The ups and downs of real estate stocks tend to have a close relation to the ups and downs of interest rates. Real estate prices and demand grew by double-digit percentages in 2020 and 2021 as the pandemic led to lowered rates. In turn, real estate stocks with direct exposure to this fast-growing industry soared. But the Federal Reserve raising the Prime Lending Rate in early 2022 to help combat outsized inflation immediately put pressure on real estate stocks (as well as most of the stock market).

Traders react swiftly to bad news, and sometimes they overreact. Three stocks that have taken an especially tough beating are Innovative Industrial Properties (IIPR 0.56%), Construction Partners (ROAD 1.29%), and Gladstone Land (LAND -0.01%). All three stocks are trading down 23% or more over the past year. Short-term traders punished these real estate stocks, making for a potentially great opportunity to buy for long-term investors.

Here's a closer look at each company and why three Motley Fool contributors believe they are fantastic buys for growth in the coming years.

This beaten-down cannabis stock still has a lot of growth left in it

Liz Brumer-Smith (Innovative Industrial Properties): Innovative is a cannabis-focused REIT that uses a special sale/leaseback structure to acquire industrial properties, then lease them back to licensed medical marijuana operators through long-term net leases. These operators have trouble obtaining capital through traditional means because of concerns about the unclear federal legality of the cannabis they produce.

The cannabis industry's difficulty in obtaining traditional financing helped send Innovative's business soaring; the REIT consistently achieves strong year-over-year growth. This, in turn, helped grow its share price by 1,300% from 2016 to late 2021.

But 2022 was exceptionally challenging for the stock. On top of general market volatility, Innovative faced its first major default by one of its top 10 tenants -- and a class action lawsuit alleging a lack of transparency in Innovative's business model and performance. These absolutely crushed its share price, pushing it down 55% this year.

Cannabis regulations continue to restrict operators' access to capital, so a company like Innovative still has a lot of room to grow as it meets the market demand for capital and financing. This was abundantly clear in its last earnings: Revenue was up 32% year over year.

Stronger-than-expected third-quarter earnings helped the stock rebound slightly, but it's still trading near its lowest levels in three years. Today's beaten-up price, however, is to investors' advantage. The stock's dividend yield, at 5.6%, is nearly quadruple that of the S&P 500. Plus, the REIT currently trades for around 22 times its funds from operations (FFO), a metric similar to the price-to-earnings ratio that provides a more useful metric of a REIT's performance. Shares last year were trading at multiples 30 to 35 times FFO, making today's pricing a steal of a deal.

Take the road to gains

Mike Price (Construction Partners): The ups and downs of the real estate industry are very closely tied to the economy as a whole and to interest rates. It's why many saw record revenue and earnings in 2020 and 2021 and also why several saw a 50% drop in business once interest rates started going up in 2022. If unemployment goes up, people don't have money to make mortgage payments. If interest rates go up, mortgage payments get too high.

Because the industry is somewhat predictable this way, it's pretty clear why the majority of REIT stocks and other real estate stocks got crushed in 2022. Traders anticipated a slowdown and sold off their holdings. Construction Partners was one of the REITs that took a hit, saw its stock tumble from an all-time high of $45 in November 2021 $38 to a recent low of $18.89 per share when interest rates were hiked (a 58% drop). The stock has partially recovered since, but it is still down 36% from its high.

What's unusual here is that Construction Partners' business is mostly immune to the normal macroeconomic forces that affect the industry. Construction Partners is an infrastructure company. It focuses on short- and medium-term road projects. This type of construction will almost always be necessary -- no matter what's going on with the economy in general.

Construction Partners is also partially immune to the supply chain problems that are affecting the industry because it's vertically integrated. The company mines for its own materials, operates the plants to turn them into asphalt, owns the asphalt terminal, and then manages the projects (using subcontractors to do more specialized work when necessary).

The company grows mostly through acquisition. It made 35 acquisitions over several years to roll up a fragmented industry in the six states where it operates. This has led to rapid growth in revenue, from $680 million in 2018 to $1.3 billion in 2022. The company is likely to keep expanding, whether or not the broader real estate industry is doing well.

This REIT offers a taste of farmland profits to stockholders

Kristi Waterworth (Gladstone Land): If you're looking for a stock that can take a licking and keep on ticking, Gladstone Land is definitely one to bet on for the long term. The stock is currently down nearly 50% from its high in April, largely over concerns about how rising interest rates might affect its tenants' operations as well as the long-term debt the REIT carries. But little about the business model for Gladstone Land has changed despite the dip in the share price. If anything, the company has accelerated its plans to expand its operations even further.

Gladstone Land is a farmland REIT that owns and leases farmland to different kinds of producers. As of the end of Q3 2022, it owned 169 farms totaling 115,288 acres across the country, with the largest holdings in California, Florida, and Michigan. The farms the company leases produce over 60 types of crops, including short-term crops like annual berries and vegetables, and longer-term crops like almonds, blueberries, grapes, and pistachios. This kind of diversification helps to spread the risk, should a particular crop not perform well in a specific year. The focus on longer-term crops also helps to ensure that tenants will renew their leases, since things like almond trees can't simply be dug up and moved elsewhere so a farmer can start a new farm on another piece of land. The REIT reports a 100% occupancy rate on its properties.

The strength of this simple business model can't be overstated, and despite current market conditions, continues to show its strength. For Q3, operating revenue increased from $19.59 million in 2021 to $24.21 million in 2022, a 23.58% gain year over year. Net income followed, with a 20% increase from Q3 2021 to Q3 2022.

The growth is making its way to the bottom line and its monthly dividends ($0.0458 per share for December) continue to grow as well. The dividend pays out $0.5496 per share annually and currently yields 2.67%.