The Boston-headquartered traditional fund powerhouse has been focused on building out its broader alternatives platform for the past four years, beginning with private credit. For the firm’s first real estate fund, the thinking was to launch a targeted strategy that also took advantage of existing in-house expertise.
“[We thought] about funds that could be of interest to our investors where they may not have the opportunity to get this exposure,” Ellen Hall, head of direct real estate, told PERE exclusively. “We believe data centers in Japan ticked both those boxes.”
The fund initially targeted $275 million for a three-property, pre-identified portfolio of hyperscale data centers in Tokyo and Osaka. But the firm raised more equity than planned due design changes that allowed for greater density at one of the sites and the potential for more revenue.
More than half of the equity came from new institutional clients to Fidelity, with the remainder made up of Fidelity affiliate capital and existing family office and high-net-worth clients. Around 20 percent were non-US, Hall said. Hodes Weill served as the placement agent.
The firm declined to disclose investment return thresholds, but development funds typically target more 20 percent net IRRs with 2x equity multiples. Doing this in Japan could generate greater returns than a strategy developing data centers in the US or Europe, said Karen Korn, head of alternative product development.
The comfort in the strategy was also driven by a partnership with Colt Data Center Services, a London-based developer and operator with a significant presence in Japan. Fidelity has also entered a joint venture with Mitsui, a Japanese corporate, which is backed by capital from Toronto-based investor CPP Investments. Mitsui, along with bringing 50 percent of the equity, has helped in sourcing land for the three properties being delivered and with insuring the properties.
“Having a local partner with a long history in the region, from an execution perspective, makes life easier,” Korn said.