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

  • Sebastian SchnejdarEmail author
  • Michael Heinrich
  • René-Ojas Woltering
  • Steffen Sebastian


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.


Open-end real estate funds Liquidity transformation Discount to NAV Liquidity crisis Uncertainty Spillover effects 

JEL Classification

G230 L85 G33 



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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.IREBS International Real Estate Business SchoolUniversity of RegensburgRegensburgGermany
  2. 2.Ecole Hôtelière de Lausanne, HES-SOUniversity of Applied Sciences Western SwitzerlandLausanneSwitzerland

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