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Dallas Business Journal: Mexico’s Woes Bring Business, Jobs to DFW

January 21, 2011

By Bill Hethcock

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Leo Spencer had two successful businesses in Mexico City until threats to his family drove him from his home country. As violence and corruption escalate in Mexico, the owner of El Tizoncito Taquerias in Dallas says he’s not surprised to hear that other business owners seem to be following in his footsteps.

Rising drug-cartel violence and government corruption in Mexico have sparked an increase in business expansions to Texas, bringing new companies, capital and jobs to the Dallas-Fort Worth area, lawyers and international business consultants familiar with the situation say.

Manuel Rajunov, a partner in the Dallas office of Thompson & Knight LLP, said he’s seen a sharp increase in the past year in interest in Mexican companies establishing business operations in the United States, motivated in part by the growing violence and unrest in large, traditionally industrial cities such as Monterrey. Rajunov’s practice focuses on international tax planning for U.S. and Latin America-based multinationals and business matters related to operations, expansion, mergers, acquisitions and divestitures.

“The recent situation in Mexico has accelerated the plans of companies that may have had the intent to expand into the U.S. market at some point,” Rajunov said. “They’ve decided that this is the time to act.”

Rajunov said he knows of about 30 companies in the past year that have hastened their expansion to Texas at least partly due to drug-related violence and other security concerns. Most of the businesses are establishing operations in the Dallas, Houston and the San Antonio/Austin areas, said Rajunov, who declined to identify specific clients. They include retailers, manufacturers, distributors, real estate, restaurateurs and others.

“The level of activity started occurring about 12 months ago,” Rajunov said. “It increased about nine months ago, and it got to a fever pitch about six months ago.”

Mexico has suffered a radical increase in violence over the past four years, since President Felipe Calderon launched a military crackdown on organized crime.

Drug violence left 15,273 dead in Mexico in 2010, the government reported early this month, making it the deadliest year yet. More than 34,000 people have been killed by organized crime since Calderon’s initiatives began in December 2006, and thousands more have been kidnapped, threatened or tortured, according to the government’s figures.

It’s difficult to quantify how many business owners have established operations in the United States, Texas or D-FW because of the violence. Most business people won’t publicly discuss their reasons for fear of retaliation against their families, companies or other investments back in Mexico.

Virginia Arteaga-Haid, a retired diplomat and founding partner of Dallas-based Dienst International Consulting Services, said she, too, sees more interest from Mexican companies expanding to Texas, triggered at least in part by drug violence and security concerns.

Arteaga-Haid served as trade commissioner of Mexico in Dallas before forming Dienst, a cross-border business development firm that assists investors who are expanding, consolidating or launching new business ventures in the United States or Mexico.

“In the last two years, many individuals are getting concerned about security in Mexico or in their towns, and they come here and look for opportunities,” she said.

Security isn’t the only reason Mexican companies are expanding or moving to Texas, Arteaga-Haid emphasized. Many are attracted by the growing population and purchasing power of Hispanics in the U.S. market, she said.

Spencer left behind a food distributorship and an electronics company in Mexico City in March 2007 after would-be kidnappers appeared to be targeting his family, he said. He initially worked as a concept developer for Dallas-based M Crowd Restaurant Group, before branching out on his own with a single El Tizoncito Taqueria. The restaurant now has two locations in Dallas, with a third planned to open this spring. His restaurants employ 27 people and the newest location will add 15 jobs. Spencer plans to open two more restaurants in the next two years.

Spencer left Mexico after one of his business partners received multiple kidnapping threats against his family, and another barely escaped being kidnapped outside the factory. Shortly after that, someone Spencer suspects of having ties to kidnappers photographed his daughter at school for two days in a row.

“I took my daughter out of school because I didn’t want to put her at risk,” he said, “and we decided to move on.”

Violence targeting successful business owners in Mexico has increased since he left the country, Spencer said.

“When they see you have a large factory, they think you have millions and millions of dollars, and that’s not the case,” he said. “They realized I was the major investor in a factory. They were going to come after me.”

Program trades visas for big investments that create local jobs

A 1-year-old City of Dallas program designed to attract hundreds of millions of dollars in foreign capital for job-creating projects has attracted considerable interest from wealthy Mexican investors.

The program, called the City of Dallas Regional Center, promises EB-5 visas and permanent residency status in exchange for investments of $500,000 to $1 million in projects that employ Dallas residents.

Launched in early 2010, the development tool is a partnership between the city’s Office of Economic Development, the U.S. federal government and Civitas Capital Management, the city’s private-sector partner. Civitas’ job as an independent fund manager is to match investments with investors.

The goal is to attract cash for development deals at a time when financing for those deals is tough to come by, said Civitas Chairman Jason Barnes.

“What we do is pool investors into single-purpose limited partnership vehicles that work a lot like private-equity funds,” Barnes said. “The funds in turn make (loans to) projects that meet the (program’s) economic development requirements.”

Two funds have been created so far: a $15 million fund with 30 investors, and a $10 million fund with 20 investors, Barnes said. The first is a loan for a real estate project anchored by a call center. The second is for expansion of a Dallas-based restaurant franchise.

The program is governed by federal immigration and customs laws. Among the many requirements, one is key ­— every investor’s contribution must create at least 10 permanent jobs. The investment cash is made available to developers here at below-market interest rates.

“At the end of the day, the program is about tying the expenditure of dollars to the creation of new jobs,” Barnes said.

The program allows for funds that cover 12 broad segments, including hospitality, entertainment, office, industrial and other project types. The program targets companies that will relocate from other countries, other states and other parts of Texas, as well as businesses seeking to expand in the city, Barnes said.

About 30 percent of the investors who have committed to the funds so far are from Mexico, Barnes said. The rest are from China, India, Russia and Bolivia, he said.

Barnes said the program was not crafted to take advantage of unrest in Mexico, and he does not expect to see more Mexican investment in Dallas because of escalating violence in that country.