5 Best Real Estate Stocks

Digital Realty (DLR)

The best way to cash in on the growth of cloud storage through a real estate lens. DLR, simply put, is a storage center for the digital age. They invest in data centers which support the internet. I love this stock because it provides an opportunity to invest in data centers and cloud storage, without having to enter the fickle and risky market of tech stocks. DLR is traded like the real estate stock that it is, with consistent and reliable cash flow. Demand for data centers has consistently grown for the last few decades, with no signs of slowing down; think about the presence of the internet 10-20 years ago versus today, then think about where we will be in 10 more years. Over time, more and more products will be connected to the internet, increasing the demand for data centers, this isn’t a trend which will slow down anytime soon. 

Healthcare Trust of America (HTA)

Medical care is one of the most underserved industries in the country. HTA is a REIT which owns medical office buildings across the country. HTA is attractive long term for two reasons, more than 95% of all their properties are on hospital campuses, making them the highest demand of all medical office buildings. There is also a long term growth trajectory of the medical industry. Even with more tele-health options sprouting up due to the pandemic, most medical care will always take place in an office. Currently there is only a small portion of the medical demand which is being served. Over the next 10+ years, more and more specialty care will be created and served by new doctors, as well as the growing number of nurse practitioners, physician assistants and other medical professionals which will facilitate growth.  Nobody in the world wants less access to medicine, the growth of services will require increased office space and position HTA for long term success. . 

Invitation Homes (INVH)

Single family homes are the hottest asset class in the world. The entire world decided at the same time that they wanted a bigger home, creating the biggest housing shortage in modern history. Single family REITS such as Invitation Homes were ready for this demand and have a head start on the rest of the industry. The current demand for housing has shown no signs of slowing. What makes today different from the housing bubble, is two factors; increased lending regulation and systemic change in the demand for housing. The last housing bubble wasn’t caused by housing, it was caused by lenders giving loans to home buyers who shouldn’t have qualified for them. As a result, prices were artificially inflated quickly, even though there was no real increase in demand for housing. This time is different due to the fundamental change in people's need for space. Regardless of where you are on the housing spectrum, a single 25 year old renting an apartment with 3 room-mates, or a wealthy 60 year old with a 5,000 square foot estate, at some point in the last year you wanted more space. The 25 year old decided they needed a quiet place to work at home and left the roommates for their own apartments. The young couple bought their first house. The family upgraded from the starter home. The 60 year old couple bought a vacation home. Everyone in the housing chain decided to step up at the same time. It will take years for the housing construction to catch up, the trend of people wanting more space isn’t changing, but construction is slow and will take years to rebalance making single family homes strong investment for years to come. 

Prologis (PLD)

Do you enjoy walking around Walmart looking for laundry detergent? Neither does anyone else. More shopping will continue to be done online, moving the store space to a warehouse. This is a long term shift that was in place before the pandemic, accelerated and won’t reverse anytime soon. Prologis is also the best operator. Their portfolio includes the highest quality assets and tenants. They also have attracted the best team of talent relative to other REITS. Their size and position in the market allows them to create operational efficiencies as well as set the market for rent growth in many cases. 

Costar (CSGP)

Unlike the others, Costar is not a REIT, but a technology platform and the largest database of commercial real estate  information. They have a monopoly as the only commercial MLS is the United States, with efforts to expand throughout Europe and Canada. They are able to charge a premium for their subscriptions and leave brokers no real option to operate without them. This also creates a network effect in which the more market share they have, the more they dominate, the more people are reliant upon them.  Because of their monopoly and ability to scale as a digital service, as well as the network effect, they will continue to grow in value and market strength.