Open-End Real Estate Funds:Danger or Diamond?

German open end real estate funds are internationally the only exceptionwhich have been for almost 50 years very successful. Since 2004, the whole sectorsuffers a crisis which is very close, if not already identical, to a bank run.Both phenomenon seek an explanation. The ongoing crisis let to the discussionhow the current design of German real estate funds needs to be modified. Inthe beginning of 2006, several reform proposals were lanced, trying to slow downthe number of unitholders asking for redemption. However, some reform proposalsbear the intention to transform them towards closed end constructions andthereby diminish, in our opinion without need, the advantages of open end funds.We try to contribute to the reform discussion, first, by showing that open endstructures may represent a stable solution like banks, and second, by examiningthe effect of the introduction of a secondary market. Furthermore, we show thatthe open end construction delivers a monitoring function with respect to the fundmanagers.[...]