Commercial real estate is making a comeback, and investors should be careful.
Last week, tech giant Google announced it was paying $ 2.1 billion for an office building in New York City. In fact, the deal is the most expensive single office building sale in the U.S. since the pandemic began.
What does this mean for investors?
Well, it gives the market a new reason to get acquainted with Real Estate Investment Trusts (REITs), which are publicly traded companies that own income generating real estate. On the day the purchase was reported by Google, several office REIT stocks shot up.
As companies continue to expand their office space, it could lead to increased demand for office space – an important catalyst for office REITs.
Here are three office REITs that are well positioned to capitalize on this trend. They yield up to 4.9%, which investors can pounce on with their small change alone.
Boston Properties (BXP)
First on the list is Boston Properties, the largest publicly traded developer, owner, and manager of Class A office properties in the United States
The company has a portfolio of 197 properties totaling 51.5 million square feet. BXP generates recurring rental income as its portfolio has a weighted average remaining term of 7.9 years.
Boston Properties has a strong focus on gateway regions with long-term rental growth prospects. The top three markets by net operating income are Boston (34%), New York (28%) and San Francisco (21%).
Business has been improving solidly lately.
In the second quarter of 2021, the company’s funds from operations (FFO) – a critical measure of a REIT’s operating performance – were $ 268.6 million, or $ 1.72 per diluted share. That was a sizeable increase from the $ 236.9 million, or $ 1.52 per diluted FFO share, the REIT made in the year-ago period.
With a quarterly dividend of $ 0.98 per share, Boston Properties offers an annual dividend yield of 3.5%.
Of course, Boston Properties is $ 113 per share. But you can get a portion of the REIT by using a popular stock trading app that lets you buy fractions of stocks for as much money as you want to spend.
Vornado Realty Trust (VNO)
If you’re optimistic about NYC real estate, you’ve come to the right place with Vornado Realty Trust. The portfolio of this REIT focuses on prime office and retail properties in the Big Apple.
The company’s portfolio includes 20.6 million square feet of Manhattan office space in 33 properties, 2.7 million square feet of Manhattan retail space in 65 properties, nearly 2,000 units in ten NYC residential properties.
Vornado generated adjusted FFO of $ 0.69 per share in the second quarter of 2021, down from $ 0.56 per share a year ago. The amount also exceeded the quarterly dividend payment of $ 0.53 per share.
Vornado shares trade significantly lower than their pre-pandemic levels – down more than 30% over the past two years – and offer a very generous annual return of 4.7%. If the demand for real estate in NYC continues to grow, it might be worth owning this REIT with some digital nickels and dime.
SL Green Realty Corp (SLG)
The nice thing about REITs is that they can specialize in very specific types of property. Vornado – which we just looked at – owns office, retail, and residential properties.
But what if you just want to get to know NYC office buildings?
As it turns out, there is a REIT with this particular focus: SL Green Realty.
SL Green’s portfolio consists of holdings in 77 buildings totaling 35.3 million square feet. In fact, it’s the largest office rental company in Manhattan. The company owns ownership of 27.1 million square feet of Manhattan buildings and 7.4 million square feet of debt security and preferred stock investments.
For investors who are looking for a steady passive income, SL Green is particularly attractive. Most dividend stocks follow a quarterly payout schedule. SL Green Realty, on the other hand, pays dividends monthly.
Currently, SL Green has a monthly dividend of $ 0.3033 per share, which translates to an annual return of 4.9%.
A private property opportunity
You don’t have to be a real estate mogul to invest in REITs.
If you’re on a smaller budget, you may want to use an investment app that lets you buy “stocks” of large real estate companies – especially one that doesn’t include trading fees.
If listed REITs do not offer the stability you want, there are of course more “private” ways to get involved.
For example, some popular investment services make it possible to secure a steady stream of rental income by investing in prime real estate, from commercial buildings in Los Angeles to residential apartments in Washington DC
You get exposure to high-end real estate that is typically off-limits to retail investors, and you get regular payouts in the form of quarterly dividend distributions.
This article is for information only and is not intended as advice. It is provided without any guarantee.