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

Posted: 9 Apr 2015

See all articles by Christian Weistroffer

Christian Weistroffer

European Central Bank (ECB)

Steffen P. Sebastian

University of Regensburg - International Real Estate Business School (IREBS)

Date Written: April 7, 2015

Abstract

Using a unique dataset of appraised values and transaction prices, this paper investigates whether systematic over-appraisals could have been at the heart of the 2005/2006 German open-end fund crisis. Because sold properties are valued more closely to market values than unsold properties, we develop a hedonic pricing model that controls for sample selectivity. The resulting estimates of prices achievable in the market are then compared to appraised values. Our results show that the properties held by open-end real estate funds were likely to have been overvalues prior to the crisis. This supports the view that a fundamentally justified run was at the heart of the 2005/2006 crisis, and it challenges the effectiveness of current valuation practices.

Keywords: Appraisal-based valuation, Transaction-based valuation, Hedonic pricing, Commercial real estate, Open-end real estate funds

JEL Classification: G11, G14, G24

Suggested Citation

Weistroffer, Christian and Sebastian, Steffen P., The German Open-End Fund Crisis - A Valuation Problem? (April 7, 2015). Journal of Real Estate Finance and Economics, Vol. 50, No. 4, 2015. Available at SSRN: https://ssrn.com/abstract=2591508

Christian Weistroffer (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Steffen P. Sebastian

University of Regensburg - International Real Estate Business School (IREBS) ( email )

Universitaetsstrasse 31
Regenburg, Bavaria 93040
Germany
+49(941)943-5081 (Phone)
+49(941)943-5082 (Fax)

HOME PAGE: http://www.irebs.de

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