It is getting harder to know what to do as an investor.
Most asset classes appear very expensive.
The stock market has ripped higher over the past year, and it is now trading at all-time highs and near historically high valuation metrics.
Meanwhile, interest rates are still near all-time lows, which means fixed income investments continue to offer pathetic cash flow streams.
Even residential real estate prices have jumped, seeing the fastest year-over-year price increases in more than 30 years.
So where can investors find an undervalued investment opportunity?
According to one of the most experienced players in the game, the clear answer is commercial real estate.
Brookfield Asset Management‘s (NYSE: BAM) widely respected CEO, Bruce Flatt, recently appeared on a panel discussion where he described the commercial real estate market as a “generational buying opportunity.”
It makes sense…
Warren Buffett is the greatest investor of all time, and his famous “secret” to getting rich is to “be fearful when others are greedy and greedy when others are fearful.”
And currently, fear abounds in commercial real estate.
With office buildings sitting mostly empty due to the pandemic, and with talk of many workers never returning to them, commercial real estate prices have tanked.
This is especially true in major cities, where prices have fallen by 20% to 40% on many commercial properties.
But experienced commercial real estate investors, like Flatt and Rob Speyer of Tishman Speyer Properties, have been spending billions during this downturn.
These titans have a long-term view of the commercial real estate world that has it eventually reverting to something close to what it was before COVID-19.
And it doesn’t have to happen overnight for them to make a killing…
My Favorite Way to Play a Commercial Real Estate Bounce
I noticed that, in the first quarter, Third Point’s Daniel Loeb snapped up $452 million worth of shares in CoStar Group (Nasdaq: CSGP), the world’s leader in commercial real estate information.
That means we can add another big name to the list of powerful investors getting long commercial real estate.
When Loeb buys a new stock, I pay attention.
Since founding his Third Point hedge fund back in 1996, he has generated an annualized return of more than 15% for his investors.
That is after deducting the fees he charges.
And now he is buying one of the best-performing stocks of the past two decades.
Just look at that stock chart!
As you might expect from that mouthwatering 9,000% rise, CoStar Group is a high-quality growth company.
The company makes money by selling access to data and providing software solutions and advertising.
If you are in the commercial real estate game, you are almost certainly a CoStar customer.
Loeb refers to CoStar’s business as the “Bloomberg” of commercial real estate.
And now CoStar is adding a second growth driver…
It is creating a marketplace where commercial properties can be bought and sold online.
Currently, only 2% of commercial real estate transactions take place online.
That means CoStar is targeting the other 98% of transactions in a $1 trillion market!
With these two growth platforms, Loeb sees CoStar as able to grow earnings at a rate in excess of 20% in years to come.
That makes CoStar one of the great growth companies that you can buy and hold for the really long term.
A recovery in commercial real estate will just add another tailwind.