Modern portfolio theory (MPT) is a single-period model developed for the efficient securities market, in which asset prices are implicitly assumed to follow a random walk. It is widely agreed that real estate does not fit into the efficient market paradigm; however, mixed-asset portfolio analysis continues to rely on MPT. In this paper, we propose an alternative model that extends the MPT to accommodate multi-period utility maximization, as well as the unique characteristics of real estate such as liquidity risk, horizon-dependence of real estate returns, and high transaction costs. The model is easily implemented. Using real world data, it demonstrates the optimal allocation to real estate in the mixed-asset portfolio is quite in line with the reality of institutional portfolios.