The role of real estate in a mixed-asset portfolio is investigated when the maximum drawdown (hereafter MaxDD), rather than the standard deviation, is used as the measure of risk. In particular, it is analysed whether the discrepancy between the optimal allocation to real estate and the actual allocation by institutional investors is less when a Return/MaxDD framework is used. The empirical analysis is conducted from the perspective of a Swiss investor using international data for the period 1979-2002. It is shown that most portfolios optimized in Return/MaxDD space, rather than in Return/Standard Deviation space, yield a much lower MaxDD, while usually only a slightly higher standard deviation (for the same level of return). Also, the reported weights for real estate are much more in line with the actual weights to real estate by institutional investors. © 2004 Taylor and Francis Ltd.