Everyone loves a good origin story, right? Hollywood well knows this. Think of all those movie scripts that have been built around what the young superhero-to-be was like, growing up as a wee lad or lassie, and the forces and events that shaped them into our last hope, the go-to protagonist when the chips are down and the villains are on the brink of global domination.
Well, this is Part I of a three-part origin story, only it’s not about some heavily muscled fellow clad in brightly colored tights with a cape hanging from his shoulders.
It’s about, my employer, a registered investment adviser known as Accordant Investments LLC.
Like many an origin story, it begins with a signal event from the distant past—a meeting that took place in a San Antonio, Texas hotel, in 1922.
That meeting brought twenty-five US Army officers together to try to work out a solution to a common problem – how to get insurance coverage for their “horseless carriages.” By dint of their backgrounds and profession, they had been rejected as too risky for coverage by all the insurance companies then writing such policies.
Being intrepid souls one and all, they hatched a plan to start their own insurance company, the better to offer coverage to, and indeed to be owned by, those like themselves—officers of the United States armed forces. Since they didn’t intend to restrict their addressable market to the Army, they christened their new company “United Services Automobile Association,” known better today, thanks to national ad buys that you have no doubt seen, by its acronym, USAA.
Out of that shared resolve and the built-in demand for their product offering—Warren Buffet is said to have once remarked that USAA would never had existed if GEICO had done its job right—grew a diversified financial services firm that today looks after the insurance, banking, and other financial needs of some 14 million members.
Thus it came to pass that, in 1982, having built over the course of six decades an investment portfolio that cried out for diversification away from stocks and bonds, USAA formed its own captive private real estate investment adviser, predictably named “USAA Real Estate Co.” “Realco,” as it was known internally, dutifully began advising USAA on making real estate investments and, predictably enough, making all kinds of rookie mistakes.
Buy that huge empty tract of rattlesnake-infested land with the abandoned stone quarry on it northwest of San Antonio and develop an amusement park there – mostly because the USAA CEO really wants to?
Sure! Why not?
That and other such misadventures obliged USAA in Realco’s early years to fork over the very steep tuition demanded by the University of Just Exactly What NOT To Do In Real Estate Investing.
By the end of the 1990s, however, Realco had begun to hit its stride, making much smarter real estate investments and, in doing so, aggressively leaning into a little understood and even less well-regarded sector, known by real estate practitioners as “industrial” but which most laypeople would simply call “warehouses.”
Now, in those days, I was at Hines, and we Hines guys would have nothing to do with industrial. We viewed it as sort of beneath us, you see. We were office guys, don’t ya know, and we took pride in developing such monumental edifices as the Lipstick Building at 53rd and Third in New York City, designed by Phillip Johnson (based on an architectural concept that was originally meant for Rockefeller Center before John D. Rockefeller Jr. came to his senses), and Columbia Square in Washington, D. C., designed by I. M. Pei.
By contrast, warehouses are just big, nondescript, climate-controlled boxes built on converted cornfields and pastureland out in fly-over country, just barely escaping “eyesore” status. There are no I. M. Pei designed warehouses, no warehouses with Doric columns or Chippendale pediments, a la the Sony Building in New York City.
But here’s the thing.
Those beautiful, architecturally exquisite office buildings that Hines and Tishman Speyer and others like them develop in the great cities of the world?
Sometimes they make money, sometimes they lose money, sometimes they just break even. There are reasons why this is so, which I will illustrate in a future post.
But those big old ugly warehouses that sprawl at the intersections of two stretches of interstate in, say, central PA, with their truck docks and surface parking?
All those damn things know how to do is make money.
By the time I got to Realco in 2013 as its newly minted Chief Financial Officer, fresh from nearly three years working for a Middle Eastern sovereign wealth fund, Realco had figured out how to make money in industrial development like few other firms had. It was a relatively low risk, relatively high return business, and this is just what Realco wanted for USAA’s members, many of whom were just making ends meet, and quite a few of whom were, ahem, quite heavily armed and would not have taken kindly to someone being reckless with their premium payments.
That approach to real estate investing—that is to say, one that is every bit as concerned about the capital that could be lost if the investment goes pear-shaped, as it is about the piles of money that could be made if it achieves or exceeds pro forma— is as hard wired into the people of USAA Real Estate Co. today as it was when I joined them over ten years ago. It’s why they’ve been so very good at what they do, year in and year out.
(I should mention that Realco did not by any means restrict itself to warehouse development. We also developed high-end apartment and office projects, redeveloped malls that other investors had given up on, started a real estate credit business, and extended our investment activities into Western Europe. But it was in industrial development that we always felt like we were the private real estate equivalent of the muscle-bound guy in the colorful cape and tights.)
I was thrilled to join Realco for a lot of reasons, but in no small part because I felt a deep sense of personal gratitude to our military for having kept us safe in the years since September 11, 2001, and so I jumped at the chance to show my thanks to them in some tangible way. (If you’re interested in learning more about why I felt that way, see this video.)
I also took great pride in being part of a culture, the core values of which were service, loyalty, honesty, and integrity. Needless to say, these are not the core values of your typical Wall Street hedge fund or private equity shop and, having been in the real estate business for nearly half a century, I can promise you that they are not universally shared by the people who make their living within that sector either.
By coincidence, the year I joined Realco, 2013, was also the year in which USAA became subject to supervision by the Federal Reserve, because USAA’s wholly-owned subsidiaries included a federal savings bank. Dodd-Frank, the law passed by Congress in the wake of the Global Financial Crisis, extended the Fed’s oversight remit to such banks.
Since Realco was a wholly owned USAA subsidiary, that meant that we, too, fell into the Fed’s clutches. Over the course of the rest of the 2010s, this state of affairs proved to be profoundly untenable for any number of reasons, the details of which need not detain us here. Suffice it to say that, in order to relieve Realco of a compliance burden that was threatening to strangle the life out of our business, the decision was taken in 2018 to find a strategic partner to acquire enough of Realco’s equity (at least 80.1%) to break USAA’s control of Realco for regulatory purposes, thus freeing us from the Fed’s tender mercies.
That transaction in fact occurred in April, 2020, and a few years later USAA Real Estate Co. was renamed Affinius Capital.
So, what has all this to do with Accordant?
Shortly after its April 2020 spin-out from USAA, Realco started incubating a new business unit called “USAA Real Estate Private Wealth.”
It was that business unit that, once it was divested by Realco to become a standalone business, would become what is known today as Accordant Investments. The particulars of how that came about are important and I will get to those in a future post, but before doing so I want to tell y’all about another development that became critical to the future formation of Accordant, and that was the partnership Realco formed in 2017 with IDR Investment Management, which ultimately led to the launch of what today is known as the Accordant ODCE Index Fund (ODCEX).
Accordant Investments LLC (“Accordant”) is an SEC registered investment adviser. For more information about our services and disclosures, please visit our website at www.accordantinvestments.com.
This article reflects the personal views and experiences of the author and is provided for informational purposes only and does not constitute an offer to sell, or a solicitation of an offer to buy, any product or service offered by Accordant Investments or its affiliates.
Investing in the Accordant ODCE Index Fund (“ODCEX”) involves risk, including loss of principal. 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. For differences between the Class I Shares, Class A Shares, and Class Y Shares, please see the prospectus of the Fund. The Accordant ODCE Index Fund is distributed by ALPS Distributors, Inc (ALPS). Accordant Investments LLC is not aIiliated with ALPS.
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