German Open-end Real Estate Funds Research Articles

Costs and Benefits of Changed Real Estate Valuation Requirements for German Open-End Real Estate Funds

Costs and Benefits of Changed Real Estate Valuation Requirements for German Open-End Real Estate Funds

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

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 fund’s 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.

German Open Ended Real Estate Fund Performance – The Impact of Liquidity

Summary/Zusammenfassung German Open Ended Real Estate Fund Performance – The Impact of Liquidity The liquidity crisis in the German Open-Ended Real Estate Funds (GOEREFs) industry was characterized by large outflows of money in several funds. Large and ongoing redemptions of fund shares held by both institutional and private / retail investors led to suspensions of redemptions, termination of funds and, ultimately, a new law. This study provides the most comprehensive overview of how the funds performed and how pronounced the differences between classes of funds in the €80bn+ industry are. Using not only the net asset values of the funds as reported by the fund management companies, but the prices obtained at the secondary market when redemptions are suspended, indexes are constructed in order to provide a clear view of the performance of GOEREFs when the most relevant prices are used – those that may be achieved directly, rather than using book values. In this sense, the indexes provide a liquidity-corre...

The liquidity crisis of German open-end real estate funds and their impact on optimal asset allocation in retirement

In course of the recent turmoil in the financial markets, several open-end real estate funds froze redemption of their units, resulting in unanticipated and unprecedented liquidity and performance shocks for investors. Against this background, we analyze the long- and short-term risk and return profiles of open-end real estate funds and their role in efficient multi-asset retirement portfolios. To this end, we introduce the Retirement Efficient Frontier, describing those investment strategies that minimize the lifetime probability of ruin for specific levels of periodic withdrawals from a given retirement wealth. We find that for low to moderate periodic withdrawals, efficient portfolios consist of up to 85% real estate fund investments in case fund units are continuously redeemable. Moreover we show that even if there is a monthly probability of 2.5% that redemption of fund units is temporarily suspended, the allocation into real estate funds in risk-efficient portfolios is only slightly affected. Yet, if funds additionally face a high risk of having to depreciate their property portfolio during a liquidity crisis, their share in efficient retirement portfolios is reduced significantly.

Rating of the German Open-Ended Real Estate Funds: an Analysis and Perspectives

The paper targets to analyse and to show perspectives for the rating of German open-ended real estate funds. Germany counts 20 open-ended real estate funds, which enjoy a high popularity as an investment opportunity, such as stocks and pension funds. By the end of 2001 the amount of new equity summed up to 6.8 billion euro and was double as high to the year before. In total the invested capital denoted 62.1 billion euro. The regulatory frame work for these investments is set by the German Kapitalanlagegesetz (KAGG) and requires a high standard of transparency. Through the regulatory changes the German real estate lobby forced towards a better performance transparency. Since 1959 until March 2001 there was no activity seen to suffice the markets calling, so that the German Bundesverband Deutscher Investment- und Vermogensverwaltungs-Gesellschaften e.V. (BVI) assigned the rating agency Moody's Investor Service (Moody's) to develop a rating for all German open ended real estate funds, which in the following step should find its appliance. Here with the BVI hopes to achieve a higher level of transparency and comparability between the single funds. The new rating scheme should be able to cover the quality of the funds' management, the investment portfolio and the performance.

The Development of German Open-Ended Real Estate Funds

In Germany, open-ended real estate funds have faced the highest cash inflows in their history turning them into a major player on the German market. At the same time, on the regulatory side, the “Fourth Financial Markets Promotion Act” significantly increased the possibilities for German funds to invest internationally. This paper examines the history, construction and characteristics of German open-ended real estate funds. They are compared to other forms of indirect real estate investment and the most important improvements brought about by the Fourth Financial Markets Promotion Act are described. Fund managers in the future will increase the percentage of their portfolios invested abroad, increasing the importance of German open-ended real estate funds.