The EB-5 direct investment option is an alternative to investing through an EB-5 Regional Center

eb-5-investment

The EB-5 direct investment option is an alternative to investing through an EB-5 Regional Center

What are the implications for the programs renewal in April? What types of investments qualify?

By: Patrick Findaro

As trusted advisors to foreign nationals looking to move to the U.S. through the EB-5 visa, we have come across many potential EB-5 qualifying investments over the years. After having analyzed over 20 franchises and businesses eligible for the EB-5 direct program, we at Visa Franchise are surprised that more EB-5 investors do not evaluate the direct investment option as an alternative to the regional center option.

The EB-5 direct program is a permanent law established by Congress enacted in 1990. The new April 28, 2017 deadline marks the reauthorization deadline for the passive, regional center EB-5 option. The Regional Center “pilot” program has been renewed on a consistent basis since 1992.

If Congress does not reauthorize the regional center program in April, then no one would be able to invest through the regional centers in the future. Also, last week, USCIS issued a notice of proposed rulemaking providing a number of amendments that will greatly change the EB-5 program (both regional center and direct). It is expected that these changes will be implemented as early as April. Outlined below is a summary of the major provisions:

  • Increases to the Investment Amounts – Increasing the Minimum Investment Amount
    • Increasing the Minimum Investment Amount for High Employment Areas from $1 million to $1.8 million
    • Increasing the Minimum Investment Amount for TEAs from $500,000 to $1.3million
    • No mention of grandfathering or transition periods
  • TEA Designation
    • Allows any city or town with high unemployment (150% of the national average) with a population of  more than 20,000 to qualify as a TEA
    • Defines a TEA as a Census Tract (CT) or contiguous CTs in which the New Commercial Enterprise (NCE) is located if there is high unemployment
    • Rural areas qualify as TEAs, but would be redefined to include areas within the outer boundaries of any city or town having a population of 20k or more if in an MSA
    • Eliminated the ability of states to designate areas at high-unemployment.  This would all be done at the federal level
  • No mention of grandfathering or transition periods
  • Priority Date Retention – This would allow EB-5 Investors to retain their place in the priority date line, if through no fault of their own, their petition is denied e.g. the RC is terminated, or if business conditions change that would result in an underperforming or failing investment project

In 2015, there were 156 direct investors out of 9,764 total EB-5 visas issued. This represents less than 2% of the total EB-5 program. The below chart provides a breakdown of the countries with the most EB-5 applicants and the split between regional center and direct investments.

Country Direct Investors Regional Center Investors EB-5
Total
% of Total
China (mainland) 99 8,057 8,156 83.5%
Vietnam 8 272 280 2.9%
China (Taiwan) 1 138 139 1.4%
South Korea 2 114 116 1.2%
India 9 102 111 1.1%
Russia 4 84 88 0.9%
United Kingdom 0 84 84 0.9%
Mexico 7 70 77 0.8%
Venezuela 0 72 72 0.7%
Iran 0 62 62 0.6%
Top 10 Total 130 9,055 9,185 94.1%
Grand Total 156 9,608 9,764 100.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For a variety of reasons, EB-5 direct investments account for less than 2% of the total 10,000 visas that are issued on a yearly basis.  There are many perceived reasons why EB-5 applicants might not choose to invest in a direct project such as:

  • Not knowing about the many direct options available especially in franchising
  • Viewing the regional center options as safer as there is a real estate component, professional management or pooled investment
  • Interest in having a debt investment instead of equity as there is a set repayment of principal
  • Lack of friends, colleagues, and family who have received the green card through a direct investment
  • Need to produce 10 direct jobs instead of relying on indirect and induced jobs as well

There is often a false sense of security in regional center projects especially those that have a real estate component. The EB-5 investor might be part of a massive real estate development project raising $80M+ in EB-5 capital but the project will not be completed if the capital is not raised. Also, the EB-5 investment is often loaned out as mezzanine debt to the developer and is the last to be repaid ahead of senior secured loans.  Franchisors and multi-unit operators have not marketed the EB-5 program as extensively as real estate developers. It was not until real estate financing dried up in the 2008/2009 crisis that developers marketed their EB-5 eligible projects in China. Thus, increasing the number of EB-5 petitions over 1000% from 2007 to 2016.

Furthermore, franchising is a heavily regulated industry by both the federal and state governments. This is a huge benefit to prospective franchisees (investors) as they are able to analyze a large amount of information before deciding whether to invest in a franchise and become a franchisee. Every franchisor is required to file their Franchise Disclosure Document (FDD) in states that they are selling or operating franchises. This document is often over 200 pages and includes information regarding the investment breakdown, royalties, and other expenses. The Item 19 of the FDD often discloses the historical sales/profit figures for the franchise system.

Major Franchise Brands in EB-5

There are some major restaurant and hotel franchises that offer EB-5 direct investments. One example is Miami, FL based Burger King. Burger King has been active in EB-5 for some years now with approved greencards and multiple locations in the Chicago metropolitan area funded by EB-5 investors primarily from China. EB-5 investors are able to invest alongside experienced multi-unit operators who have many years of restaurant and local market knowledge.

Some franchises like Dunkin Donuts have strict requirements for franchisees including having to already have a green card or U.S. citizenship. My previous firm, LCR Capital Partners, structured EB-5 investments in Dunkin Donuts. The investments are generally senior secured loans made to experienced operators through various EB-5 regional centers that LCR Capital operates.

Smaller Emerging Franchise Players

Many smaller franchises have leveraged the EB-5 program to bring in new, well capitalized operators into their franchise system. EB-5 investors can own 100% of a franchise with all the upsides and responsibilities of their fellow American franchisees. Franchisors with less than 100 units are often able to be more hands on. They can provide support with opening and the initial franchise operations while the I-526 petition is in adjudication, which is especially important in cases when the investor is not able to legally reside in the U.S. on another visa like the E-2 visa.

Boardwalk Fries Burger & Shakes

Boardwalk Fries Burgers & Shakes (“Boardwalk”) is a fast-casual concept in the rapidly growing “Better Burger” market. Boardwalk provides its customers with Fresh burgers and fries that are never frozen. The fresh ground beef is hand formed into burger patties every day and cooked on an open, flat grill. Their “world famous” Boardwalk Fries are also hand cut every day and are cooked in their traditional secret recipe in 100% peanut oil, which has zero trans fat.

Dave and Fran DiFerndinando opened the first Boardwalk Fries in White Marsh Mall, White Marsh, Maryland, in 1981 and by 1987 they had franchises from coast to coast. As time passed, customers began asking for more and they developed the Burgers and Shakes concept. Now they have locations across the globe and are expanding rapidly on the East and West Coasts of the U.S. In 2016, there were six EB-5 investors who received their I-526 approvals to roll out new units in the U.S.

There is a huge market for Boardwalk as Americans love hamburgers. With nearly 50,000 burger joints in the United States, there is one location for every 6,300 citizens who – on average – consume 46 burgers each year!

UFood Grill- Emerging player in the Healthy Fast Food space

The Healthy quick service Restaurant industry is booming! Over 79 million Americans a day reported eating at fast food / quick service restaurants in 2014.

UFood Grill restaurants are fast casual food service restaurants that offer appetizing food with healthy attributes. Their menu features natural and fresh ingredients, whole grains, grass-fed beef along with vegetarian, reduced sodium, vegan, gluten free and low calorie options. All of the items are customizable to fit any customer’s unique needs. They also disclose all of the ingredients and nutritional value that go into each item.

The current executive team, led by Salvatore Rincione, brings many years of industry experience from such heavy-hitters as Five Guys, Shake Shack, and Red Mango. Their goal is to become a major player in the fast-growing healthy quick service restaurant industry.

With over 17 units located across the U.S. and rapidly expanding, there is territory available where our clients typically move (Florida, California, New York and Texas).  UFood Grill offers development support with finding and developing the location in the area that the franchisee chooses. They can also provide additional support with opening the store and ongoing operations far beyond the standard of most franchisors.

For those seeking to invest in the U.S. and obtain their investor visa, consider opportunities in the franchise industry. With the upfront and ongoing support of the franchisor, the new EB-5 franchisee can greatly increase his or her chance of success in the U.S. and gain an investor visa at the same time!

Who is Visa Franchise?

Visa Franchise guides investors in identifying and analyzing the best investment opportunities tailored to their specific objectives. The focus of the firm is on franchises that qualify for the E-2 (1) and EB-5 visas (2). Visa Franchise is the trusted advisor of clients from all over the world when it comes to helping them find the business opportunity that best meets their investment and immigration goals. Visa Franchise takes into consideration their capability, experience, and size of investment to ensure that they choose the best possible option for their unique, individual situation. Visa Franchise is based in Miami, Florida with a second office in Orlando, Florida.

If you are interested in owning a franchise please reach out to info@visafranchise.com or call us at +1-305-454-7744

Note: Visa Franchise does not make any financial performance representations other than provided by franchisors

(1) E-2 Treaty Investor Visa allows a national of a “treaty country” – a country with which the U.S. maintains a treaty of commerce and navigation – to reside in the U.S. when investing a substantial amount of capital in a U.S. business (generally >$150,000)

(2) EB-5 visa requires at least a $500,000 investment in a U.S. business that creates at least ten (10) jobs for U.S. citizens or green card holders in the first two (2) years. Investors may either start their own businesses as active investors or invest in designated Regional Centers as passive investors

About us


Visa Franchise guides investors in identifying and analyzing the best investment opportunities tailored to their specific objectives.

We are the trusted advisor for foreign nationals who qualify for the E-2, L-1 or EB-5 visa and would like to own a U.S. franchise, with a minimum investment amount of $150,000.

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