"We already have about $275 million of projects under contract for the fund," says Stephen Perlmutter, president of Heitman International and a member of the fund's board. "We are working on two office projects in Warsaw and Prague that will cost a total of $160 million with financing. Golub Europe is developing the buildings, which will have a total of between 200,000-sf and 300,000-sf of space."

Chris Merrill, Heitman's EVP based in London, says the fund will be about 60% to 80% invested in existing Central European properties, which Heitman believes will offer superior returns relative to Western Europe. "The returns are about 300 basis points to 400 basis higher and we believe this is more than the relative risk profile of these countries warrants. We expect annual cash returns in the neighborhood of 11% for the fund." Mr. Perlmutter points out that all the countries that the fund has targeted for investment will soon become full members of the European Community and all have shown a strong commitment to continued implementation of market reforms.

"We did in depth studies of countries like Spain before they became full EC members," says Perlmutter. "Their property values all showed strong growth in the years leading up to and just after full membership. We expect the same phenomenon to occur in Central Europe." Mr. Perlmutter gives as an example Vienna and Budapest; two markets that are closely linked and where cap rates are around 6% and 9% respectively. The fund expects these two rates to converge over the next three to five years, resulting in strong capital gains for Budapest properties.