EB-5 exit strategies and capital repayment

To qualify for EB-5, the investor's capital must be placed at risk for the purpose of generating a return. That means there must be a genuine possibility of loss as well as gain. It follows that no offering may properly guarantee repayment of capital, and any projected repayment date should be read as an estimate. The USCIS Policy Manual (opens in a new tab) sets out the at-risk requirement.

Even so, the exit strategy is one of the most informative parts of an offering. It shows how the sponsor expects the project to generate enough money to repay EB-5 investors, which assumptions that depends on, and what happens if those assumptions turn out to be wrong. A realistic exit plan is no promise of repayment, but an unrealistic one is an important warning.

In many regional center offerings, investors' capital is pooled in a new commercial enterprise (NCE) and then lent to a separate job-creating entity (JCE) that develops or operates the project. Repayment to investors then depends largely on the JCE repaying that loan. The table below summarises the exit routes most often described in offering documents.

These routes are not mutually exclusive. An offering might plan to refinance at maturity, fall back on a sale if refinancing is not available, and permit an extension in the meantime. Understanding the order in which these options would be used, and who decides, is part of evaluating the offering.

EB-5 loans commonly have multi-year terms with options to extend. An offering may advertise, for example, a five-year term, but the loan documents may allow one or more extensions beyond that, sometimes at the borrower's option. The advertised term is therefore not necessarily the date by which capital will come back.

The controlling details are in the documents, not in summaries or marketing materials. With a licensed securities professional, investors generally review:

• The maturity date and exactly how and from when it is measured.
• Extension rights: how many extensions are allowed, for how long, who can trigger them, and whether conditions or fees apply.
• Default provisions: what counts as a default, what remedies the lender (usually the NCE) has, and whether those remedies are limited by agreements with senior lenders.
• Reporting: what information investors will receive about the project's progress and the borrower's ability to repay.

Repayment timing also interacts with the immigration process. Because the investment generally needs to remain at risk for the required period, an offering's repayment terms may refer to investors' immigration milestones. How that works for a particular investor is a question for a qualified U.S. immigration attorney.

A repayment waterfall is the contractual order in which money is paid out when a project generates cash, is refinanced or is sold. Each layer of financing is paid in turn, and a layer lower down receives money only after the layers above it have been paid as required.

1. 01

   Step 1: Senior debt

   Typically a bank construction or mortgage loan, often secured by a first-priority lien on the property. It is generally repaid first.

2. 02

   Step 2: Mezzanine or junior debt

   EB-5 loans frequently sit here, behind the senior lender. They may be secured by ownership interests in the borrower rather than by the real estate itself.

3. 03

   Step 3: Preferred equity

   Paid after creditors, according to its contractual rights.

4. 04

   Step 4: Common equity

   Generally paid last, and the most exposed if the project's value falls.

Where EB-5 capital sits varies by offering. It may be junior debt behind a senior loan, an equity interest, or occasionally senior debt. Investors should confirm the actual position from the loan, security and intercreditor documents rather than from marketing descriptions. An intercreditor agreement between lenders can restrict what a junior lender may do after a default, for example by preventing enforcement until the senior lender has been paid or consents. See the EB-5 capital stack for more.

Sometimes a project is ready to repay EB-5 capital before every investor has completed the immigration process. Because the investment generally must remain at risk during the relevant period, the capital may then need to be redeployed, meaning reinvested in another activity that is intended to satisfy EB-5 requirements.

The rules on redeployment are technical, and which rules apply generally depends on when the investor's petition was filed and on the applicable statutory provisions and current USCIS policy. Requirements for petitions filed before the EB-5 Reform and Integrity Act of 2022 may differ from those for later petitions. This article does not attempt to summarise those rules; a qualified U.S. immigration attorney should explain how they would apply to a specific case.

• Does the offering permit redeployment, and who decides where the capital goes?
• What kinds of activities are eligible, and how will the investor be informed?
• What fees or costs could apply to a redeployment?
• How would a redeployed investment change the risk profile and the expected repayment date?

1. What is the proposed repayment date, and what assumptions is it based on?
2. Where will the repayment money come from: cash flow, refinancing, a sale, or a combination?
3. If refinancing is planned, what interest rates, valuations and lender requirements does the plan assume, and what is the alternative if refinancing is not available?
4. If a sale is planned, what comparable sales support the expected price?
5. What is the loan's maturity, how many extensions are permitted, and who controls them?
6. Where does EB-5 capital rank in the repayment waterfall, and what is it secured by?
7. What happens to investors if the borrower defaults, and what does the intercreditor agreement allow?
8. What are the redeployment terms, and which redeployment rules apply to my petition's filing date?

These questions complement our guide to evaluating an EB-5 project and the project due diligence questions. The minimum investment, currently $800,000 or $1,050,000 depending on the project, is a significant sum to have at risk for several years.

• Read about the EB-5 capital stack and understanding EB-5 investment risk.
• Work through how to evaluate an EB-5 project for any offering you are considering.
• Review the overall costs involved on EB-5 costs.
• If you would like to be connected with a licensed securities professional or a qualified U.S. immigration attorney, request a consultation. EB5 Circle does not provide investment or legal advice and does not verify or endorse any project.