US NEWS: Semper fidelis

Two-and-a-half years after announcing its intention to spin off on its own, the private equity real estate arm of Fidelity Investments is finally ready to do so. At the end of June, the soon-to-be-former Fidelity Real Estate Investment Group will become an independent real estate investment firm named Long Wharf Real Estate Partners.

Initially seeking to spin out in the fall of 2008, the management of Fidelity Real Estate received approval from its parent group Pyramis Global Advisors, a division of Fidelity, but was slowed by a thicket of required consents due to the technical change in the management of its existing fund series.  With all parties now signed off, the re-christened firm—named after the wharf in Boston Harbor that the firm overlooks from its offices—finally can begin to look forward.

Despite being on the verge of forging a new identity, several things at Long Wharf will remain the same. First, the newly independent firm will remain headquartered in Boston. Second, its current management team—led by executive managing director Michael Elizondo, who has run the division since 1995—will remain on-board to run the new entity. Jeff Gandel, Jeff Tapley and John Barrie also will continue to serve as managing directors.

“In many ways, it’s not really a drastic change,” said Elizondo. “The team is staying the same, and the clients are staying the same. So while this is a large change, a lot is remaining as is.” He added that this sense of continuity gave Long Wharf’s LPs and lenders comfort.

However, the process of getting everyone comfortable took longer than expected. In fact, Gandel admitted that the protracted process was the result of needing to gain consent from third-party lenders and hotel franchisors for numerous investments made by Fidelity Real Estate’s existing funds. “It’s an inherently slow process,” he said. “There are a lot of loans where we needed to address this issue.”

With all parties now on board, Long Wharf can now focus on its business plan, which includes continuing to have a working relationship with its former parent. Indeed, the new firm will act as subadvisor to Fidelity on its two existing funds—Fidelity Real Estate Growth Fund 2, a $625 million opportunity fund that closed in 2004 and finished investing in 2007, and Fidelity Real Estate Growth Fund 3, an $875 million opportunity fund that closed in 2008 and is almost 70 percent invested. Fidelity will continue to own and control these funds, although it will manage no new property investments going forward.

The other part of Long Wharf’s business plan is to forge its own path. According to a source familiar with the firm, that means plans to raise capital for a new fund in the second half of the year.

Long Wharf declined to comment on any potential fundraising effort, other than to say it will continue to be interested in diversified value-added funds and will continue to be active in the office, multifamily, retail, hotel, industrial and student and senior housing sectors in the US. “We’re focused on buying assets in markets where we think the fundamentals are recovering, and we’re looking to generate an above-market level of return on an unlevered basis with those assets,” Elizondo said.