Abstract
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 open-end real estate funds.
Highlights
Open-end real estate funds (OREFs) are collective investment undertakings managed by fund management companies that raise capital from a large number of investorsSchmalenbach Bus Rev (2020) 72:65–106 in order to form a diversified portfolio of income-generating properties
There is an extensive literature on the characteristics of OREFs and the liquidity crisis
The present paper provides a detailed analysis on the secondary market activities for OREF shares
Summary
Open-end real estate funds (OREFs) are collective investment undertakings managed by fund management companies that raise capital from a large number of investorsSchmalenbach Bus Rev (2020) 72:65–106 in order to form a diversified portfolio of income-generating properties. Open-end real estate funds (OREFs) are collective investment undertakings managed by fund management companies that raise capital from a large number of investors. Fund management companies issue and redeem shares upon request, typically on a daily basis. The fund management company determines the net asset value per share, at which all issue and redemption requests are executed. The net asset value per share is calculated by dividing the total net asset value of the fund by the total number of shares outstanding, whereby the property values are based on appraisals by independent experts. When purchasing OREF shares from the fund management company, investors pay a front-end load of typically 5% and, in some cases, a back-end load when redeeming their shares
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