January 23, 2023
To say 2022 was a challenging year for advisors and their clients would be an understatement. The...
You know better than most how challenging it can be to build and sustain investment portfolios for your income-oriented clients. A volatile rate environment, persistent inflation, and a host of global geopolitical instabilities all create a degree of market uncertainty that can readily disrupt a well-designed income portfolio.
At times like this, when market dynamics can shift rapidly, the concept of "income durability" becomes paramount. Income durability is about more than just current yield. It's about creating a reliable and resilient income stream that compliments your client’s fixed-income allocations to help weather fluctuating market conditions. This concept of income durability is becoming more prevalent in light of the income and valuation risks associated with rapidly rising or falling rates.
In the last few years, the fixed-income market has faced significant challenges. Rapidly rising interest rates have helped provide improved yields for investors that also helped erode the value of many existing bond holdings. Subsequently, when the Fed gets control of inflation and rates begin to fall, income shortfalls may again become an issue for conservative investors who rely heavily on traditional fixed-income investments for income.
For clients, especially those approaching or in retirement, having a diversified set of income sources is essential. In this context, private real estate strategies that focus on income generation more than capital appreciation can become a key component of a well-rounded income strategy. In the parlance of the private real estate industry, these are called “core” strategies.
Recent market dynamics have underscored the importance of diversifying income streams. Having a mix of investments that respond differently to various economic conditions can help balance income in a portfolio.
Private real estate investments, particularly those focusing on generating steady rental income, can contribute to that end. Private real estate investments, with a focus on income durability, offer several potential benefits:
Monthly tenant rent payments can provide consistent cash flow, helping to make commercial properties a reliable source of income for investors.
Private real estate funds are generally sponsored with professional property management teams in place, allowing investors to enjoy a passive income stream without the day-to-day hassles of managing properties.
Private real estate investments can come with meaningful tax benefits for investors. For instance, depreciation can significantly enhance after-tax income, which is especially valuable for clients looking to maximize the after-tax income from their investments.
Tenant leases are generally written with rent escalation clauses that allow property managers to raise rents to keep up with inflation. This can help assure investors that even during periods of high inflation, their distributions from rental income should keep up with rising costs.
Within the spectrum of private real estate investment strategies, Core is the preferred choice for income-oriented investors. Here's why:
Core investments primarily consist of high-quality, stable properties in prime locations with longer-term tenant leases. These properties have historically provided consistent income generation, even when other assets may be more impacted by economic or market conditions.
Core properties often attract credit-worthy tenants, reducing the risk of income disruption due to tenant defaults. For clients seeking dependable income, this is a significant advantage.
Core real estate assets are typically managed by professionals who ensure occupancy rates remain high and that properties are well maintained so that income generation remains as stable as possible and rent rates don’t decline.
The National Council of Real Estate Investment Fiduciaries (NCREIF) offers an insightful measure of the income-generating potential of Core real estate through its NFI-ODCE (NCREIF Fund Index - Open End Diversified Core Equity) Index. For nearly 40 years, the NFI-ODCE Index has served as the industry benchmark for institutional investors that allocate to private real estate.
As you know, you can’t invest directly in an index, but Investors looking to tap into the income potential of Core real estate can consider the Accordant ODCE Index Fund. This fund seeks to replicate the NFI-ODCE Index's performance.
With its low tracking error to the Index, the Accordant ODCE Index Fund allows you to offer your clients access to a broadly diversified portfolio of institutional quality properties in gateway cities, managed by many of the premier investment management firms in the industry. And as an interval fund, it provides daily pricing, liquidity through quarterly redemption windows, and full transparency to the underlying investment properties.
Income durability is an increasingly vital concept in today's world, especially as our population ages and more boomers enter retirement. The risks associated with volatile rate environments highlight the importance of having multiple sources of income in client portfolios, including private real estate income.
Diversifying income sources, with a particular focus on private real estate investments, can significantly enhance the resilience of an investment portfolio. By understanding the advantages of private real estate in terms of steady cash flow, potential for passive income, tax benefits, and its effectiveness as an inflation hedge, you can guide your clients with portfolios that prioritize income reliability over portfolio growth. For a closer look at the Accordant ODCE Index Fund, visit us here.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Accordant ODCE Index Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained online by visiting www.accordantinvestments.com. The prospectus should be read carefully before investing.
Accordant Investments LLC (“Accordant”) is an SEC registered investment adviser. This presentation does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or any other product or service managed by Accordant.
The Accordant ODCE Index Fund (the "Fund") currently offers Class A Shares, Class I Shares and Class Y Shares which will all be continuously offered at the Fund’s net asset value (“NAV”) per share, plus, in the case of Class A Shares, a maximum sales load of up to 5.75%, from which a dealer-manager fee of up to 0.75% of offering proceeds may also be paid. Holders of Class A Shares, Class I Shares, and Class Y Shares have equal rights and privileges with each other, except that Class I Shares and Class Y Shares do not pay a sales load or dealer manager fees. See “Ongoing Distribution and Servicing Fees” and “Summary of Fund Expenses” for information on servicing and distribution fees in the Prospectus. Class I Shares and Class Y Shares are each not subject to a sales load; however, investors could be required to pay brokerage commissions on purchases and sales of Class I or Class Y Shares to their selling agents. Inception date of the I Shares is September 11, 2023 . Class A Shares is November 1, 2023.
The Fund was previously registered as the IDR Core Property Index Fund, Ltd. (the “Predecessor Fund”). The Fund’s investment adviser is Accordant Investments LLC (“Adviser”) and Fund’s sub-advised by IDR Investment Management LLC (“Sub-Adviser”). The Predecessor Fund was a quarterly valued closed-end tender offer fund only available to accredited investors. Pursuant to a proxy filed with SEC and a special shareholder meeting that occurred on August 31, 2023, the Predecessor Fund converted into the Fund which is a daily valued registered closed-end interval fund (“Conversion”). The Predecessor Fund previously charged a management fee of 40 bps while the Fund now charges 60 bps. Fund performance shown in this presentation is net of fees and for performance prior to September 11, 2023, reflects a 40 bps management fee and for performance on and after September 11, 2023, reflects a 60 bps management fee. The performance shown reflects a continuation of performance from the Predecessor Fund to the Fund. While the Fund has a different investment adviser than the Predecessor Fund, the Fund’s portfolio management is substantially similar to the Predecessor Fund. The Conversion was a non-taxable event for existing shareholders.
Past Performance is No Guarantee of Future Results.
Investing in the Fund involves risks, including the risk that you may receive little or no return on your investment or that you may lose part or all of your investment. The Fund’s investment objective is to employ an indexing investment approach that seeks to track the NCREIF Fund Index – Open End Diversified Core Equity (the “NFI-ODCE Index”) on a net-of-fee basis while minimizing tracking error. There can be no assurance that the actual allocations will be effective in achieving the Fund’s investment objective or delivering positive returns. It is not possible to invest in an index. You cannot invest directly in an index and unmanaged indices do not reflect fees, expenses, or sales charges.
The ability of the Fund to achieve its investment objective depends, in part, on the ability of the Adviser to allocate effectively the Fund’s assets across the various asset classes in which it invests and to select investments in each such asset class. There can be no assurance that the actual allocations will be effective in achieving the Fund’s investment objective or delivering positive returns. Limited liquidity is provided to shareholders only through the Fund’s quarterly repurchase offers for no less than 5% of the Fund’s shares outstanding at net asset value. There is no guarantee that shareholders will be able to sell all of the shares they desire in a quarterly repurchase offer. The first repurchase offer following the Conversion is expected to occur in February 2024.
An investment in shares represents an indirect investment in the securities owned by the Fund. The value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. The Fund is “non-diversified” under the Investment Company Act of 1940, and therefore may invest more than 5% of its total assets in the securities of one or more issuers. As such, changes in the financial condition or market value of a single issuer may cause a greater fluctuation in the Fund’s net asset value than in a “diversified” fund. The Fund is not intended to be a complete investment program.
The Fund is subject to the risk that geopolitical and other similar events will disrupt the economy on a national or global level. For instance, war, terrorism, market manipulation, government defaults, government shutdowns, political changes or diplomatic developments, public health emergencies (such as the spread of infectious diseases, pandemics, and epidemics), and natural/environmental disasters can all negatively impact the securities markets.
The Fund will concentrate its investments in real estate industry securities. The value of the Fund’s shares will be affected by factors affecting the value of real estate and the earnings of companies engaged in the real estate industry. These factors include, among others: (i) changes in general economic and market conditions; (ii) changes in the value of real estate properties; (iii) risks related to local economic conditions, overbuilding, and increased competition; (iv) increases in property taxes and operating expenses; (v) changes in zoning laws; (vi) casualty and condemnation losses; (vii) variations in rental income, neighborhood values, or the appeal of property to tenants; (viii) the availability of financing; (ix) climate change; and (x) changes in interest rates. Many real estate companies utilize leverage, which increases investment risk and could adversely affect a company’s operations and market value in periods of rising interest rates. The value of securities of companies in the real estate industry may go through cycles of relative under-performance and over-performance in comparison to equity securities markets in general.
A significant portion of the Fund’s underlying investments are in private real estate investment funds managed by institutional investment managers that comprise the NFI-ODCE Index (“Eligible Component Funds”). Investments in Eligible Component Funds may pose specific risks, including: such investments require the Fund to bear a pro rata share of the vehicles’ expenses, including management and performance fees; the Adviser and Sub-Adviser will have no control over investment decisions may by such vehicle; such vehicle may utilize financial leverage; such investments have limited liquidity; the valuation of such investment as of a specific date may vary from the actual sale price that may be obtained if such investment were sold to a third party.
Additional risks related to an investment in the Fund are set forth in the “Risk Factors” section of the prospectus, which include, but are not limited to the following: convertible securities risk, correlation risk, credit risk, fixed income risk, leverage risk, and risk of competition between underlying funds.
Investors should consult with their selling agents about the sales load and any additional fees or charges their selling agents might impose on each class of shares.
The Accordant ODCE Index Fund is distributed by ALPS Distributors, Inc (ALPS). Accordant Investments LLC is not affiliated with ALPS.
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