This article addresses two major issues with the current practice of real estate investment analysis: 1) applying finance theory without modification and 2) ignoring illiquidity in formal analysis. The authors develop a new, closedform ex ante risk metric that quantifies illiquidity risk and integrates it with real estate price risk. Such integration provides a formal and easy-to-use analytical tool for real estate pricing and enables an apples-to-apples comparison between the performances of real estate and financial assets. Using commercial real estate data, the authors demonstrate that the conventional risk measure significantly understates the true risk of real estate. Their results also reveal the relative importance of price and illiquidity risk components to the total ex ante risk.