The housing market continues to struggle due to the combined pressures of increasing mortgage rates, soaring home prices, and limited housing inventory, creating a challenging situation for housing affordability. To exacerbate the situation, there is the possibility that the Federal Reserve will implement one more interest rate hike by the end of this year in an effort to further combat inflation. The federal funds rate serves as the key reference interest rate used by financial institutions for their short-term lending needs. In March 2022, this rate was nearly at 0%. Subsequently, the Fed initiated a series of rate increases to achieve its 2% inflation target. Following 11 successive interest rate hikes, the current rate range now stands at 5.25% to 5.5%, marking its highest level in 22 years.
According to Federal Reserve forecasts, it is anticipated that the ultimate federal funds rate will climb to 5.6% by the conclusion of 2023. This implies the likelihood of at least one more 25-basis-point rate hike within the current year. Modifications to the federal funds rate can indirectly impact mortgage rates. However, experts in the housing market appear to be more focused on the Fed's longer-term rate plans in the years ahead rather than being overly concerned about a single additional interest rate increase in the current year. According to market experts, to achieve the most favorable scenario, a substantial increase in the available inventory of homes for sale is crucial. This additional inventory would alleviate the upward pressure on home prices, potentially stabilizing them or even leading to a slight decrease from their peak or near-peak levels. Furthermore, it's essential for interest rates to moderate, but caution against a rapidly cooling rate is also advised. Swiftly declining rates could trigger a surge in demand that might negate any gains in inventory, causing home prices to rebound.
On the other hand, the real estate sector is presently undergoing a significant transformation, driven by technological advancements and increased access to capital. Those seeking to enter the real estate market should be prepared for the profound impact of online property listing platforms, smartphone applications, virtual reality, and blockchain technology on every facet of real estate transactions. According to a report, investors should expect heightened competition among property listing websites in the near term, all striving to offer seamless buying and selling experiences for prospective and current property owners. While market leaders like Zillow Group, Inc. (NASDAQ:Z) have long maintained a dominant position, new platforms with similar offerings will continue to emerge, intensifying the competitive landscape. Technology is poised to play a pivotal role in the future of the real estate market, and established players must adeptly navigate this evolving landscape to avoid falling behind in a field brimming with competition.
In their third-quarter earnings report, Morgan Stanley (NYSE:MS) allocated $134 million for credit losses, mirroring the $161 million set aside in the second quarter. The bank attributed this provision to "deteriorating conditions in the commercial real estate (CRE) sector." Other banks' recent earnings also revealed challenges related to their CRE holdings. For instance, Goldman Sachs Group, Inc. (NYSE:GS) disclosed on Tuesday that it had reduced its exposure to office-related CRE holdings by approximately 50% this year. Meanwhile, Bank of America Corporation (NYSE:BAC) reported an increase in non-performing loans, which are loans with at least 90 days of overdue payments, to nearly $5 billion in the third quarter, up from $4.27 billion in the second quarter, largely due to its CRE portfolio. Borrowers have faced difficulties refinancing their CRE loans as property values have declined and interest rates have risen. Notably, around $20 billion of office commercial mortgage-backed securities, which pool together individual loans, are set to mature in 2023.
Conversely, the residential real estate (RRE) market appears to be showing more resilience. After experiencing a notable 10% drop in new home prices from their peak in February 2023, prices have shown an upward trajectory based on the latest data from April 2023. Additionally, the regional housing index published by the National Association of Home Builders/Wells Fargo reinforces this positive trend.
With these details in mind, let us now take a look at some of the best real estate and realty stocks to buy according to hedge funds, out of which the top ones include the likes of Equinix, Inc. (NASDAQ:EQIX), American Tower Corporation (NYSE:AMT), and Prologis, Inc. (NYSE:PLD).
Best Real Estate Stocks to Buy in 2023
Aerial view of a bustling urban skyline, reflecting the growth of the real estate investments.
Our Methodology
We selected the following real estate and realty stocks based on the hedge fund sentiment toward each stock. We have assessed the hedge fund sentiment from Insider Monkey’s database of 910 elite hedge funds tracked as of the end of the second quarter of 2023. The list is arranged in ascending order of the number of hedge fund holders in each firm.
Realty Income Corporation (NYSE:O) is a Real Estate Investment Trust (REIT) that specializes in investing in free-standing, single-tenant commercial properties in the United States, Spain, and the United Kingdom. These properties are typically subject to NNN Leases. The company is incorporated in Maryland and has its corporate headquarters located in San Diego, California.
Earlier this September, Wells Fargo commenced coverage of Realty Income Corporation (NYSE:O) with an Equal Weight rating and set a price target of $59. According to the firm, the company is well-positioned to capitalize on the advantages of its size, especially in terms of securing financing. Nevertheless, the requirement for substantial transactions to boost funds from operations growth constrains its long-term performance potential.
Of the 910 hedge funds tracked by Insider Monkey at the end of Q2 2023, 24 funds owned investments in Realty Income Corporation (NYSE:O), up from 22 in the previous quarter. The consolidated value of these stakes is over $243.6 million. Among these hedge funds, Marshall Wace LLP was the company’s leading stakeholder in Q2.
Much like Equinix, Inc. (NASDAQ:EQIX), American Tower Corporation (NYSE:AMT), and Prologis, Inc. (NYSE:PLD), Realty Income Corporation (NYSE:O) is one of the best real estate stocks to invest in.
Public Storage (NYSE:PSA) is a comprehensive, self-administered, and self-managed Real Estate Investment Trust (REIT) in the United States. Its primary focus is on acquiring, developing, owning, and operating self-storage facilities. As the most prominent brand in the self-storage services sector in the U.S., the company underwent a transformation into a publicly traded REIT in 1995. This transition occurred through the merger of Storage Equities with Public Storage, which then assumed the company's name.
In July of this year, Public Storage (NYSE:PSA) announced its agreement to acquire Simply Self Storage from Blackstone Real Estate Income Trust for a total of $2.2 billion. This strategic move is part of Public Storage's expansion strategy to increase its footprint in the market. An owner of over 2,800 properties, Public Storage (NYSE:PSA) will bolster its presence by integrating Simply Self Storage's portfolio, which includes 127 wholly-owned properties across 18 states, strategically positioned in densely populated markets.
By the end of this year’s second quarter, 27 out of the 910 hedge funds polled by Insider Monkey had held a stake in the company. Public Storage (NYSE:PSA)’s biggest hedge fund stakeholder is Jeffrey Furber’s AEW Capital Management since it holds a $108 million stake.
Simon Property Group Inc. (NYSE:SPG) stands as a prominent, worldwide entity specializing in the ownership, operation, and development of retail real estate. The company's extensive portfolio consists of 235 properties, encompassing malls and premium outlets, totaling 191 million square feet in North America, Europe, and Asia. As per the Q2 2023 earnings call transcript, Simon Property Group Inc. (NYSE:SPG) disclosed funds from operations amounting to $1.08 billion, which translates to $2.88 per share.
Simon Property Group Inc. (NYSE:SPG)'s performance has been bolstered by robust consumer spending and a thriving labor market. The corporation's occupancy rates show steady improvement, reaching 94.7% by the close of the second quarter, marking an 80 basis point increase compared to the previous year. Notably, Simon Property Group Inc. (NYSE:SPG) recently raised its quarterly dividend from $1.85 to $1.90 per share.
According to Insider Monkey’s second quarter database, 32 hedge funds were bullish on Simon Property Group, Inc. (NYSE:SPG), compared to 35 funds in the preceding quarter. Jeffrey Furber’s AEW Capital Management is a prominent stakeholder of the company, with 518,145 shares worth $59.83 million.
10. Alexandria Real Estate Equities, Inc. (NYSE:ARE)
Number of Hedge Fund Holders: 33
Alexandria Real Estate Equities, Inc. (NYSE:ARE) is a U.S.-based Real Estate Investment Trust (REIT) specializing in investments in office buildings and laboratories leased to tenants primarily in the life science and technology sectors. In addition, the company operates Alexandria Venture Investments, a venture capital division that focuses on investments in life sciences companies.
On September 5, Alexandria Real Estate Equities, Inc. (NYSE:ARE) announced a quarterly cash dividend of $1.24 per common share for the third quarter of 2023. The dividend is payable on October 13, 2023 to shareholders of record on September 29, 2023.
According to Insider Monkey’s second quarter database, 33 hedge funds held stakes worth $206.16 million in Alexandria Real Estate Equities, Inc. (NYSE:ARE), the same as the previous quarter worth $284.5 million. Ian Simm’s Impax Asset Management is the largest position holder in the company.
CoStar Group, Inc. (NASDAQ:CSGP) is a Washington, DC-headquartered company specializing in delivering information, analytics, and marketing solutions to the commercial property sector across the United States, Canada, the United Kingdom, France, Germany, and Spain. The company offers research services encompassing online services and research for the rental housing and hotel industries.
In Q1 2023, Insider Monkey analyzed 910 hedge fund holdings and identified 38 that had invested in the company. CoStar Group, Inc. (NYSE:CSGP) counts Charles Akre's Akre Capital Management as its largest investor, holding a stake valued at $632.9 million.
TimesSquare Capital U.S. Mid Cap Growth Strategy made the following comment about CoStar Group, Inc. (NASDAQ:CSGP) in its Q2 2023 investor letter:
“Moving to areas of strength, the Industrials sector bolstered performance this quarter. At the lead was the 29% gain from commercial real estate data and analytics provider CoStar Group, Inc. (NASDAQ:CSGP). The company’s revenues and earnings outpaced expectations; management notably increased its earnings guidance for the balance of the year. CoStar’s residential operations—particularly Apartments.com—have grown significantly and offset market concerns about growth for CoStar’s commercial real estate business.”
VICI Properties Inc. (NYSE:VICI) is a Real Estate Investment Trust (REIT) with a specialization in casino properties. It was established in 2017 when it spun off from Caesars Entertainment Corporation as part of the latter's bankruptcy reorganization. As one of the largest owners of gaming properties in the United States, VICI Properties boasts a diverse portfolio, including casinos, hotels, restaurants, and various entertainment venues.
On September 7, VICI Properties Inc. (NYSE: VICI) offered a raised quarterly dividend of $0.415 per share. This raise extends the company's impressive streak of dividend growth to six years, further solidifying its position as one of the best real estate and realty stocks in our rankings. Notably, the company's shares currently yield 5.83%.
As of the end of the second quarter of 2023, 40 hedge funds out of the 910 funds tracked by Insider Monkey were long VICI Properties Inc. (NYSE:VICI). Ken Griffin’s Citadel Investment Group is the largest investor among these since it owns 5.2 million shares that are worth $164 million.
Crown Castle Inc. (NYSE:CCI) is a real estate investment trust that serves as a shared communications infrastructure provider in the United States. Its expansive network encompasses more than 40,000 cell towers and approximately 85,000 route miles of fiber that support small cells and fiber solutions. As of October 18, Crown Castle Inc. (NYSE:CCI) offers a quarterly dividend of $1.565 per share, providing a dividend yield of 7.29%. Notably, the company has maintained a consistent track record of dividend increases over the past eight years.
As of the end of the second quarter of 2023, 41 hedge funds out of the 910 funds in Insider Monkey’s database reported owning stakes in Crown Castle Inc. (NYSE:CCI). The most significant stakeholder of Crown Castle Inc. (NYSE:CCI) was Michael Larson’s Bill & Melinda Gates Foundation Trust which owns a $161.8 million stake in the company.
SBA Communications Corporation (NASDAQ:SBAC) functions as a Real Estate Investment Trust (REIT) and possesses wireless infrastructure holdings in various regions, spanning the United States, Canada, Central America, South America, and South Africa. The company occupies a pivotal position within the wireless industry, offering vital infrastructure services and solutions to wireless carriers. Its services include tower leasing and management, small cell solutions, and fiber solutions. SBA Communications Corporation (NASDAQ:SBAC) reported $678.5 million in revenue for the quarter ended June 2023, representing a year-over-year increase of 4.1%.
Insider Monkey’s database of 910 hedge funds shows that 42 hedge funds had stakes in SBA Communications Corporation (NASDAQ:SBAC) as of the end of the second quarter of 2023. Of these, Ric Dillon's Diamond Hill Capital is the largest stakeholder, with 766,434 shares valued at $177.6 million.
Diamond Hill Capital Mid Cap Strategy made the following comment about SBA Communications Corporation (NASDAQ:SBAC) in its Q2 2023 investor letter:
“As markets have risen, we have been cautious about deploying cash. That said, we are still finding attractive values in the market and capitalized on attractive entry points to initiate three new positions in Q2: Ferguson, SBA Communications Corporation (NASDAQ:SBAC) and Lear Corp.
SBA Communications Corporation (NASDAQ:SBAC) joins the ranks of Equinix, Inc. (NASDAQ:EQIX), American Tower Corporation (NYSE:AMT), and Prologis, Inc. (NYSE:PLD) as one of the best real estate stocks investors should keep on their radars.
