markets. I document an average price premium of 10.5 percent for apartment replacement

exchanges, 28.3 percent for office replacement exchanges, and 26.1 percent for retail

replacement exchanges. The results demonstrate that many investors pay a price premium

in exchanges that is significantly larger than the expected tax benefit of the exchange,

especially if they have a short-term investment horizon. Based on the comparison with

the simulation model results and observed significance in the majority of the studied

markets, it is clear that replacement exchanges are associated with price premiums that

are of statistical and economic significance.

 The observed percentage price effects of replacement exchanges, combined with

the predictions from the theoretical model have important implications for decision

making regarding 1031 exchanges and suggest that participants in tax-delayed exchanges

that have a short-term investment horizon need to be careful, since the value they pay in

the form of a higher replacement property price may offset, in part or in whole, the gain

from the deferment of taxes.

 Third, the analysis of the price effect associated with purchases by out-of-state

buyers suggests that significant price premiums are often paid by out-of-state buyers.

These premiums differ substantially across residential and non-residential properties, as

well as across geographic markets. On average, the price premium paid by out-of-state

buyers is 16.7 percent in apartment markets, 23.5 percent in office markets and 28.3

percent in retail markets.

 Fourth, I study the effect that sale-leaseback transactions have on price. I find that

the coefficient on the variable, indicating a sale-leaseback is generally positive and

significant in the markets of potential interest. Sale-leasebacks are associated with a 28.3