Though they’re often referred to simply as fast food restaurants, quick service restaurants (QSRs) also include bars, cafes, and other fast casual dining establishments. QSRs meet the objectives of the EB-5 program and provide excellent opportunities for EB-5 investors who are interested in managing the day-to-day operations of the new US enterprise in which they invest. For this reason, QSRs are optimal candidates for direct investment, in which the EB-5 investor contributes a minimum of either $1 million or $500K (depending on the location of the project) and is responsible for managing the business directly.
EB-5 investors must fulfill job creation requirements within the window between I-526 approval and I-829 filing to obtain unconditional permanent residency. The extended processing times for I-829 petitions, especially for those of Chinese investors, who make up the lion’s share of EB-5 applicants, have created significant problems for QSR investors attempting to meet the requirements. Consequently, investors have begun to regard the regional center investment model as an alternative route to securing the EB-5 visa. Here we explore the advantages and pitfalls of both types of investment for QSR projects.
The Direct Investment Model for QSRs
Investors contemplating direct investment in a QSR should consider the following beneficial aspects of this model:
- It typically costs between $350K and $2 million to open a QSR. If the new restaurant is located in a targeted employment area (TEA), the minimum EB-5 investment is $500K. This amount is adequate to cover most or all of the opening cost, including furniture, fixtures, and equipment (FF&E), construction or remodelling, marketing, insurance, payroll, and the franchise fee.
- The EB-5 program requires investors to play a role in the operation of the new business. This role may consist of daily management or may be limited to regulation and planning. Direct investment generally corresponds to the former, while regional center investment suits the latter. The direct investment model is usually more appealing to investors who want to closely supervise the financial and operational functions of the new restaurant.
- Most QSRs are open for business a minimum of 12 hours per day, every day, which allows for 18 to 24 full-time positions, divided into three shifts. This level of job creation enables an investor to easily meet the EB-5 program requirement of 10 created jobs and may also allow the project to involve a second investor.
Though QSRs lend themselves well to direct investment, the backlog of EB-5 petitions and lengthy processing times have increasingly led investors to consider the regional center model.
The Regional Center Investment Model for QSRs
Since the average processing time for EB-5 petitions is currently more than two years and no solution has been proposed by U.S. Citizenship and Immigration Services (USCIS), the regional center investment model can be a more convenient choice for EB-5 investors in a number of ways:
- Investors who want to take an active managerial role in the QSR will be unable to do so until I-526 approval because the investor cannot live in the US until this petition is approved. Since this means business operations must be placed in the hands of paid employees, investors may choose to compromise—to forgo the supervisory role and invest through a regional center.
- Investors who would prefer to avoid direct operational and personnel management responsibilities will likely appreciate the regional center model, which allows them to recede into a lesser role as a limited partner or advisory board member. Daily operations will be managed by vetted project managers with industry expertise, and investors will not be tasked with hiring employees to operate the restaurant while they wait overseas for I-526 approval.
- EB-5 investors are required to create 10 full-time employment positions during the period between I-526 petition approval and I-828 filing to remove residency conditions, which is approximately two years. Many new enterprises, including many QSRs, fail within the first year of operation. For direct investors who must keep the business operating for several years during the long I-526 petition processing times, it’s possible for the business to create the requisite number of jobs for several years, but still fail, causing the loss of the investment, the jobs it created, and any chance of obtaining unconditional permanent residency because the business failed before the I-829 was filed.
- Since regional centers are able to count direct, indirect, and induced jobs toward a project’s job creation total, a regional center can ensure that the EB-5 project creates enough jobs to attribute the appropriate number to each investor within the two-year window. This gives investors an alternative to investing directly and keeping the business running for several years. Regional center projects can include not only the new QSR’s payroll employees, but jobs created by construction, tenancy, and operations, which will be counted toward the investor’s total within two years after filing the I-526.
With no end in sight to processing delays for I-526, I-824, and I-924 applications, EB-5 investors are turning to regional center investment in greater numbers. While QSRs are well-suited to direct investment, many restaurant investors prefer to avoid the attendant delays by turning to the regional center investment model. Investors for whom a daily involvement in business operations is less of a priority see the regional center model as desirable. All EB-5 investors can benefit from the inclusion of indirect and induced jobs toward the job creation requirement, and those who remain overseas as they wait for I-526 adjudication are able to invest without attending to the personnel and operation decisions of the restaurant.
Prospective EB-5 investors should carry out sufficient research into the merits and disadvantages of both direct and regional center investments, carefully considering his or her needs when choosing which path to take.
Contact the team at EB5 Economist for more details about EB-5 investment in restaurants. Call (800) 775-1988 or ask a question using our contact form, and we’ll get back to you within 24 hours.