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INTRODUCTION
IT IS WIDELY ACCEPTED AND KNOWN that macroeconomic cycle conditions directly affect the returns and cycle conditions of commercial real estate (Pyhrr, Roulac and Born, 1999). As macroeconomic conditions improve or deteriorate, fundamental demand for commercial real estate will react, thus affecting returns, and often, prices. As such, investors should pay attention to the current state and expected states of the economy and underlying real estate markets when acquiring or disposing of real estate assets. Our analyses show that a bottom in real estate prices and returns can occur after the bottom of the macroeconomic cycle occurs;1 as such, investors can profit by using all available economic and real estate information to make buy and sell decisions. Is there an optimal strategy to time purchases and dispositions based on changes in the real estate or macroeconomic cycle?2What is the real impact on returns by being invested during the different macroeconomic or real estate cycles? This article examines these questions by simulating the performance of a real estate investor who invests in the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index (referred to as the NPI) during various times and holds for various lengths during the past thirty years.3We run simulations using both time frames from the macroeconomic cycle and the real estate cycle.We do this for two reasons: one, comparing the results can give investors an honest perspective of how real estate performs during and after recessions, something that may have great value at present times; and two, we want to adequately show the potential benefit of actively timing the real estate market relative to a benchmark that is moving dynamically as well. In our analyses we first show that a simple buy and hold strategy produces an economically significant 8.18 percent annualized total return over the 30-year time span of 1980-2009. Second, we show that destroy returns even if the investment was made at a relatively low price. Finally, we simulate returns of various strategies based on the peaks and troughs of the real estate cycle that occur near the '91 and '01 recessions.Without need of exact timing, investors could have realized returns 200-300 basis points higher on average than with the simple buy and hold strategy. In fact, investors...