It’s been more than 35 years since Field of Dreams made its cinematic debut.

The now-classic movie starred Kevin Costner as a struggling corn farmer who hears a voice while walking through his fields. “If you build it, he will come,” he hears as a vision opens up before him.

He sees a baseball diamond with “Shoeless” Joe Jackson, a Major League Baseball legend – who just so happens to be from my hometown of Greeneville, South Carolina. Among other more “colorful” achievements, MLB fans know him for holding the fourth-highest batting average.

Jackson was a moneymaker in his day. And Costner’s character, Ray, recognizes he’ll be a moneymaker again… if the voice is for real.

Trusting that it is, Ray goes about creating a baseball field right there in the middle of his corn crop. And, sure enough, Shoeless Joe shows up, asking if he can bring seven of his Black Sox teammates.

Long story short, the reunited team goes on to attract crowds of paying people, thereby fulfilling the “build it” promise – and then some.

It’s that key line that keeps going through my mind this year. Though it’s not about long-gone baseball stars. Instead, it’s about commercial real estate (“CRE”) and the building boom that’s already happening in certain sectors and parts of the country.

Here are just a few recent headlines to consider in that regard:

There are also stories about significant construction in Seaside Heights, New Jersey… new hospitals going up in Charlotte, North Carolina, and various Florida cities… massive data-center projects in Georgia… and a “development boom” around Harvard that includes new apartments.

All from this month alone.

It’s more than enough to warrant a closer look at what’s going on in commercial real estate today – and what you can consider doing about it.

The Eventual Rise of Commercial Real Estate

We all know commercial real estate has been in the dumps for years. While warehouse and data-center demand shot through the proverbial roof due to the shutdowns, everything else came to a standstill.

There was no need for shopping centers. People were running away from apartment buildings, not to them. Office buildings were completely shuttered. And hospitals became no-go zones that people only went to under the direst of circumstances.

Well after the U.S. had reopened its buildings, most commercial real estate sectors stayed in recovery mode. Landlords were focused on filling already existing spaces, not creating whole new ones.

And even after that situation began to improve, high interest rates stymied construction still. So when the Federal Reserve began to lower those lending standards last September, it sparked a lot of interest in CRE circles.

Wells Fargo (WFC) analysts noted after that first 50-basis-point cut, it laid “the groundwork for a commercial real estate recovery.” Of course, the Fed has now decided to pause rates indefinitely in 2025, shifting the dynamics again… somewhat.

CRE Daily – one of my favorite real estate e-letters – noted earlier this month that:

Demand for construction and land development loans weakened slightly, while nonfarm nonresidential and multifamily financing saw mixed trends. Large banks reported stronger demand for the latter, while smaller banks saw demand decline across all CRE loan types…

Tighter lending standards signal a more cautious banking environment for CRE, especially for construction and land development. But with large banks still seeing demand in key sectors, financing opportunities remain – just with stricter terms.

This kind of situation tends to put more power in larger commercial real estate players’ hands. That only makes sense since they typically have more sustainable reputations and balance sheets to leverage when negotiating banking terms.

In which case, I have two publicly-traded companies in particular that should do especially well.

Two CRE Growth Stories I’m Interested In

Let’s start with Prologis (PLD), an industrial giant with a market cap above $112 billion. That makes it the world’s largest real estate investment trust (“REIT”).

Prologis has more than 6,500 customers, operates 1.2 billion square feet of space in 20 countries, and boasts that “3% of global GDP flows through [its] portfolio.” Plus, it has more than 40 years of experience in real estate ownership and development…

With every intention of continuing strong into this year, the rest of the decade, and beyond.

On its fourth-quarter 2024 earnings call a few weeks ago, Prologis explained how its development portfolio stood at $4.7 billion. That includes an estimated value creation of $1.1 billion, $450 million to $600 million of which” the REIT expects “to realize this year.”

Did I mention that Prologis also owns data centers? Those operate “1.4 gigawatts of secured power and 1.6 gigawatts in advanced stages of procurement.” Moreover, it hopes to expand that number to 10 gigawatts “over the next 10 years.”

As such, I do see Prologis making the most of the current “building boom” and beyond.

Another REIT I’m particularly bullish on is Simon Property Group (SPG). It owns some of the nation’s most upscale malls in some of the nicest places. And, rather like Prologis, it’s looking to expand despite already being the largest mall owner in America.

Simon’s domestic plans include spending $400 million to $500 million to revamp B-class malls this year. This will include equipping them to host new tenants such as health care providers, big-box retailers, and experiential stores like Golf Lounge.

Other sites will include office space, hotels, and apartments, all of which should add up to double-digit returns, it says.

Simon is also opening its first premium outlets in Jakarta, Indonesia, next month. And I expect that the project will serve its bottom line very well.

When you have quality REITs like Simon and Prologis willing and able to grow like this, their dividends will almost certainly follow. That’s why I’m following them as the 2025 building boom begins.

Regards,

Brad Thomas
Editor, Wide Moat Daily

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Do you agree with Brad that there will be a rise in commercial real estate soon? Write us at [email protected].