The EB-5 capital stack: where your investment sits and why it matters

A capital stack is the full set of money used to fund a project, arranged by who has the strongest claim to be repaid. Those at the top of the repayment order generally carry less risk and expect lower returns; those at the bottom carry more risk because they are paid only after everyone above them.

Lien

A legal claim over an asset, such as a property, that secures a debt and can allow the creditor to enforce against that asset if the debt is not paid.

Mezzanine debt

A loan that ranks below senior debt but above equity, often secured by a pledge of ownership interests in the borrowing company.

Preferred equity

An ownership stake with contractual priority over common equity for distributions, but behind all lenders.

In a common regional center structure, investors' funds are pooled in a new commercial enterprise (NCE), usually a limited partnership or limited liability company. The NCE then lends the pooled capital to (or invests it in) a separate job-creating entity (JCE), which builds or operates the project.

1. 01

   Step 1: Investors subscribe to the NCE

   Each investor contributes the required amount to the new commercial enterprise and becomes an owner (for example, a limited partner).

2. 02

   Step 2: The NCE deploys the capital to the JCE

   The NCE lends the pooled EB-5 capital to the job-creating entity, or invests in it as equity.

3. 03

   Step 3: The JCE combines it with other funding

   The JCE typically also uses a senior bank loan and developer equity, and sometimes other financing.

4. 04

   Step 4: Repayment follows the agreed priority

   When the JCE repays or distributes funds, they flow through the stack in the order set by the loan and intercreditor documents.

EB-5 capital may sit behind a senior bank loan, which often makes it mezzanine debt. It may also be structured as equity or, occasionally, as senior debt. There is no single required structure, so confirm the actual position in the legal documents rather than relying on marketing descriptions.

Collateral is the asset that secures a loan. In an EB-5 project it may be real estate, business assets or ownership interests in the borrower. A secured position is a potential source of recovery if the borrower defaults, but it is not a guarantee: the collateral may be worth less than the debts it secures, and senior creditors may have first claim on it.

Where there is more than one lender, an intercreditor agreement sets out how they relate to each other. It typically covers:

• Priority: which lender is repaid first, and from which assets.
• Enforcement rights: who may take action, such as foreclosure, after a default.
• Restrictions after default: for example, a junior lender may be barred from enforcing its rights until the senior lender has been repaid or has consented.

• Minimum investment: $1,050,000 generally, or $800,000 in a targeted employment area or infrastructure project, for petitions filed before January 1, 2027.
• Job creation: at least 10 qualifying full-time jobs per investor. See EB-5 job creation explained.
• At-risk capital: the investment must be at risk, meaning there is both a risk of loss and a possibility of gain. Neither immigration approval nor repayment is guaranteed.
• Loan-funded investments: a loan used to fund an EB-5 investment generally may not be secured by the assets of the enterprise being invested in. See gift and loan funds.

How and when capital is repaid is covered in exit strategy and capital repayment.

Understanding where your capital sits is one of the most useful things you can do before investing. Documents worth requesting and reviewing with professional help include:

• The private placement memorandum (PPM) and subscription documents
• The loan agreement(s) between the NCE and the JCE
• Collateral and security documents
• The intercreditor agreement, if there is more than one lender
• A statement of total project financing (sources and uses), including the developer's own equity
• The repayment plan and the assumptions behind it

Questions to ask:

1. Is the senior financing committed, or still being sought?
2. How much total debt ranks ahead of the EB-5 capital?
3. How much of the developer's own money is at risk, and where does it sit?
4. What happens if construction costs rise?
5. What happens if refinancing at maturity is not available on expected terms?

For a fuller checklist, see how to evaluate an EB-5 project. The SEC's investor alert on EB-5 (opens in a new tab) also highlights collateral, conflicts of interest and developer incentives as areas to examine.

• Read exit strategy and capital repayment to see how the stack affects repayment.
• Work through how to evaluate an EB-5 project and the due diligence questions.
• Review understanding EB-5 investment risk.
• To have a project's documents reviewed, request a consultation to be connected with a licensed securities professional and a qualified U.S. immigration attorney.