializes in real estate and investment management. A slowdown in leasing, advisory and investment sales due to rapidly rising interest rates and inflationary pressures presented us an attractive entry point in the name. The company generates strong fee revenues on its annuity businesses, prudently manages expenditures, returns excess capital to shareholders through share repurchases and has provided a three-year strategic outlook with strong 2025 financial targets. Although the first half of 2023 will likely be choppy given macro-uncertainty, company leadership is highly confident about the medium- and longer-term revenue outlook for both transactional and recurring revenue streams, alongside its efforts to streamline operations and increase efficiencies to generate higher profit over time.”

4. Alexandria Real Estate Equities, Inc. (NYSE:ARE)

Number of Hedge Fund Holders: 33

Alexandria Real Estate Equities, Inc. owns and manages advanced life science, agtech, and technology campuses in highly sought-after innovation hubs such as Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and Research Triangle. It is one of the best commercial real estate stocks to invest in. On June 5, Alexandria Real Estate Equities, Inc. declared a $1.24 per share quarterly dividend, a 2.5% increase from its prior dividend of $1.21. The dividend is payable on July 14, to shareholders of record on June 30. 

On May 4, RBC Capital maintained an Outperform rating on Alexandria Real Estate Equities, Inc. but lowered the firm’s price target on the shares to $166 from $198. The firm acknowledged that while the long-term prospects for the life science sector remain strong, the near-term outlook appears less promising. Despite this, RBC believes that Alexandria Real Estate Equities, Inc. is well-equipped to handle the current situation and is ready to take advantage of opportunities when the market conditions stabilize.

According to Insider Monkey’s first quarter database, 33 hedge funds held stakes worth $284.5 million in Alexandria Real Estate Equities, Inc., compared to 29 funds in the prior quarter holding stakes valued at $296 million. Ian Simm’s Impax Asset Management is the largest position holder in the company. 

Baron Real Estate Income Fund made the following comment about Alexandria Real Estate Equities, Inc. in its Q4 2022 investor letter:

“Alexandria Real Estate Equities, Inc. is the leading landlord and developer for the life science industry. A best-in-class company with several competitive advantages including an irreplaceable life science office portfolio concentrated in the premier life science markets in the U.S. and deep customer relationships.

Alexandria’s shares declined 33% in 2022 and are now valued at a 5.8% implied capitalization rate versus recent life science real estate transactions that have been valued in the 4% to 5% capitalization range. Alexandria’s real estate is attractively valued at approximately $600 per square foot versus private market transactions for life science real estate in the $1,000 to $1,500 per square foot range.

We are bullish on the long-term prospects for Alexandria Real Estate Equities, Inc., the life science industry leader and sole publicly traded life science pure play REIT. The company has acquired and developed an irreplaceable life science portfolio and has significant tenant relationships. Chairman and co-founder Joel Marcus has assembled a deep and experienced management team. Alexandria has been benefiting from an increase in funding for health care drug development, which has been contributing to demand for life science buildings that continues to exceed supply, resulting in strong business fundamentals in key geographic markets.”

3. Simon Property Group, Inc. (NYSE:SPG)

Number of Hedge Fund Holders: 35

Simon Property Group, Inc. is a real estate investment trust that focuses on investing in shopping malls, outlet centers, and community/lifestyle centers. It is one of the best commercial real estate stocks to monitor. Simon Property Group, Inc. reported higher earnings and revenue in the first quarter of 2023 compared to the same period last year, which positively influenced its outlook for the upcoming year. Consequently, the company’s board of directors announced an increased quarterly dividend of $1.85 per share, up from the previous dividend of $1.80.

On May 26, Haendel St. Juste, an analyst at Mizuho, assigned a Neutral rating to Simon Property Group, Inc. stock but revised down the price target from $116 to $106. The analyst maintains an Equal-weight stance on shopping centers overall but anticipates the possibility of higher earnings if bad debt remains low and transaction activity improves in the latter half of 2023.

According to Insider Monkey’s first quarter database, 35 hedge funds were bullish on Simon Property Group, Inc., compared to 33 funds in the preceding quarter. Jeffrey Furber’s AEW Capital Management is a prominent stakeholder of the company, with 495,805 shares worth $55.5 million. 

Baron Real Estate Income Fund made the following comment about Simon Property Group, Inc. in its Q4 2022 investor letter:

“Simon Property Group, Inc. is the world’s largest mall operator. Led by CEO David Simon, the company has assembled a well-located portfolio of retail malls, outlets, and community centers. Management has a long track record of solid capital allocation decisions.

Simon’s dividend yield of 6% and valuation of only 10.6 times earnings (AFFO) versus a long-term average of 15 times earnings is, in our opinion, compelling.

Though we are mindful of the headwinds to certain retail real estate–excess supply of retail real estate, e-commerce headwinds, large capital requirements to repurpose retail real estate to higher and better alternative uses–we believe Simon Property is well positioned given the strong location and high quality of its real estate portfolio. We are managing the Fund’s investment in the company with possible retail headwinds in mind.”

2. VICI Properties Inc. (NYSE:VICI)

Number of Hedge Fund Holders: 39

VICI Properties Inc. (NYSE:VICI) is a real estate investment trust that holds an extensive portfolio of top-tier gaming, hospitality, and entertainment destinations, including renowned establishments like Caesars Palace Las Vegas, MGM Grand, and the Venetian Resort Las Vegas. VICI Properties Inc. is one of the best commercial real estate stocks to invest in. On June 8, the company declared a $0.39 per share quarterly dividend, in line with previous. The dividend is payable on July 6, to shareholders of record on June 22. 

On April 5, Mizuho initiated coverage of VICI Properties Inc. with a Buy rating and a $35 price target. The firm noted that VICI Properties Inc. is one of only two gaming-focused real estate investment trusts and possesses an exceptionally high quality portfolio. Mizuho also observed that the gaming sector is experiencing increased gross gaming revenue and enjoys strong alignment with local governments. The firm expects VICI to outperform in the current macro environment due to its high-quality portfolio, which makes it an attractive option for investors seeking defensive investments.

According to Insider Monkey’s first quarter database, 39 hedge funds were long VICI Properties Inc., compared to 40 funds in the earlier quarter. Ken Griffin’s Citadel Investment Group is the biggest stakeholder of the company, with 9.80 million shares worth $319.7 million. 

Baron Real Estate Income Fund made the following comment about VICI Properties Inc. in its Q4 2022 investor letter:

“We remain optimistic about the Fund’s triple net gaming REIT investments in VICI Properties Inc. and Gaming and Leisure Properties, Inc. The companies primarily own quality casino and gaming real estate properties. They have attractive dividend yields in the 5% to 6% range that are well covered, accretive acquisition growth opportunities, and are, in our opinion, attractively valued.

We remain mindful of the rising interest rate environment and the possibility that higher debt costs and lower equity prices could negatively impact the ability for net lease REITs to invest in an accretive fashion.”

1. CBRE Group, Inc. (NYSE:CBRE)

Number of Hedge Fund Holders: 41

CBRE Group, Inc. specializes in providing commercial real estate services and investments worldwide. Its operations are divided into three segments – Advisory Services, Global Workplace Solutions, and Real Estate Investments. On April 27, CBRE Group, Inc. reported a Q1 non-GAAP EPS of $0.92 and a revenue of $7.41 billion, outperforming Wall Street estimates by $0.02 and $320 million, respectively. 

On April 10, Chandni Luthra, an analyst at Goldman Sachs, reaffirmed a Buy rating on CBRE Group, Inc. but slashed the price target for its shares from $103 to $90. The analyst informed investors of the additional challenges in property transactions given the current macroeconomic environment, making a recovery in commercial real estate more difficult in the latter half of 2023. Goldman Sachs believes that the outlook for commercial real estate service providers has become more challenging compared to a month ago. Consequently, the firm expects a potential downside to the 2023 guidance provided in CBRE’s Q4 results, leading to a reduction in estimates and price targets across the sector.

According to Insider Monkey’s first quarter database, 41 hedge funds were bullish on CBRE Group, Inc., compared to 38 funds in the prior quarter. Harris Associates is the biggest stakeholder of the company, with 13.4 million shares worth $978.7 million. 

Baron Funds made the following comment about CBRE Group, Inc. in its Q4 2022 investor letter:

“CBRE Group, Inc. is the largest commercial real estate services firm in the world. It maintains a #1 worldwide market share position in each of its key business lines and has a pristine balance sheet.

It is currently valued at only 13 times our estimate of 2023 earnings per share versus a long-term average valuation multiple of 15 to 16 times earnings per share.

Our “other real estate-related companies” category includes those companies that do not fit neatly in more traditional real estate categories of REITs, residential-related real estate, and travel-related real estate. Other real estate-related companies currently include:

Commercial real estate services companies Examples: CBRE Group, Inc. and Jones Lang LaSalle Incorporated…” (Click here to read the full text)

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originally published on Insider Monkey.