Chains such as YoBlendz, Elements
Therapeutic Massage and Battery Giant have begun pitching themselves to
well-heeled foreign buyers using so-called EB-5 visas as a selling
point. The federal program, launched in 1990, gives foreign nationals
the chance to obtain permanent residency by investing a minimum of
$500,000 in a U.S. business.
The catch: The investment must create at least 10 new jobs within two years, or the foreign investor is sent back home.
Despite
the risk, franchisers see it as a chance to lure buyers who are set up
to seal a deal quickly. And for foreign applicants who lack the
entrepreneurial chops to launch a venture from scratch, franchises offer
a ready-made business model with a proven record, says
Stephen Caldeira,
president of the International Franchise Association, a
franchising trade group.
"We're seeing
growing demand from franchisers for well-capitalized investors, and EB-5
applicants see franchising as a safer bet, in terms of an investment,"
Mr. Caldeira says.
New Interest
Last
year, 6,343 foreign nationals applied to the EB-5 program, up from
6,040 in 2012, and just 470 in 2006, according to the latest data from
U.S. Citizenship and Immigration Services. The agency estimates that as
of September 2013, the program has raised more than $8.6 billion and has
created some 57,300 jobs.
Interest in the program has
skyrocketed since the financial crisis, as traditional forms of
financing dried up, immigration lawyers say. Several big companies have
tapped the once-dormant program to fund huge projects through hundreds
of foreign investors, including Marriott International Inc., Sony
Pictures Entertainment, and the developers of the Barclays Center, home
of the National Basketball Association's Brooklyn Nets.
But now franchises have begun courting EB-5 investors, too, says
Jania Bailey,
president of FranNet, a franchise consulting firm. "It's really new for us," she says.
One
franchise buyer who has tapped the EB-5 program is
Zhijun Mao.
In March, the 25-year-old borrowed $550,000 from his parents in
China to open a YoBlendz frozen-yogurt stand, as well as a JuiceBlendz
fresh-juice stand, at the AmericanAirlines Arena in Miami. A graduate of
the State University of New York at Buffalo, where he studied finance
and international business, Mr. Mao applied for an EB-5 visa in July
based on the investment, which included a one-time franchise fee of
$40,000. His student visa is set to expire in June.
Mr.
Mao says the two stands will put about 24 people to work, including up
to eight workers behind the two counters. The rest of the jobs are based
on estimates of increased consumer spending, as his investment ripples
through the local economy, he says.
The
immigration agency is currently processing his application, including a
full analysis of his business plan and economic projections. If all goes
well, he expects the stands to be up and running by July. "I'm 100% new
to this business," says Mr. Mao, whose father owns a construction firm
in China. "But I want to stay here in the United States. That's my
goal."
Mr. Mao says he looked into
several other franchise options, including McDonald's, Burger King and
Subway. But YoBlendz caught his eye, he says, because it had posted
information about the EB-5 program on its website, in both Chinese and
Spanish.
Based in South Florida, the
company started franchising in 2005 and currently has nearly 30
locations, including two that are owned by EB-5 investors. The company
began promoting the program on its website in 2011, and since then has
attracted 12 foreign investors to back new locations currently in
development across the region, says
Adam Ogden,
founder of YoBlendz and JuiceBlendz. The EB-5 program is a "great
opportunity to attract investors and launch new locations" at a time
when financing is scarce, he says.
But
the program isn't a perfect fit for every franchise. Most outlets cost
less than $500,000 to launch and thus don't meet the minimum threshold
for investment under the EB-5 program, Ms. Bailey says. Another major
drawback: The immigration agency's background checks and economic
analyses can drag on for several months, even years. That can run afoul
of franchisers' tight development deadlines, says
Dennis Monroe,
a franchising lawyer in Minneapolis. "They're just not interested
in waiting that long," he says of franchisers.
What's
more, immigrant investors receive only a two-year visa until
immigration officials are satisfied that the job quotas will be met,
leaving them in limbo.
Adding to the
uncertainty, the immigration agency has clamped down on EB-5
applications in recent years, after a number of ventures tied to the
program were charged with fraud, including a Chicago real-estate
developer and a McAllen, Texas, pooled-investment fund that were both
shut down last year by the Securities and Exchange Commission. In
October, the SEC issued an alert warning of "investment scams targeting
foreign nationals who seek to become permanent lawful U.S. residents"
through the EB-5 program.
Mr. Ogden, of
YoBlendz, says the crackdown has made it more difficult to sell the
program to wary investors. "It has been a constant challenge dealing
with investor concerns," he says.
Another Route
Rather
than taking a risk, some foreign franchise buyers are vying for a
temporary E-2 visa, which tends to have faster processing times and a
lower upfront investment of roughly $100,000 in a U.S. venture. But
unlike green cards, the visas must be renewed every two years.
Alex Gomez,
a 39-year-old from Vera Cruz, Mexico, obtained an E-2 visa last
year after investing $220,000 in a ProCuts barber shop in McAllen, which
currently has five employees. "I would never have pictured myself as
the owner of a hairdressing salon," says Mr. Cruz, who also owns a
hardware store back in Vera Cruz.
Mr. Mao says the twin pressures of running a business and "learning to live in a new country" can be stressful.
For
now he's sticking with the program, he says. "It's not the fastest way
to get a green card, but I want to be an entrepreneur, too. And this way
I'm achieving both."
Mr. Loten is a small-business reporter in The Wall Street Journal's New York bureau. He can be reached at angus.loten@wsj.com.
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