Who’s Who Legal interviews Steve Waters, general counsel of USAA Real Estate Company and former real estate private practitioner. He discusses the requirements and changing nature of his role.
Position: General Counsel
Company: USAA Real Estate Company
Sector: Real Estate
Value of assets in portfolio: $12 billion under management
Founded in 1982, USAA Real Estate Company (RealCo) is the real estate investment arm of USAA (United Services Automobile Association), a financial services group created in 1922 by 25 army officers who offered to insure each other’s vehicles when no one else would. RealCo has enjoyed substantial growth in the past 30 years and has a portfolio of over $12 billion in assets under management.
RealCo is active in acquisitions, dispositions and investment management offering comingled and separate accounts for investors. The company’s portfolio includes office, medical office, industrial, multi-family, retail and hotel properties in addition to investments in real estate operating companies.
Real estate has been one of the worst-hit industries during the current economic crisis, and surviving in this challenging environment requires a great deal of strategy and discipline. RealCo has maintained its competitive edge by selling off many of its assets prior to the crash, forging strong relationships with institutional clients and maintaining ready access to capital. As chief legal officer, Steve Waters explains, this “makes [RealCo] a nimble, worthy competitor for deals in the marketplace”.
Steve Waters joined RealCo in October 2011 from Haynes and Boones LLP, where he had worked for over 36 years. A former Who’s Who Legal nominee praised for his “first-rate” real estate practice, Waters brings a vast amount of knowledge and experience to the company, where he hopes to find new challenges.
Who’s Who Legal spoke to Waters about his decision to move in-house, his new role and how he is tackling the current challenges facing the real estate industry.
Tell us about your role.
After more than 36 years with Haynes and Boone LLP (it’s had the same name since it was formed in 1970), I made the move to become general counsel of USAA Real Estate Company, the real estate subsidiary of USAA, one of the country’s largest insurance and financial services companies. I manage the law department and am part of the senior management team. My responsibilities include all legal and compliance-related matters for the company, its nine subsidiaries and 100-plus affiliated entities. I manage negotiation and documentation of acquisition and disposition transactions, development and financing transactions, co-investment structuring and property management and leasing for all of the company’s portfolio. Furthermore, I provide legal advice to management in the home office in San Antonio, Texas, and our five regional offices.
What led you to make the move in-house?
Well, I was certainly not “looking”, and always believed that I would finish my career at H&B. But when RealCo’s GC retired, I was approached by the CEO and asked if I would consider taking the position. I knew RealCo and many of its people from having worked with them as outside counsel for quite a few years, which made the move conceivable. Still,
it took a few weeks for me to see myself not at H&B; but, when I got over that hump, it was easy to see that this was an exceptional company and a special opportunity for me. I have several good years left in me, and I’m grateful to spend them in this new challenge, helping to make a great company even better.
How big is the legal department? And how much work is done in-house?
For the amount of legal work done for RealCo in an average year, we are “lean and mean” indeed, with four lawyers (including me), two legal assistants and two administrative assistants. Last year was an especially busy one (I only got in on the last 10 weeks of the fun), with about $4 billion in loans or transactions. With only eight of us, in all categories, we cannot get everything done without considerable outside help; but, we have very experienced in-house folks who do get quite a bit done here.
When do you enlist the advice of external lawyers?
We turn to outside counsel when that is best for the company. Examples include: the matter is in another jurisdiction that requires local counsel expertise or relationships; the nature of the matter requires different subject-matter expertise, or more capacity, than we have in-house; or, engaging quality outside counsel to work with us seems the best path in some situations where other parties to the transaction have good outside counsel.
What skills and qualities do you require in an external lawyer?
I had the chance recently to comment on this at a large, international law firm’s local office “GC Forum” luncheon, and shared that we are looking for: great (including responsive) service; subject-matter expertise and high-quality work product and advice; and cost-effective representation. In a mixture of metaphors (quoting my former partner), I told them, “It’s not rocket surgery.” If the matter requires someone who has been around the block a few times, then you want a “trusted business adviser” who knows us and our business and the relevant issues, and gives solid, practical advice. The highest compliment for outside counsel, and the most satisfying contribution to make to a client, is to be sought for your advice and judgement on something very important to the client.
What special projects has your team been involved in recently? Which law firms did you use?
One particularly important matter for us was the strategic investment earlier this year in Square Mile Capital Management, a New York-based real estate investment manager specialising in distressed debt and opportunistic equity. Our deal counsel was Bracewell & Giuliani LLP (NY office) and fund counsel was Goodwin Procter LLP (Boston and NY offices). And in a recent matter involving acquisition of ownership of three San Francisco office buildings, we used my old firm, Haynes and Boone LLP (Dallas and San Antonio offices).
Do you tend to work with the same firms?
Well, when we have a winner, we ride it home. Sure, if we have a good, long-standing relationship with lawyers at a firm, and they consistently do what I related above, then we will reward them with return business. This does not mean that we are static, or that we don’t add firms to the mix from time-to-time.
Are legal costs a greater concern in the current financial climate? How do you control or monitor fees?
I prefer to talk about “value.” We want and insist on value. Price and cost are rarely the same thing – you can hire someone at a good price, and then later pay a dear cost because they were not the right lawyer or firm for the matter. But, yes, we work hard to manage our business and the use of outside professionals, especially including lawyers, to hold down our cost. Our in-house people expect to work hard – as they should – and where we can handle matters in-house without (or in concert with) outside help, we will do so.
How has the economic downturn affected the company? Has the company changed its focus at all? How has it adapted?
Few industries have been as directly and materially affected by the economic downturn as real estate, and no one is immune. However (and, please remember, my perspective is from having been here since October 2011), RealCo is very disciplined, including in determining when to sell assets, and sold much of its then portfolio before the crash (cap rates were low/prices high, and it was time to sell). So, when the crash came, we were well positioned to selectively and thoughtfully continue our business while others spent their time dealing with distress, CMBS special servicers and other painful situations. And our association with USAA and the relationship with our many institutional clients, and the ready access to capital it gives us, makes us a nimble, worthy competitor for deals in the marketplace, and helps us collaborate with quality developers in building what the market needs, as evidenced by our current activity in the industrial and multi-family sectors.
Which areas of real estate investment are showing growth and potential?
On the development front, and in the right markets/submarkets, we like industrial and multi-family development. Also, we made strategic office purchases in Chicago (the venerable Chicago Board of Trade), Houston, and San Francisco. And grocery-anchored shopping centres in the right markets and at the right price have been good investments for us and our co-investors; but we remain active in all property classes in most primary and secondary markets across the country.
What do you consider to be the biggest challenge – practical, legal or political – in real estate law today?
Whether you talk about particular geographic areas – such as Europe and struggling banks in Spain and Italy – or something much broader, I think you have to put overall, economic conditions/forces at or near the top of the list. Globalisation, and technology, have tied everything together, and you just cannot insulate your business from widespread problems. Our discipline will serve us well and, relatively, we should do fine; but, there are many things completely beyond our control that can challenge us. We’ll be ready.