Sonic Boom: EB-5 Regional Centers Embrace Franchises
In the beginning there was equity. And it sucked. It sucked because for the first decade or so, the vast majority of EB-5 Regional Centers were focused exclusively on circumventing the letter of the law as handed down in the Immigration Act of 1990 (IMMACT90), wherein capital risk was a prerequisite. While the smoke and mirrors deployed by many of these early players resulted in a remarkable number of initial I-526 approvals — a testament to how unprepared the then-INS was for the shell game shenanigans — the whole thing came crashing down at the I-829 level, as the government saw the bottom line and permanent residency was denied for many, many families. It further sucked because the vast majority of regional centers were too preoccupied with collecting the EB-5 funds to worry about details such as job creation. (Mind you, there were several notable exceptions, like CMB, alive and thriving a decade and a half later and still with a 100% record of petition approvals.)
And so the money came in to these EB-5 Regional Centers based on equity investments, and this caught the greedy eyes of many developers and attorneys who rejoiced “This is GOOOOD!” But it wasn’t. Things fell apart quickly, lawsuits were filed, bar complaints submitted, and soon these dishonest developers and attorneys were tearing their garments and gnashing their teeth as the USG hailed sulfurous denial upon denial upon them and their EB5 investors.
Out of those dark days appeared a wise man (whose name I shall omit since he likes to keep a low profile) said “I have a better way.” And he did. After much thought, work, and legal analysis, CMB pioneered the concept of loan-based EB-5 project structuring, offering clear exit strategies and a level of transparency no one had ever seen.
Now THAT was good, and it remains my favorite structure in the business today.
A variety of incarnations of this very intelligent model have been adopted by many of the old and new Regional Centers (but mostly sans the transparency element.) Still other innovators in the past year have unveiled creative new structures which take the Regional Center back to Congress’s original vision: as true umbrella organizations channeling a variety of unrelated, individual projects into job-deprived TEAs. FOIC is perhaps the best example of that with its “mutual fund” model and independent investment management, and the folks behind it, like CMB, are rock solid, good people.
Fast forward to today and the talk is of franchising. (Actually, the TALK about EB-5 franchising has been going on for as long as the EB-5 has been around, but intelligently structured and compliant projects directed via EB-5 Regional Centers, as far as I know, have not manifested; if I’m wrong, please let me know!) Queensfort Capital, right here in South Florida, has just unveiled a very compelling new EB-5 model using Sonic Restaurant franchises. I’ve looked at it very closely and it has all the elements which make me comfortable:
- well-funded, rock solid general partners and management team financially invested in the project
- turnkey launch of new business with high labor demands assuring job creation numbers
- conservative econometric projections
- rights of expansion/ duplication of project
- compelling annual interest rate
- as good an “exit” strategy – and I put that in quotes because, IMHO, the ONLY true exit strategy is the maturation of a loan-based project — as I’ve seen in any equity-based EB-5 project
- a very cool and innovative set of contingencies providing a way out for the limited partners at the end of the game.
These guys are only looking for 8 investors and I believe the slots will go fast, so if it sounds like your cup of tea, get busy!
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