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Open End Real Estate Funds - Diamonds Or Danger?

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  • Steffen Sebastian
  • Marcel Tyrell

Abstract

Open end funds for private investors offer in general daily redemption of outstanding shares. A high liquidity of shares is in sharp contrast to the illiquidity of real estate. Therefore, the typical construction for real estate funds which are designed for a broader public is closed ended. Attempts to establish open end funds have regularly let to crises comparable to bank runs, e.g. the RODAMCO case in the Netherlands, or the actual crisis of German open end funds. Liquidity transformation as a typical function of banks also bears inevitably to the danger of bank runs. Therefore we offer a framework based on the recent works in bank theory of Diamond/Dybvig 1983, Allen/Gale1998, and Diamond/Rajan 2001 which examine whether open end funds can represent a stable investment design for real estate. Furthermore we show that the open end construction delivers a monitoring function with respect to the fund managers. Full paper available at www.real-estate-finance.de.

Suggested Citation

  • Steffen Sebastian & Marcel Tyrell, 2006. "Open End Real Estate Funds - Diamonds Or Danger?," ERES eres2006_301, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2006_301
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2006-301
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    Citations

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    Cited by:

    1. Sebastian Schnejdar & Michael Heinrich & René-Ojas Woltering & Steffen Sebastian, 2017. "The Discount to NAV of distressed German open-ended real estate funds," ERES eres2017_160, European Real Estate Society (ERES).
    2. Philipp Gerlach & Raimond Maurer, 2020. "The Growing Importance of Secondary Market Activities for Open-end Real Estate Fund Shares in Germany," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 72(1), pages 65-106, February.
    3. Christian Weistroffer & Steffen Sebastian, 2015. "The German Open-End Fund Crisis – A Valuation Problem?," The Journal of Real Estate Finance and Economics, Springer, vol. 50(4), pages 517-548, May.
    4. repec:zbw:rwirep:0454 is not listed on IDEAS
    5. Thomas L. Hogan & William J. Luther, 2016. "The Implicit Costs of Government Deposit Insurance," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 31(Summer 20), pages 1-13.
    6. Michael Stein, 2013. "German Real Estate Funds – Changes in Return Distributions and Portfolio Favourability," Ruhr Economic Papers 0454, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    7. Stein, Michael, 2013. "German Real Estate Funds – Changes in Return Distributions and Portfolio Favourability," Ruhr Economic Papers 454, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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