Transaction Prices of German Closed-End Real Estate Funds in the Secondary Market and Their Influencing Factors

Abstract This study is the first to assess and contribute to a better understanding of the factors affecting the prices of closed-end real estate funds (CEREFs) in Germany’s secondary market. The dataset is based on 16,718 observations of realized transaction prices from 412 different German CEREFs; the factors comprise macroeconomic, fund, property, and liquidity variables. We regress macroeconomic factors on benchmark variables, such as listed real estate assets and the stock market, to observe whether German CEREFs react differently from the overall economic state from a portfolio diversification perspective. The benchmark variables are homogeneously driven by stock market excess return, DAX volatility index (VDAX) growth, and, to a certain extent, the bond rate, while CEREFs are mainly affected by the unemployment rate and economic activity. Fund and property age have a significant impact on CEREFs. Additionally, they have optimal levels at which their respective impacts start to reverse. Initial fund leverage and rising liquidity in the secondary market also have a significant impact. However, the observed effects vary across the types of real estate held by CEREFs, and investors must consider this in their pricing policies. Finally, this study presents a comprehensive overview of the German secondary market environment for CEREFs and examines their development.