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Empire State Building

3 Commercial Real Estate Stocks to Buy in March

Mar 03, 2021 by Matt Frankel, CFP
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Real estate didn't have a great year in 2020. Due to the pandemic's disruptive effects on the ability and willingness of people to travel, go to the office, go shopping, or generally go anywhere, the real estate sector significantly lagged behind the S&P 500 as the COVID-19 pandemic swept across the United States.

On the other hand, commercial real estate could stand to benefit tremendously from the gradual end to the pandemic that is (hopefully) coming in 2021. And here are three real estate stocks in particular that could be big long-term winners for investors who get in now.

This retail real estate stock could be a big winner

Tanger Factory Outlet Centers (NYSE: SKT) is a retail real estate investment trust, or REIT, and its business was severely impacted by the COVID-19 pandemic. Not only were virtually all of its tenants shut down at the onset of the pandemic, but several of the company's top tenants ended up going bankrupt in 2020, leading to increased vacancies.

However, Tanger has also shown its resiliency. The company has been profitable again since the third quarter and recently felt comfortable reinstating dividends. In January, customer traffic at Tanger's properties was virtually unchanged from comparable pre-pandemic times. And with nearly $700 million in liquidity and a recently approved $250 million stock sale program it can use whenever it wants, Tanger has the financial flexibility to pursue any attractive growth opportunities that arise.

This company could become the leader in commercial real estate finance

Unlike the other two stocks on this list, Walker & Dunlop (NYSE: WD) has been a stellar performer throughout the pandemic, producing a total return of 49% for investors over the past year. And there's a good reason for the strong performance. Despite the pandemic's disruption, Walker & Dunlop was able to handily surpass the ambitious 2020 goals it had set for itself five years ago.

Well, in its year-end earnings report, Walker & Dunlop set some fresh goals for 2025, and if it achieves them, the recent rally could be just the beginning. Management sees the company becoming the number-one multifamily originator, adding about $60 billion in loans to its servicing portfolio and establishing a leading real estate investment banking operation from scratch. CEO Willy Walker has done a fantastic job of aggressive but responsible growth, and there's no reason to think it won't continue.

In-person work and NYC tourism coming back would be a big win

New York City was especially hard hit by the COVID-19 pandemic, and the density of the city's population created a need for especially restrictive shutdowns and limitations. Even now, most people aren't working in their offices, and tourism in the city is virtually nonexistent. Both have been terrible news for Empire State Realty Trust (NYSE: ESRT), owner of the iconic Empire State Building and other office buildings in the NYC area.

There's a lingering fear that the remote work trend will become permanent, but to put it mildly, I don't buy it. Studies have shown that the vast majority of people want to work in person at least some of the time, and some companies have recently confirmed they want their employees back in the office as soon as possible. (Goldman Sachs (NYSE: GS) is a prominent example.)

In addition, Empire State also operates the observatory on top of its flagship property, which has been a popular tourist attraction for decades. Observatory visits are less than 10% of pre-pandemic levels, but this could change quickly as the pandemic fades. Plus, the company has $1.7 billion in liquidity and recently hired a chief investment officer for the first time ever, sending a clear message that it sees opportunity to grow.

The Millionacres bottom line

While I think all three of these companies could have an excellent year in 2021, that doesn't imply that I think their stock prices will go straight up. The stock market is likely to remain rather volatile as the pandemic winds down and the true economic effects are seen, and REITs are generally best suited for long-term investment strategies. Pent-up demand could give these REITs some exciting times ahead, and investors could be handsomely rewarded for adding them to their portfolio now.

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Matthew Frankel, CFP owns shares of Empire State Realty Trust, Goldman Sachs, Tanger Factory Outlet Centers, and Walker & Dunlop. The Motley Fool owns shares of and recommends Walker & Dunlop. The Motley Fool recommends Empire State Realty Trust and Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.