Zoukis argues the case for closed-end funds.

Speaking at a recent panel sponsored jointly by REBNY and the International Federation of Real Estate, former Jamestown head, Steve Zoukis, declared that the open-end real estate fund model in Germany is dead.

The $109 billion sector has been rocked by scandal in recent months after a run to cash out of a Deutsche Bank fund and two KanAm funds forced all three to be frozen--a nearly unprecedented event in the history of the German open-end fund business.

In a later conversation with REW, Zoukis said that industry likely would be supplanted by the introduction of German REITs, called G-REITs, which have been long stalled because of Germany's hesitancy to approve its tax sheltering features. "The Germans are in a bit of denial I think because they expect the open-end funds will get pasted back together and survive," Zoukis said.

"I don't. I think that the day the Germans adopt a real REIT structure and put them on the real live market for trading is closer at hand than it was six months ago.

"Six months ago people were pretty indifferent about it. Nobody in Germany wants to reduce taxes by creating another tax-free vehicle and therefore there was no urge. I think there's an urge to do it now."

Zoukis argued that the open-end fund model is inherently ill suited for real estate investments, whose returns typically can be realized only after a hold period of at least a few years. Open-end funds typically permit investors to liquidate their investment at any time and consequently are required by regulation to keep at least 5% of their net value on hand to service exiting investors. In the case of the Deutsche Bank and KanAm runs, so many shareholders flocked to cash out at once, the funds were on the brink of insolvency and were forced to freeze the funds.

Zoukis, who rose to prominence in the real estate industry as a principal at closed end fund, Jamestown, praised the closed end fund model over REITs and open-end funds as a better vehicle for real estate investment because its illiquid nature allows mangers the proper time frame to reap profits from the fund's assets.

"If the REIT structure really works, what does it do to the closed end funds?" Zoukis asked. "Do you really need both things? My answer is that I think that the closed end fund model is a better model than REITs and open-end funds in a lot of ways. Because it has a beginning, a middle, and an end. You buy the asset, you manage the asset, and then you sell the asset. With a big portfolio, whether you call it a REIT or an open-end fund or whatever you call it, there's no beginning middle and end."

Zoukis left Jamestown amicably at the start of 2006 to pursue other real estate investments.