Free EB-5 Project Evaluation EB-5 Direct and RC Investments in Restaurants

Quick service restaurants (QSRs) encompass not only fast food franchises but other fast casual dining options, such as cafes and bars. Historically, QSRs have provided ideal opportunities for direct investment under the EB-5 Program: The investor makes an investment of $1,000,000 or $500,000 to open and operate a QSR in a targeted employment area (TEA), meaning a rural area with a low population or an area experiencing high unemployment. The QSR model aligns with the goals of the EB-5 Program as well as the desires of investors to own and directly operate a business in the United States.

However, recent delays in visa processing times have not only frustrated investors but also eaten into the job creation window of two and a half years and made it more difficult for investors in QSRs to meet the requirements of the EB-5 Program. As such, regional centers have emerged as a viable alternative for investors hoping to use the QSR model as a successful channel for their EB-5 petitions. This article discusses both models, direct investments and regional centers, as well as their benefits and drawbacks for EB-5 investors.

Direct Investment in a Quick Service Restaurant (QSR)

The direct investment model offers several points of interest for potential EB-5 investors:

  • The cost of opening a QSR can range between $350,000 and $2,000,000, and the initial EB-5 investment will cover a large portion of this, including the franchise fee, any construction or improvement costs, insurance, marketing, payroll, and furniture, fixtures, and equipment (FF&E) required to get the business off the ground. A $500,000 investment in a TEA can therefore meet the new business requirement of the EB-5 Program.
  • A QSR can easily meet the job creation requirements of the program, as well. As most are open every day for at least 12 hours, each can support three work shifts and 18 to 24 fulltime jobs, well above the minimum threshold of 10. This offers the opportunity for a location to attract more than one investor, meaning two investors with limited funds could work together to open a QSR under the program.
  • Under the EB-5 Program, foreign investors must be involved in the management of the commercial enterprise in either its daily operations or its policy formulation. While investors in a regional center have the right to vote on policy, they rarely have an opportunity to engage with the daily management of a business. In a direct investment QSR model, however, the investor will generally take on daily management responsibilities, as well. Investors hesitant to entrust their funds and the management of the business to a developer or regional center find the opportunity to be directly involved in the running of the QSR an attractive prospect.

These benefits make the QSR model an ideal option for potential foreign investors under the EB-5 Program. However, delays in visa petition processing have presented challenges for investors and allowed regional centers to emerge as a viable alternative for investment.

Investment in a Regional Center Quick Service Restaurant (QSR)

United States Citizenship and Immigration Services (USCIS) has yet to address the issue of long wait times for visa applicants, particularly Chinese investors under the EB-5 Program. Current wait times are between 10 and 24 months, and this delay introduces several difficulties that make regional centers a more practical option for some EB-5 investors.

  • Prior to the approval of his or her I-526 petition, which allows the investor to live in the United States, a foreign investor will be unable to manage the daily operations of the QSR. This means the investor will have to rely on hired staff to manage the business in his or her absence for as long as it takes for USCIS to approve the I-526 petition. This possibility is unacceptable to investors who would prefer to be on site to ensure the successful operation of the business, and such investors may prefer instead to take a back seat on management altogether by working with a regional center when faced with this reality.
  • Similarly, investors hoping to take a less direct approach to management regardless can also benefit from working with a regional center. While regional center investors are expected to demonstrate management by exercising their right to vote on matters of policy, they will rarely take part in the daily operations of a QSR, which are instead entrusted to project managers experienced in this industry and vetted by the regional center. Such investors will also therefore avoid the need to hire managers and other competent interim staff on their own.
  • Investors have two years following the approval of the I-526 petition and before the filing of the I-829 petition, which removes the conditions to permanent residency, to create the 10 fulltime jobs required by the EB-5 Program. However, delays in the processing of these petitions mean that an investor may be several years into operations by the time the I-526 petition is approved. For a QSR or any business to survive beyond its first year is an accomplishment, and an investor thus runs the risk of losing his or her investment and all created jobs, and thus approval of the I-829 petition, if the QSR fails before the I-829 petition can be filed. Regional centers can take advantage of broader job creation requirements, as detailed below, to avoid this risk.
  • A regional center investment allows for direct, indirect, and induced job creation as determined based on construction jobs, tenant jobs, and operations jobs, with the created jobs credited to the investor upon completion of the construction project or building purchase. Regional centers can thus plan a project to ensure that each investor is credited with the required number of jobs within two years of his or her I-526 petition filing date. Investors who would otherwise have had to ensure the continued successful operation of a business for several years can instead take advantage of this option.

Recent delays in the processing of visa petitions, especially those filed by Chinese investors, who make up the majority of investors under the EB-5 Program, have encouraged investors to look into regional centers as an alternative to traditional direct investment in a QSR. As detailed above, regional centers offer several advantages to investors facing long delays, such as the ability to count indirect and induced jobs toward the job creation total and the opportunity to adopt a meaningful managerial role without concern for daily operations and hiring decisions while still overseas.

Direct investment and regional centers offer their own benefits and drawbacks, but a potential EB-5 investor can become educated on these and choose the investment model that best suits his or her needs.