The Puzzle of NAV Discounts in European Real Estate Investment Vehicles: Evidence and Explanations

The persistence of net asset value (NAV) discounts in European real estate investment vehicles (REIVs) remains one of the most enduring anomalies in financial and real estate research. While NAV represents the theoretical benchmark of underlying asset values, market valuations frequently diverge, producing persistent discounts that challenge conventional asset pricing frameworks. This study develops an integrated conceptual and empirical framework to examine the financial, institutional, and behavioral drivers of NAV discounts. Firm-level determinants, including leverage, liquidity, and profitability, are evaluated alongside governance quality, ESG transparency, and disclosure practices as key modulators of valuation outcomes. Furthermore, market sentiment, investor disagreement, and cyclical macroeconomic conditions are incorporated as amplifiers of discount dynamics. Using a panel regression approach across major European markets, the analysis highlights that higher leverage widens discounts, whereas stronger liquidity and profitability compress them. Robust governance structures and credible ESG disclosure are found to mitigate agency and appraisal risk, narrowing the divergence from NAV. The findings suggest that NAV discounts are not anomalies but outcomes of multi-layered interactions between financial fundamentals and institutional frameworks. This study contributes to advancing theory by offering a coherent explanation of the NAV discount puzzle, while also providing practical insights for investors, managers, and policymakers seeking to improve valuation efficiency and market transparency in European real estate. Keywords NAV discounts, European REITs, listed property companies, leverage, liquidity, profitability, corporate governance, ESG transparency, investor sentiment, market efficiency, real estate finance, valuation anomalies