In this piece, we will take a look at the 13 most profitable real estate stocks now. If you want to skip our overview of the real estate sector and the latest news, then take a look at the 5 Most Profitable Real Estate Stocks Now.
In today’s high interest rate environment, the real estate sector has been one of the most dynamic industries. Like banking, real estate is also quite sensitive to high rates as they impact the demand for properties and also make financing new and existing projects costlier. This has been evident in the commercial and office real estate industry, as the growth in work from home trends combined with high rates has shaken up the environment in which these companies operate.
To understand the scope of the downturn in the office real estate industry, consider the American Institute of Architects (AIA)’s AIA/Deltek Architecture Billings Index. Like production indexes that measure the size of activity in industries, this index measures the business that architecture firms receive. A reading below 50 indicates a contraction in the sector, and during October, the ABI stood at 44.3 to mark a nearly three year low reading that eclipsed the downturn in the segment in 2020 when the coronavirus pandemic’s disruptions were at their peak. More worryingly, the architecture firms also reported that not only did the value of new contracts drop for the third consecutive month, but inquiries for new projects dropped for the first time since July 2020.
Building on this, the chief executive officer of the asset manager TCW Group – who is a major bondholder in the real estate market – believes that the commercial real estate market is due for a serious shakeup. Speaking to CNBC, Katie Koch shared in October 2023 that as much as one third of existing office space will be removed from the market in order to readjust it to the current status quo. According to her, this resizing will be focused primarily on non top tier office properties, a view that was also presented by the Washington, D.C. based real estate market data and intelligence provider CoStar Group, Inc. (NASDAQ:CSGP).
CoStar’s analysis believes that even though commercial real estate is undergoing seismic level shifts, ironically, these changes will also increase the demand for top tier, Grade A office properties. This is because as the office real estate market shrinks, the demand for existing products will increase. When combined with a return to normalcy for working trends, big ticket firms will be eager to get their hands on lucrative properties and consequently drive up their demand.
Shifting gears, another real estate sector that’s been in the news a lot in 2023 is the residential sector. Residential real estate companies faced a roaring market in the wake of the coronavirus pandemic as low rates and growing work from home trends incentivized workers to buy homes in suburban and other localities. This helped them beef up their margins and offer low mortgage rates later on even after the Federal Reserve’s multiple 75 basis point interest rate hikes. In fact, the hype surrounding the residential real estate sector reached a feverish pitch in August when the Q2 2023 hedge fund filings started to roll in. They showed that none other than Warren Buffett of Berkshire Hathaway piled into the real estate sector. During Q2, the Oracle of Omaha pumped $814 million into three home building companies. These are NVR, Inc. (NYSE:NVR), Lennar Corporation (NYSE:LEN), and D.R. Horton, Inc. (NYSE:DHI), and for more details, you can read Warren Buffett’s 11 Growth Stock Picks.
As to the current state of the housing market, here’s what the management of Lennar Corporation had to say during the firm’s Q3 2023 earnings call:
It seems that we have entered a phase of more measured adjustments in order to curtail inflation, while the Fed shrinks its balance sheet by approximately $100 billion per month and engages other mechanisms to reduce capital in the market. Over these time — over time, these steps will hopefully bring inflation to desired levels. While persistent inflation remains in the system, aggressive rate hikes have given way to moderated and measured rate movements, allowing the market to adjust in a more orderly fashion. And while the Fed is working to reduce overall capital levels, the elimination of sharp turns and aggressive moves is generally constructive to consumers finding access to enough capital for their necessities, and housing is a necessity.
Against that backdrop, the current housing market is generally defined by a very short supply of affordable products and strong demand for affordable products. The consumers have now adjusted to and accepted “higher for longer” interest rates and are willing to purchase or rent what they can afford. The consumer is employed and is confident they will remain employed and likely with a higher wage. Higher rates, with need driving demand and housing in short supply, is the new normal, and the consumer understands that the cost of housing will likely continue to be higher. Generally speaking, strong demand for housing has returned within the limits of affordability. The market has attracted consumers by adjusting prices, increasing incentives, including rate buy-downs, and driving down production costs in order to enable consumers to afford needed shelter, and customers have responded.
With these details in mind, let’s take a look at the most profitable real estate stocks. Some top picks are Prologis, Inc. (NYSE:PLD), Lennar Corporation (NYSE:LEN), and D.R. Horton, Inc. (NYSE:DHI).
Aerial view of a large warehouse loaded with pallets and crates of food products.
Our Methodology
To make our list of the most profitable real estate stocks, we first ranked all real estate companies that traded on NASDAQ and NYSE by their market capitalization. Then, they were ranked by their trailing twelve month net income and the most profitable real estate stocks were selected.
Most Profitable Real Estate Stocks Now
13. Taylor Morrison Home Corporation (NYSE:TMHC)
Latest TTM Net Income: $871 million
Taylor Morrison Home Corporation (NYSE:TMHC) is an American home builder headquartered in Scottsdale, Arizona. Its shares are rated Buy on average and analysts have set an average share price target of $52.33.
During this year’s September quarter, 24 out of the 910 hedge funds profiled by Insider Monkey had held a stake in Taylor Morrison Home Corporation (NYSE:TMHC). Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital was the firm’s biggest investor due to its $91.3 million stake.
Just like Lennar Corporation (NYSE:LEN), Prologis, Inc. (NYSE:PLD), and D.R. Horton, Inc. (NYSE:DHI), Taylor Morrison Home Corporation (NYSE:TMHC) is one of the most profitable real estate stocks.
12. Digital Realty Trust, Inc. (NYSE:DLR)
Latest TTM Net Income: $883 million
Digital Realty Trust, Inc. (NYSE:DLR) is a real estate investment trust headquartered in Austin, Texas. The firm made a big announcement in December 2023 after it teamed up with the asset management behemoth Blackstone to set up a $7 billion data center property joint venture.
Insider Monkey took a look at 910 hedge fund portfolios for their Q3 2023 investments and found that 27 were the firm’s shareholders. Digital Realty Trust, Inc. (NYSE:DLR)’s largest shareholder among these is Israel Englander’s Millennium Management as it owns $140 million worth of shares.
11. AvalonBay Communities, Inc. (NYSE:AVB)
Latest TTM Net Income: $926 million
AvalonBay Communities, Inc. (NYSE:AVB) is a residential property REIT headquartered in Arlington, Virginia. It scored a win in December 2023 when JPMorgan upgraded the share rating to Neutral from Underweight and cited a robust balance sheet and well developed project pipeline as potential catalysts.
As of September 2023 end, 27 out of the 910 hedge funds surveyed by Insider Monkey had invested in AvalonBay Communities, Inc. (NYSE:AVB). Greg Poole’s Echo Street Capital Management was the biggest investor courtesy of its $231 million investment.
10. Toll Brothers, Inc. (NYSE:TOL)
Latest TTM Net Income: $1.3 billion
Toll Brothers, Inc. (NYSE:TOL) is a luxury home builder headquartered in Fort Washington, Pennsylvania. Its shares continued their winning streak in December 2023 after Toll Brothers, Inc. (NYSE:TOL) announced a dividend and reauthorized a share repurchase program.
During this year’s third quarter, 39 hedge funds out of the 910 covered by Insider Monkey’s research were the firm’s stakeholders. Toll Brothers, Inc. (NYSE:TOL)’s largest shareholder is Edgar Wachenheim’s Greenhaven Associates as it owns 5.5 million shares that are worth $410 million.
9. Crown Castle Inc. (NYSE:CCI)
Latest TTM Net Income: $1.5 billion
Crown Castle Inc. (NYSE:CCI) is a specialized REIT that caters to the needs of the telecommunications industry. These days, the firm is on the radar of activist investor Elliot Management, who successfully led Crown Castle Inc. (NYSE:CCI)’s CEO to announce his exit from the firm next year.
By the end of 2023’s September quarter, 45 out of the 910 hedge funds part of Insider Monkey’s database had bought and owned Crown Castle Inc. (NYSE:CCI)’s shares. Ken Fisher’s Fisher Asset Management was the biggest investor since it owned $360 million worth of shares.
8. NVR, Inc. (NYSE:NVR)
Latest TTM Net Income: $1.6 billion
NVR, Inc. (NYSE:NVR) is a home building company with operations in more than a dozen American states. It has been doing well on the financial front as of late by having beaten analyst EPS estimates in all four of its latest quarters.
Insider Monkey scoured through 910 hedge fund portfolios for this year’s third quarter to discover that 35 were the firm’s investors. NVR, Inc. (NYSE:NVR)’s largest hedge fund investor is Ric Dillon’s Diamond Hill Capital due to its $548 million stake.
7. Public Storage (NYSE:PSA)
Latest TTM Net Income: $1.9 billion
Public Storage (NYSE:PSA) is an American REIT with self storage properties across the U.S. and Europe. The third quarter was a great one for the firm, as it allowed Public Storage (NYSE:PSA) to raise its full year revenue growth guidance and also boost expectations for FFO.
During September 2023, 24 hedge funds out of the 910 tracked by Insider Monkey had bought Public Storage (NYSE:PSA)’s shares. Jeffrey Furber’s AEW Capital Management was the biggest shareholder through its $85.9 million investment.
6. Simon Property Group, Inc. (NYSE:SPG)
Latest TTM Net Income: $2.2 billion
Simon Property Group, Inc. (NYSE:SPG) is a hospitality and entertainment REIT headquartered in Indianapolis, Indiana. The firm jumped on the A.I. train in December 2023 when it announced an A.I. assistant to help shoppers with their holiday purchases.
As of Q3 2023, 27 out of the 910 hedge funds covered by Insider Monkey’s research had invested in the firm. Simon Property Group, Inc. (NYSE:SPG)’s largest hedge fund stakeholder is Jeffrey Furber’s AEW Capital Management since it owns $55.4 million worth of shares.
Prologis, Inc. (NYSE:PLD), Simon Property Group, Inc. (NYSE:SPG), Lennar Corporation (NYSE:LEN), and D.R. Horton, Inc. (NYSE:DHI) are some highly profitable real estate stocks.
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Disclosure: None. 13 Most Profitable Real Estate Stocks Now is originally published on Insider Monkey.