What Foreign Companies Should Know Before Opening in the US
February 2, 2018 | By George Pino
From demographics to understanding the permitting and planning processes of each city, there is much to consider when foreign companies look to expand into America.
We’ve all heard it before… “The American Dream” and “America the Land of Opportunity.” We have heard it so often that it has all but become a cliché; however, it would seem the entire world has heard the saying and in many ways have taken it up as a call to action. Over the last decade, we have seen an unprecedented amount of foreign investment into the United States, not just in dollars, but in companies looking to expand into different markets. For many foreign companies, the US has become their “emerging market.”
Although the recipe for the American Dream is easier than in most other countries around the world, it still does require hard work, persistence, and a little luck. For foreign companies and concepts looking to expand into America must also keep in mind other pitfalls, especially when it comes to commercial real estate and leasing.
First and foremost is the securitization of the lease. Many times a newly formed US-based subsidiary looking to lease commercial property may not have independent financials, credit history, or significant assets in the US. This may lead to some landlords requesting guarantees from the foreign parent. Although this sounds like a pretty easy and straight forward solution many landlords will not accept a foreign entity to securitize a commercial lease as they are concerned about the collectability of any such guarantee. So, what is a foreign entity to do if they’ve found the perfect space for the growth of their business, but the landlord does not want to accept the guarantee? Our recommendation would be to consider alternative securitization means.
The easiest method to overcome this is to offer a larger security deposit, in some cases up to a year’s worth of rent. If you are considering this, make sure that you also negotiate that part of the security deposit will “burn off” every year until it becomes a typical security deposit amount. After all, the longer you are in the space, the less risk for the landlord. The main downside of course is that this may cut into your working capital and borrowing capabilities. There are other alternatives to consider though.
One alternative, if the company is cash heavy, is to have a letter of credit issued by their bank. With this type of lease securitization the tenant/company can still have limited access to their funds (they are kept at the bank that issues the letter of credit) and can still make safe, straight forward investments with the funds. If the tenant defaults on the lease, then the landlord can call the letter of credit due, and the amount of the letter of credit will be delivered to the landlord by the issuing bank. Be aware though, a savvy landlord will only accept a letter of credit from a US bank, or one that has substantial operations in the US.
Most important, is to find and work with one commercial real estate broker that is familiar with securing leases for foreign entities and can provide insight into the commercial real estate landscape, from demographics and key areas your services may be needed, to introducing you to other professionals on their team that can help guide you through the permitting/planning processes of each city, and also advising on whether a particular property even allows for the use you are considering. All in all, America is the land of opportunity and a place where dreams come true every day, but if you are new to the country, it’s always wise to have professional advisors helping you attain those dreams.
Article originally appeared on GlobeSt.com