by John Branston
In honor of our 10th anniversary this year, we take you back to our first issue — back when we were MBQ: Memphis Business Quarterly. This interview with Andy Cates by John Branston appeared in the Fall 2006 issue and touched on Cates' business at the time, Value Acquisition Fund, and his involvement with the Soulsville Foundation and the Memphis Grizzlies.
In our current issue (August/September 2016), and now known as Inside Memphis Business, Branston catches up with Cates to discuss his current venture, RVC Outdoors, as well as Soulsville, the past 10 years in Memphis business, and his plans for Mud Island. Look for that Q&A in print and right here soon. — Richard J. Alley, editor
Andy Cates exemplifies a group of young Memphis movers-and-shakers who went away to college and, after starting their careers, came home to bring fresh ideas, energy, and resources to business, music, education, pro sports, and community development.
Cates, 35, graduated from Memphis University School and the University of Texas. He decided against going to work for stellar businesses with family connections. His father, George Cates, is one of the founders of Mid-America Apartment Communities, a publicly traded real estate investment trust. Older brother Staley is president of Southeastern Asset Management Inc., a parent company of the Longleaf mutual funds. Instead, in 1993 Andy went to work for the Trammell Crow Company in Dallas, which was then recovering from a real-estate bust. “I worked as a financial analyst, so I got to see the bloodbath first hand,” he says. “Trammel Crow was very good to me but I wasn’t ever going to get equity.”
In 1998, Cates and his wife Allison, a native Texan and then an auditor for Price-Waterhouse, left the Austin city limits for Memphis. He had begun thinking seriously about an idea that had been tossed around for years in Memphis music circles: a project that would revive the name of Stax Records, the local label that produced artists such as Otis Redding and Isaac Hayes in the Sixties and Seventies before going bankrupt in 1976.
After a difficult period of acquiring real estate and convincing neighbors and skeptics that the dream was real this time, the result was Soulsville USA. The development on the site of the old Stax studio combines the Stax Museum of American Soul Music and the Stax Music Academy, a charter school created to give students added focus on music and performance studies. Combined, the museum and school employ 18 people with a budget of $3 million.
At the same time Soulsville was coming together, a group of Memphians went after the city’s first major-league sports team. The Vancouver Grizzlies moved to Memphis and, after a temporary stint in The Pyramid, into the new FedExForum. Andy and Staley Cates are among the minority owners of the team whose majority owner, for now, is Michael Heisley.
Today, Andy and Allison Cates are parents of twin 4-year-old boys. Andy, typically dressed in shirtsleeves without a coat and tie, works in a modest office overlooking the Mississippi River south of downtown. The company, Value Acquisition Fund, buys commercial property for investment and redevelopment.
On a scorching summer morning, Cates talked with MBQ about Dallas, family ties, religious experiences, Soulsville, and the Grizzlies.
MBQ: What were some of the things that went through your mind in 1998 when you were moving back to Memphis?
Andy Cates: I didn’t feel I was adding anything to the community in Dallas. I was just a cog in the machine. Most of my professional investment even today is still in Dallas. In fact, I was there yesterday. The analogy I use is that Memphis has real deep roots and the trees grow large and the root systems go far. Dallas is like most major transient cities. Beyond family, there is just more here. It becomes a cliché and every city probably says this, but I genuinely believe there really is something special about Memphis people, and I think the relationships run deeper here. Even the complex and painful history we have is part of the whole stew and the mosaic that is Memphis. Dallas wasn’t that way. I was just another guy. The other thing, bluntly, is there was a specific opportunity, which was Soulsville. It was a big mountain to climb but it was also something that was very easy to get passionate about. And I had come to the conclusion that you only want to work and do things that you’re passionate about. Anybody can go and try to make a lot of money and be miserable. I was finding myself not fulfilled and not very happy and, again, not having any impact on the community I lived in.
Did you think of going to work with your dad or with your brother?
I thought of both. With Dad, we kind of agreed, along with Staley, that that wouldn’t happen. As much as I love my dad and respect him and the culture he helped build at MAA – and I grew up in it cleaning pools and picking up trash and landscaping – there were two issues. One, selfishly it would be difficult to work in that environment and never to be able to establish my own identity. Second, I feel like it would be unfair to some of the people who had already been there. With Staley, I wish deeply that I longed to analyze 10-ks and do what they do, because they’re brilliant at it. But I have a bad disease, and it’s real estate addiction. Also, my wife Allison is from Austin, Texas. For us to live in a city where we established our own identity and have deep friendships there was something I’ll always be glad for.
Did Allison feel the same way about moving here?
She knew when she married me that that was a huge possibility long term. And, second, she likes Memphis, even though if you asked, you get to live in Austin or Memphis, she’d pick Austin. But she’s built some relationships here that are phenomenal. She was an auditor for Price-Waterhouse; now her full-time job is raising 4-year-old twins.
Soulsville in 1997 and 1998 was just an idea on paper, wasn’t it?
It was officially a nonprofit but nothing had been funded or occurred. Two donors had committed a lot of money anonymously to build the private component of the Stax Museum. The neighborhood was and still is one of the poorest in the southeastern United States. We looked at East Lake in Atlanta and used that as a model for our conclusion that a powerful asset can revitalize an entire community. This hit so many things in a positive way, from the “wet-blanket” mentality of Memphis to hitting the 50-50 racial split head on. And you took an asset that was used as an example of Memphis not getting it and instead did something positive with it.
For the first year what did you do?
Begged. Planned. As a real estate guy I assembled land, met with people, said, ‘here’s what we’re doing.’ We assembled roughly five acres for $2.50 a foot from seven owners. I was a white guy in a white Ford Explorer and a suit who looked like an FBI agent. Fortunately I had some people with the LeMoyne-Owen Community Development Corporation who helped open doors for me. I certainly don’t claim to be on with the ‘hood but that year was one of the most rewarding I’ve ever had.
Was there a tipping point where you could tell it was going to happen?
Yes. The Plough Foundation committed $3 million and the City of Memphis committed $2.5 million. And we got the original site. Basically that all happened in 2000. I genuinely believed it was going to happen, and it was eerie how it all came together. I’m very religious about it and I’m convinced it was predestined to happen. We got way too many breaks.
Six years later are you satisfied with where it is?
Yes, but perfectionism is a bad disease. It’s hit me more in the last year or two that there’s not a clean ending. I think Deanie Parker, Marc Willis, everybody who’s worked on it feels that way. But I’m very pleased that our charter school has graduated its first seventh grade class of 60 kids. There are some very positive trends in the neighborhood, but we’re far from a tipping point in the market for commercial in the low-income neighborhoods.
What have you learned here that you didn’t learn in school or working in Dallas?
I think I knew because I was raised this way, but I know it more now, that I will never in my lifetime be able to empathize with people in Soulsville. I can sympathize but I can’t empathize and tell somebody I know how they feel. Second, we deal with 500 years of history every day in this city. And we’re far better off being blunt and having painful conversations than we would be being politically correct because we’re afraid of hurting somebody’s feelings.
How much of the Grizzlies do you own and why did you decide to become a part-owner?
I own a very small percentage, single digit. The short answer is that we had to put together the local group with which I was working to get the team here, that’s the short answer. Those that I worked with had a much larger stake.
Was Mark Cuban in Dallas an influence?
No, it would be more like Peter holt and the San Antonio Spurs. I was in Dallas before Cuban got there and I still have memories of somebody giving me a ticket for a courtside seat and there wouldn’t be many people sitting there. But I did come to feel strongly that major league sports [do] matter if you’re going to claim to be a major-league city.
What involvement do part-owners have in running the team?
Glorified lobbyists. We’re ecstatic that Jerry West was brought in to make the basketball decisions. None of the minority partners make any basketball decisions. We’ve had impact with regard to community support, community issues, community investments. And I think we have the ability to be heard.
How would you say the Grizzlies have done after five years in Memphis?
I would argue that on a scale of one to ten, community impact has been a nine. As far as the arena being a successful financial model, that was far more painful than I ever thought it would be. But if someone will listen to me for 20 minutes – which is why this is a difficult political debate – those numbers make total sense. It is working. Third, on team operations, it’s been painful. The biggest financial loser in this is not the city or the area or the ticket holders. It’s the ownership.
In ballpark figures, what would advancing to the second round of the playoffs be worth?
I don’t think that I’m supposed to answer that, so I’ll just say I don’t know. But I’ll answer that another way. San Antonio has similar demographics to Memphis even though the cultures are different. I think the Spurs are our model as far as being a market with a single team. By going to the NBA Finals two of the last three years, they have probably broken even or made $5 million to $10 million a year. There’s obviously value the further you go, but, interestingly, just winning games in the first round and getting to the second round does not have as big an impact as the exponential impact of going all the way.
Do you think we will see a new majority owner of the team in 2006-7?
You know as well as I do.
Let’s get away from sports. What is Value Acquisition Fund?
(Laughing) A massive, multinational conglomerate and real estate fund with its international headquarters in the 1500-foot office that you’re sitting in. Seriously, it is a small private equity fund trying to buy real estate in an extraordinarily expensive and inflated real estate market. It’s driving me crazy. We spend most of our time raising capital now hoping there’s a correction and we can buy real estate again.
What cities are you in?
Primarily Southeast and Southwest. Dallas, Austin, Memphis, Nashville, Charlotte, Jacksonville. We looked at New Orleans. That is an opportunity because they need capital down there. That’s good for us, but nobody really knows yet what the rules are going to be. My strong belief is that the federal government should appoint a czar, somebody like Colin Powell. Then people like me would be down there in a heartbeat.
Memphis has a lot of problems and potential and a lot of people with good money. What’s the best way to bring them together?
Education is our number-one need throughout the region. Money is going to follow either passion or self-interest or religious belief or some other idealistic drive. Memphis overall is a remarkably generous city, and we have massive amounts of needs. To bring in outside money, I look at things like the Kroc Center and their work with the Salvation Army.
How do you work the political side?
Communicate, look for opportunities for private-public partnerships. Wasting time is the best way to stop good things from happening. You have to pick your battles.
Would you run for political office?
No. But I would happily work for any true servant-leader, and I think they’re out there. You can have a major impact in Memphis. We are effectively a big town. You can see the fruits of your labor here, and that includes politics. The upside of low voter turnout is that if you e-mail 100 of your friends you have a big voter bloc. You don’t have to be rich or have political capital.
What do you miss about Texas?
Tex-Mex Food. A distant second would be the extraordinary business vitality in Austin and Dallas. But in defense of Memphis, that vitality is a double-edged sword. Where Memphis is a slow grower, Memphis is the dependable turtle and Dallas and Austin are the rabbits that sometimes run themselves out.
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