REIA 240 Josh Ziegelbaum:Investing in Coffee with the Director of Investor Relations at Legacy Group

Welcome to Real Estate Investing Abundance, the show for busy, fulfilled professionals like you to learn how to develop financial independence built on solid passive real estate investments. Now here is your host, Dr. Allen Lomax.

Hello, enlightened investors. Thank you for being with us again today. I am thrilled to be with you. As we take a look at an alternative investment in coffee with the Director of Investor Relations at Legacy Group. Josh Siegelbaum is the Director of Investor Relations, and he is responsible for managing investor communications, onboarding individual and commercial clients, as well as overall support of the company's Initiatives. Josh, take us into the show and share an experience that has helped you to be who you are today.

Allen, thanks for having me on the show. Pleasure to be here. An experience that brought me here today. I look back to a memory that I had when I was working at Wells Fargo Bank earlier on in my career, and I was a relationship manager for high net worth individuals. And at the time, to me, it seemed so Interesting how all these people have parallels, right? And the parallel that I kept seeing throughout my conversations with investors is that they invest in real estate. So I wanted, I was hungry to learn more and understand how it got them to be where they were. And there was one particular client of mine, I'll leave his name outta here. Very nice guy, lived in the area that I was working. We had similar backgrounds. His son was about my age at the time. And he was essentially retired at 50 and he was going to Miami regularly. He was managing his investments every 3 to 4 years. He said he was exiting and redeploying, and it was just so interesting to me in the lifestyle. And there I was in a suit in an office and servicing clients that have the lifestyle that I admired and the freedom to spend time with family, travel, and do the things that they want. So spending more time with this particular client, meeting him down in Florida, going out to eat, really understanding what he did from a professional level to get him there got me more passionate about alternative investments, real estate, and passive income. And that really drove me to become more active and involved in the space and provide those types of solutions for my clients as well.

It's interesting how important associations are. Absolutely. To not only our personal growth and development, but certainly to the growth and development of wealth. I mean, we hear so often people saying, I pulled myself up by my own bootstraps. And every time I hear that, I'm going, uh, yeah, I'm sure you really did all by yourself.

Well, I'm sure you know this, but you're the average of the 5 people you spend the most time with, or 10, whatever the number is. Couldn't be more true.

Yeah, absolutely. Absolutely. Josh, let's talk about these alternative investments outside of the United States.

Yeah, let's get into that. So as you mentioned, I'm the Director of Investor Relations for Legacy Group. We provide passive alternative investment opportunities to our investors in markets that they otherwise wouldn't have access to. So Colombia, Latin America, that's our focus. We have in our portfolio the largest coffee producer in Colombia, and we've funded that through several different equity funding rounds with ourselves and our investors. The business was founded by us in 2017, so it's a Legacy Group portfolio company started by one of the founders, and it's grown exponentially throughout the years, and our investors couldn't be more excited about the future ahead. So even as number one, we're really just getting started. So investors who participate with us, we give them the comfort of investing in the US through a US-based fund structure. However, the underlying assets are primarily based in Colombia and they're real assets. So as of the time of this recording, we have almost 7,000 acres of land and over 7 million coffee trees in the ground. We have 2 world-class processing facilities, which can process an enormous amount of coffee per day. I think upwards of 200,000 kilograms. And we're building out multiple verticals for the company. So we're looking at how we can monetize byproducts. We're looking to acquire or build out roasting channels in the US so we can go more vertical and further down the value chain. And the ultimate goal here for this particular opportunity is to either sell the business or more preferably go public through an IPO with a target year of 2026. So we are opening up this early-stage innovative investment for our investors. With all the global macroeconomic uncertainty today, we are having an influx of interest into other markets outside of the US, into commodities, real estate, and really the The illiquidity of private markets puts investors at ease right now with the volatility we've seen in the public space and the fact that our investors are really heavily allocated to assets here in the US, whether that be the homes they own or the businesses that they operate or work for. So we've been fortunate in that, in that investors are getting really interested in Latin America as a market. We have a US-based management team, So myself, formerly a private banker and wealth advisor, and we have 2 partners at Legacy Group. One is a former CPA, the other's a former corporate attorney, and we have really a diverse plethora of expertise that we're applying at our portfolio companies. We employ hundreds of people. We hire top talent in the region and we oversee those portfolio companies on behalf of our investors.

Well, Josh, it all seems, I mean, to those of us who are based here in the United States who had very limited experience outside the United States, it seems very exotic. And with that exotic feel to it, it sounds exciting and, and at the same time it sounds very daunting and, and brings with that a lot of fear in conjunction with how can this be a good investment? Uh, we certainly, with our limited understanding and knowledge of South America, it's amazing how ignorant. I am, and most Americans are in, or USA citizens are in conjunction with what goes on on the other side of the hemisphere here. But we do know that there's been a lot of instability in South American countries. How do you mitigate for those uncertainties, generally political uncertainties and economic uncertainties?

Great question, Alan. So First and foremost, from an investment perspective, as I mentioned, we have a US-based structure, so investors own common equity in a business here in the States. Think of that in terms of you owning shares in Coca-Cola or an Apple, and those companies have operations and subsidiaries in other countries. However, as an investor, you're comfortable investing in these US-based businesses because you have the protections of the jurisdictions here in the States. But you like having that exposure to other markets because you want growth opportunity and you want to achieve higher returns than you might be able to only operate here in the country. So I think that the fund structure or the investment structure is important, and that's one way in which our investors get comfortable. Next would be the management team. So I mentioned this previously, but we have a US management team. So from start to finish and at the asset manager level, we're financial professionals that are really carving out a niche in a market. We're on the ground, so we're not sitting in an office in New York deploying capital in early-stage businesses. We are literally hands-on in these companies on the day-to-day, ensuring that they move forward and that all the pieces fall into place. In terms of hiring the right talent, that's very important. So at using Green Coffee Company as an example, the CEO who we appointed, Boris Wilner, is a 25-year veteran of Colombian agriculture. He's Colombian-German by nationality, so he speaks 3 languages. Underneath him, we have our CFO, Leonardo Sanchez, formerly the CFO for Fox Latin America. Our chief agronomist who oversees the plants, he was the agronomist for Starbucks in Colombia. So we have a very world-class leadership team, and those details can be found within our presentations. So on the surface, it sounds like you said, okay, well, how do you mitigate all these risks? I would Assume and know after you read our marketing materials and you maybe followed us for a number of months and you get value-add content over time and see how we're thought leaders in the space, you would become more comfortable. From a political standpoint, we have great relationships on the ground. So we're the largest employer in the town of Salgar, where we operate. We are on a first-name basis with the chief of police. On a national level, we're a member of CEA Colombia, which is the Council for American Enterprises doing business in the region. So we get access to information from the embassy and we have really a lot of support from this organization. And then it's really just about mitigating and managing and being nimble. So while we are an American team at the asset management level at Legacy, our portfolio companies are very much Colombian and we're Colombian at heart in terms of the business. And we're just really innovating and adding value where we can. And Every investment comes with its risks, even here in the States. It's a matter of mitigating it and hiring key talent and ensuring that the proper protocols are in place.

Absolutely. There's risk wherever we're going to invest in. And viewers and listeners, Enlightened Investors, you know that we never guarantee anything in terms of the investments that we are talking about and sharing because there is risk in any investment. And like Josh is telling us here, what you want to look for are how those risks are being mitigated. And what we can tell from what you have just told us, Josh, is that you are doing a pretty good and thorough job, I should say an excellent job, in attempting to mitigate those various different risks. And with the volatility here in the the United States and the West and East conflicts that are going on right now, there's a tremendous amount of uncertainty even in US markets. So Colombian markets may be in a much better position than the United States is in a few months' time. Things are changing rapidly here in the economic and political and social environment. So Who knows what it's going to be anyway. So Josh, the investments that we could make in the Legacy Group, those are investing in a fund, not necessarily investing in a piece of property. Is that correct?

Generally so. So yes, investors are investing in a fund. However, for— it's a fund structure, but they're really investing in one business. So rather than buying a piece of land, like you said, It's not just buying a piece of real estate or a piece of agriculture where you have a right to its cash flow. We're talking about owning shares in an operating business that owns all the land and you have a fraction of all of it and a fractional ownership in all the upside of the business, not just a slice of the agriculture. So yes, it's shares in a company, but you indirectly would own, as an investor, would own its underlying assets. And it's a heavy balance sheet business. It's not all intellectual property or SaaS, you know, investors can wrap their head around it. And especially with what's going on with inflation and uncertainty there, people want to be in commodities, they want to be in real estate. And yeah, you alluded to, you know, the instability in the States and maybe Colombia will be better. I wouldn't necessarily say better, but investors want diversification. And they want diversification into other markets, whether that's different markets in the US or to other countries. Traditionally, people think diversification, they're like, okay, maybe I can invest in Europe or Asia. Those areas look kind of scary right now with the war going on and kind of uncertainty there. Latin America starts to look a little bit more friendly and less scary than it might have looked even a year ago. So the world is changing quickly. The US is the largest trading partner with Colombia. Great relationships there. It's very capitalistic. We think that it's the country to invest in, in Latin America, but there, there's other opportunities down there. So I wouldn't call this like an end-all be-all for someone's portfolio. I mean, there's still value to be had in owning real assets here in the States, getting depreciation, having liquidity from your public stock portfolio that you could tap into for your everyday needs. But I think there is a space in investors' portfolio for alternatives, specifically in emerging markets.

Well, Josh, so the, so investment in this fund, is it, are they actually purchasing stock in the company? It is just privately traded stock rather than publicly traded. Is that correct? Or is there a difference between what they're doing here than in a stock?

That is correct, Alan. I, it is shares, common equity in a private company in the United States. It's Green Coffee Company Holdings. In the case of Green Coffee Company, they wouldn't be an investor in Legacy Group. They would be an investor in its portfolio company, in this case GCC, and they would own shares in that company similar to owning shares in a different private company here in the States.

So that being shares, they, I'm assuming they could enter and exit at will. It wouldn't be like purchasing a a piece of property that you have to stay in there until it is refinanced or sold.

In private equity, it's inherently illiquid. So there's the main difference. There's higher projected returns, of course, in private markets, but there's less liquidity than you would find in, or lack thereof, than you would find in public. So for example, stock market here at the NYSE, 9:30 to 4, Any day, even in after hours, you could unload all or a portion of your position at the current market price. With private shares, whether it's our business or even shares in other ones, there's no established exchange or liquid market for the security. What we're looking to do as part of the exit strategy is bring this company public. We've all seen these stories of companies that hit the exchange and then it's an IPO and the valuation's crazy and we're like, who owned this before? How do I get access to it? So There's investors who are participating before that moment of full liquidity, and that's the space that we're operating in.

And your target for that is 2026?

Yes, we are currently forecasting an exit in 2026, and the financial returns that are projected would be north of 50% IRR, which equates to an 8x net equity multiple. projected through 2026, according to our financial model.

Well, Josh, tell our viewers and listeners how it is that they can take advantage of this and get in touch with you.

As of the time of this recording, we're going into our Series C funding round for Green Coffee Company, which is of course the Legacy Group portfolio company that we've been speaking about here. So I would encourage you to reach out to us if you're interested in participating as an investor. We have a minimum investment of $100,000. It's open to accredited investors only. Investors can contact us by email. You can reach out to me, josh.z@legacy-group.co, or you can find us on our website at legacy-group.co. And there's also a link on our site to subscribe to our newsletter. So please visit us online, send us an email, subscribe to our newsletter, and that, and then hopefully get in touch and tell you more about our investment opportunities.

Josh, Colombia just recently had a presidential election. The prior administration was very tight with the United States, and from what I understand, the new president is looking to take a very different direction for Colombia. Well, he has a very spotted background. He has not been particularly consistent, throughout his life or his political career. So people are not really certain as to which way he's going, but it looks to— most people are predicting that he is looking to develop and establish, uh, stronger ties and relationships with South America companies, perhaps at the expense of that USA, uh, relationships. What is your take on all of that?

This is most definitely a topic we follow closely, as you can imagine. So while the holding company structure is domestic here in the US, we do have operating subsidiaries in Colombia, which are Colombian companies. So from the company that owns the farmland down there, it's Colombian company. The company that does the operation, it's Colombian company. However, those companies are of course owned by our investors up here at the top of The chain. So we're very much a Colombian business, even though it's their subsidiaries. We employ Colombians. We're a producer of agriculture and making land more productive and lifting up the communities in which we operate. The incoming president has been expressing his, I would say, support of that, of making Colombia more of a producer and less of an importer. Like you said, getting away from the need of of the US in certain instances as it relates to importing, but we are producing goods in the country and exporting out, or we're selling within the country. So we think we stand to benefit from the administration's stance. The coffee industry, it employs 2 million people in the country there. It's a national product. He, the incoming president, has had a stance against oil and gas, coal, drugs, Things of that nature, or illicit drugs, I should say. And I think he may come down on those, that, that's what's expected right now. But to make, and he wants to make land that's not being used more productive. What we're doing, we're buying land and we're planting coffee trees and we're employing people. So I think, I know that we're doing the right thing. And I think that the incoming administration will see that. And, you know, we're already benefiting in certain regards with the move in at least at the time of this recording, the move in the exchange rate, Colombian peso went from like 3,900 to over 45 in a matter of weeks. As we move dollars and capital down and convert, that it goes a longer way. So our investors are able to buy more assets as a result of that. And conversely, maybe some landholding families are, we've seen it, some landholding families are a little hesitant of where things are going to go in the next couple of years. And They may have been owning property for generations. So it creates buying opportunities for us and where we can come in and continue to consolidate and do so at favorable exchange rates.

Yeah. Okay. Well, good. I was really curious about that. With South America is, I mean, things are so dynamic down there right now and not only in Colombia, but Bolivia and Venezuela, which are neighboring countries of Colombia, uh, sharing that same region down there. A lot going on. I, I really hope for the best for South America. Um, they've had 200 years of oligarchic rule, uh, where the wealthy have done very well and the masses have not. So I hope there are some changes coming for Colombia and all of South America. Outside of coffee, do you do anything else? There's, I mean, uh, it's such a rich agricultural area. All of many, many parts of Latin America are, and citrus fruits to all kinds of other products are grown in the regions down there. Are you expanding into anything else or are you planning to stay with coffee?

We are very much focused on this particular business. However, we do have another portfolio company investment currently in a tech company in Medellín called Polygonus. They do 3D art and design, e-learning, and they create the digital characters that you'll see in Netflix productions, in video games. It's a really interesting company. They're growing immensely, very different from coffee. It's not one that we opened for outside investment. We at Legacy Group made a seed investment in them 3 years ago, which has panned out very well, but it's quite possible that we'll do a funding round Polygonus and its growth. And we're actively diligencing early-stage investment opportunities that our investors would find interesting where we think we can add value, whether it's something that we start or that we invest in early. I expect to bring more in the future in terms of investment offerings.

Well, all agricultural products are dependent upon the environment, and there's going to be good years, bad years, and there's other things. You had mentioned that you are opening Roasting plants here in the United States. So I'm assuming from that, that you are basically shipping, or you're basically just shipping the whole beans and then shipping them out of the country. Is that correct? Or?

Yes. So what we do is we currently are processing coffee cherry into green coffee. So there's, there's a very lengthy process in order to take what's a cherry on a tree, the coffee that we drink every day. We're taking it to the point where it's processed yet unroasted.

Okay.

And then we're selling it in a wholesale manner. So we sell containers of green coffee, which needs to be roasted before it's then bagged and consumed. So what we would do is, is send, is do all that. And then instead of selling green, we would sell some green and then we would bring the rest through whatever we can support through our roasting channel, bring and sell through the roasting, uh, vertical. There's significantly more margin to be made there if we go further down the value chain. But it would be green coffee that then we go to roast as opposed to now we're just selling it green.

Well, interesting. So what this brings to mind for me is the movie Out of Africa. I don't know if you've ever seen that. It's many years old.

I have not. You have not.

An English heiress who purchased coffee plantations in Africa and was put out of business because of a fire in their processing plant. And I'm sure you've got insurance and what have you to take care of those kinds of things. What happens if you just have a bad year in coffee production?

From a production standpoint, I mean, that's the biggest risk in agriculture is weather and Kind of mitigating that risk. It's something we didn't talk about yet in this interview. So from a weather perspective, you could really just mitigate it. If Mother Nature is making lower yields a particular year, you could stand to be better than the rest, but you're likely going to have lower yields. So what we do is we monitor weather patterns actively. So we have drones, we have sensory equipment on the farms. We monitor how much rain is coming, how much humidity is in the air. We test the soil to see if it needs to be enriched. We spray, we don't crop dust, we spray at the base of the trees so that they're able, if any sort of pesticides are needed. And we're very careful and methodical with our approach. And we use real-time data in order to make decisions. And we're able to fare better than others in the region with the technology that we have at the So at a higher level, technology allows us to analyze and be proactive. However, weather is a risk. I mean, we saw it last year in Brazil. The coffee industry was rocked and commodity prices went through the roof. In Colombia, we benefit from that, but then also it was the weather patterns were a little adverse in Colombia at the end of the year. So then we had lower harvests as well as everyone in our region. But it's kind of a balance because You can, if there's lower yields and lower harvests, usually the commodity price is going higher unless it's just specific to your town or your region. But it's sort of a double-edged sword. So you kind of just have to mitigate and manage where you can. But weather is, I would say, the largest risk in agriculture.

Well, that brings up the other issue you were talking about, enriching the soil. One of the really big concerns worldwide right now with the Ukraine situation going on is fertilizer. The whole fertilizer market has been disrupted because of this proxy war with Russia. Has it affected you as of yet, or?

It has. So we saw fertilizer prices rising early on in 2022, and the CEO of our company saw it happening and it was already more elevated than it was at the end of last year. And what he decided to do was buy enough that we have for the entire year and for the harvest that's coming at the end of 2022. And have leftover. So we have a storage facility for which we bought and store fertilizer for, for the end of the year harvest that we paid more than it would've been last year, but we locked in our prices and we have enough to sustain our farms and to even sell to local farmers as well. Kind of have to see how that shapes up in the years to come, but at least in the short term, we were able to find a solution.

Sounds like you have some very excellent management.

Well, thank you.

That has foresight and isn't looking just to what's going on today, but looks to the future as well. It's like a very well-managed company. Enlightened Investors, I know you've enjoyed the program today. I certainly have. Josh, you have just been a wealth of information and it's been a joy and a pleasure to talk with you. Enlightened Investors, join us next time for our next episode. Josh, thanks for being with us today.

Thanks, Alan.

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