The German Open-End Fund Crisis – A Valuation Problem?

Weistroffer, Christian; Sebastian, Steffen P.

doi:10.1007/s11146-014-9485-9

Cited by 22 publications

(17 citation statements)

References 24 publications

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“…Wurtzebach et al (1991) find that high office vacancy rates (or low tenancy rates) are associated with decreasing commercial real estate returns in the U.S.. In addition Weistroffer and Sebastian (2015) also use the vacancy rate as a measure of portfolio quality in their study about the accuracy of German open-end real estate fund's real estate asset valuation. Accordingly, higher tenancy rates may be perceived as a signal of the quality of a fund's property portfolio, as well as more stable cash flows and property values.…”

Section: Portfolio Qualitymentioning

confidence: 99%

“…This, however, comes at the cost of increased liquidity risk. The discrepancy between the daily liquidity of fund shares and the illiquidity of the underlying direct property investments is referred to as "bank run" risk (Bannier et al, 2008;Weistroffer and Sebastian, 2015). To maintain the "buy-back" guarantee, open-end real estate funds tend to hold high cash reserves.…”

Section: Introductionmentioning

confidence: 99%

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The Discount to NAV of Distressed Open-End Real Estate Funds

Schnejdar

Heinrich

Woltering

et al. 2019

J Real Estate Finan Econ

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This paper examines the discount to NAV in the context of distressed German open-end real estate funds. This is a unique setting to study NAV discounts because distressed real estate funds are forced to sell off their property portfolios and pay out the proceeds to investors. In contrast, the discount to NAV of closed-end funds or REITs can theoretically persist forever. This enables us to study how investors price the risks associated with the forced liquidation of direct-property portfolios. Our hand-collected dataset covers the complete crisis and post-crisis period from October 2008 through June 2016. Using panel regression methods, we find that the discount to NAV is driven by fundamental risk because it is positively correlated with a funds leverage ratio and it decreases with the share of liquid assets. We also provide evidence that the discount is related to conflicts of interest between investors and fund management. Besides these fund-specific factors, we find that NAV discounts are driven by spillover effects from the announcement of other funds' liquidations, as well as by investor sentiment, which is proxied by the aggregate level of capital flows into the industry and by the degree of macroeconomic uncertainty.

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Section: Portfolio Qualitymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Discount to NAV of Distressed Open-End Real Estate Funds

Schnejdar

Heinrich

Woltering

et al. 2019

J Real Estate Finan Econ

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“…The present paper contributes to the literature on OREFs, studying how the restriction of the regular issue and redemption process impacts secondary market activities for OREF shares. Trading of OREF shares on secondary markets has thus far been neglected in the literature (Maurer et al 2004;Focke 2006;Bannier et al 2008;Fecht and Wedow 2014;Weistroffer and Sebastian 2015). For example, Bannier et al (2008) state that secondary "markets are not very liquid and the trading of shares on these exchanges will typically be suspended in crisis situations" (Bannier et al 2008, p. 9).…”

Section: Introductionmentioning

confidence: 99%

“…To reduce the risk of a liquidity crisis, the authors suggest higher liquidity buffers and a separation of share classes for institutional and retail investors. Weistroffer and Sebastian (2015) provide empirical evidence that the real estate assets held by OREFs were likely to have been overvalued prior to the crisis. The authors conclude that their results support the view that the crisis was a fundamentally justified run.…”

Section: Introductionmentioning

confidence: 99%

The Growing Importance of Secondary Market Activities for Open-end Real Estate Fund Shares in Germany

Gerlach

Maurer

2020

Schmalenbach Bus Rev

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Shares of open-end real estate funds are typically traded directly between the investor and the fund management company. However, we provide empirical evidence for the growth of secondary market activities, i.e., the trading of shares on stock exchanges. We find high trading levels in situations where the fund management company suspends the issue or redemption of shares. Shares trade at a discount when the fund management company suspends the redemption, whereas shares trade at a premium when the fund management company suspends the issue. We also find evidence that secondary market trading activity is increasing since German regulation introduced a minimum holding period and a mandatory notice period for openend real estate funds.

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“…Investors were able to redeem their shares daily to the investment company whereas the share price was determined by the Net Asset Value (NAV) of the real estate assets. The liquidity transformation between the very illiquid direct real estate assets and the daily liquidity of the shares is a key advantage, but exhibits a potential "bank run" risk (Weistroffer & Sebastian (2015), Bannier et al (2007), Sebastian & Tyrell (2006) and Sebastian (2003)). …”

Section: Introductionmentioning

confidence: 99%

The Discount to NAV of distressed German open-ended real estate funds

Schnejdar¹,

Heinrich²,

Woltering³

et al. 2017

24th Annual European Real Estate Society Conference

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The German open-ended real estate fund industry was strongly hit by massive outflows in the course of the global financial crisis. In total, 18 public and institutional real estate funds had to stop the redemption of shares and were ultimately forced to liquidate their portfolios. Investors of these funds either have to await the stepwise liquidation of the funds' assets, which can take up to several years, or they can opt to sell their shares on the secondary market, often at a substantial discount to the Net Asset Value (NAV Spread). This paper attempts to explain the NAV Spread of distressed German public open-ended real estate funds. The unique monthly dataset contains fund specifics and macroeconomic indicators for the entire relevant period. Fundamentals like the leverage ratio and the liquidity ratio as well as industry-wide spillover effects from fund closures affect the NAV Spread. Moreover, we detect a considerably influence of macroeconomic uncertainty explaining the discount to NAV.

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The German Open-End Fund Crisis – A Valuation Problem?

Cited by 22 publications

References 24 publications

The Discount to NAV of Distressed Open-End Real Estate Funds

The Discount to NAV of Distressed Open-End Real Estate Funds

The Growing Importance of Secondary Market Activities for Open-end Real Estate Fund Shares in Germany

The Discount to NAV of distressed German open-ended real estate funds

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