Open End Real Estate Funds - Diamond or Danger?

36 Pages Posted: 30 Mar 2006

See all articles by Steffen P. Sebastian

Steffen P. Sebastian

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

Marcel Tyrell

University of Frankfurt

Date Written: March 22, 2006

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/Gale (1998), 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.

Keywords: Liquidity Crises, Open-End Real-Estate Funds, Monitoring

JEL Classification: D52, E44, E52, E58, G21

Suggested Citation

Sebastian, Steffen P. and Tyrell, Marcel, Open End Real Estate Funds - Diamond or Danger? (March 22, 2006). Available at SSRN: https://ssrn.com/abstract=893121 or http://dx.doi.org/10.2139/ssrn.893121

Steffen P. Sebastian (Contact Author)

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

Marcel Tyrell

University of Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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