Real estate as an asset class is a cyclical domain. Therefore, tactical prowess is required if you’re looking for long-term gains. Although subtle economic cycles might allow throughout-the-cycle returns, today’s economy is overshadowed by fierce interest rate speculation and inconsistent consumer sentiment. As such, careful analysis is required before investing in real estate stocks or real estate investment trusts (REITs).

In truth, some real estate assets can defend against economic uncertainty while concurrently providing their investors with consistent returns. However, I’m worried about a few, as their cyclical attributes are outlying.

My outlook on the real estate sector is merely one of many. However, if you’re as skeptical as I am, then here are three real estate stocks to avoid.

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Vornado Realty Trust (VNO)

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Vornado Realty Trust (NYSE:VNO) is an established REIT that primarily invests in office properties. The REIT is heavily exposed to midtown Manhattan and uses retail and residential properties as diversification vehicles.

I’m aware that numerous big companies want their workers to abandon the work-from-home concept. Nevertheless, I maintain a bearish view of the office REIT space as low occupancy paired with weak pricing power present significant headwinds.

Vornado’s first-quarter results convey my abovementioned concerns. The REIT’s office portfolio’s occupancy dipped to 89.3% from 90.7% at the end of last year. This played a substantial part in Vornado’s first-quarter earnings miss, which saw its funds from operations lag estimates by three cents per share. Moreover, Vornado suffered a first-quarter revenue miss of $11.42 million, echoing the weak pricing power within the office property space.

Lastly, Vornado’s capital market metrics aren’t well aligned. For instance, its forward price-to-funds from operations ratio of 14.29x is underwhelming.

I’m staying away from this REIT for the time being.

Fathom Holdings (FTHM)

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Fathom Holdings (NASDAQ:FTHM) is a real estate-as-a-service platform that aims to integrate brokerage, insurance, financing, and deed transfer. Although I think the firm has a solid concept, its stock seems out of sync.

Part of my pessimism stems from Fathom Holdings’ recent earnings miss. The company slumped to a $12.1 million revenue miss in its first quarter as its top line dropped 9.1% year-over-year to $70.5 million. Moreover, Fathom Holdings’ earnings-per-share missed estimates by six cents as the company’s struggle toward profitability resumed.

Furthermore, Fathom Holdings’ first-quarter results reflect a larger issue: slower deal flow within the real estate sector. Resilient mortgage rates coupled with inconsistent consumer confidence ultimately led to a 9.7% decrease in transaction volumes during the first quarter. Although a late 2024 interest rate pivot is likely, I doubt consumer sentiment will play ball. Therefore, I fear systematic headwinds will hinder Fathom’s short-term performance.

To conclude, let’s look at FTHM stock’s valuation metrics.

FTHM stock’s price-to-sales ratio of 0.09x isn’t bad. Additionally, FTHM stock’s price-to-book ratio of 0.71x shows that it likely trades at a discount to its equity value. However, I think the real economy will upend this stock.

Broadstone Net Lease (BNL)

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Broadstone Net Lease (NYSE:BNL) is a tactical opportunity; it is as simple as that.

Firstly, until recently, the REIT hosted 18 Red Lobster restaurants, which accounted for 1.6% of its base rent. However, Red Lobster recently filed for Chapter 11 bankruptcy, adding headwinds to Broadstone’s portfolio. Although Broadstone’s exposure to the Red Lobster event isn’t significant, I believe it is a qualitative event that market participants could price.

Furthermore, Broadstone released a disappointing first-quarter earnings report in the first week of May. The REIT revealed a revenue miss of $1.69 million, primarily driven by the systemic environment. Although the fund’s portfolio was 99.2% leased at the time, the Red Lobster failure and disinflation could topple the REIT’s prospects.

Broadstone recently dipped below its 10-day moving average and has a price-to-funds from operations ratio of 10.56x, which, given the systemic environment and Red Lobster Chapter 11, likely spells additional downside.

On the date of publication, Steve Booyens did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for cross-asset research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London. Furthermore, Steve obtained his CFA Charter on April 26, 2024, and is working toward his Ph.D. in Finance. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, REITs, fixed-income funds, CEFs, and ETFs.

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