EB-5 Investing 101: Measuring Risk Through the Capital Stack

Investors in the EB-5 regional center program make a capital investment into a project by pooling their funds into a New Commercial Enterprise (NCE), which is overseen by a Regional Center. The NCE then deploys these funds to a Job Creating Entity (JCE), which is typically controlled by the project developer and is responsible for carrying out the project and creating the required jobs. Here, the EB-5 capital is commonly structured as either equity or a loan. While obtaining a green card is the primary goal of an EB-5 investment, the repayment of the invested capital is also a critical consideration given that the program requires investors’ capital to be “at-risk”. Understanding the project’s financial structure is essential, as it directly impacts the level of risk investors are exposed to.

The capital stack of a project refers to the different layers of financing, each carrying its own risk and return profile. Senior loan typically has the lowest risk and is repaid first, followed by mezzanine loan (or mezz loan), then preferred equity and common equity.

Loan vs. Equity

Compared to equity investments, loan structures often provide a more predictable and secure path for EB-5 investors. Because loans, especially senior loans, are governed by formal agreements with defined repayment terms and interest schedules it is typically clearer to understand how and when loan repayments can be expected. Many loan structures are also secured with collateral. In the case of a senior loan, this typically includes a mortgage on the project’s land and building. While EB-5 regulations require that investor capital remain “at-risk” and repayment cannot be guaranteed, this collateral provides an additional layer of protection: if the developer (borrower) fails to repay by the maturity date, the NCE (as lender) may pursue remedies available under the loan agreement, including foreclosure.

Senior loans, which occupy the base of the capital stack, are repaid before other forms of financing, offering a lower-risk profile compared with equity or subordinated loans. They also provide stable, contractual interest payments and repayment schedules, making returns more predictable. Equity investments, by contrast, are typically repaid last and exposed to more risks. Since repayment depends on the project’s performance, equity investments are usually incentivized with higher rates of investment returns. Additionally, senior lenders are often provided with completion guarantees to support project fulfillment and operation.

Senior Loan vs. Mezzanine Loan

Mezzanine loans occupy a position behind the senior loans, meaning they are repaid only after senior loan obligations have been satisfied. Because of this subordinate position, mezzanine loans carry higher risk in comparison, which is often reflected in higher interest rates or potential profit participation. Unlike senior loans, mezzanine loans may not always be fully secured by project assets, so lenders have less direct recourse if the borrower cannot meet repayment obligations. 

For EB-5 investors, it is important to recognize that project structures can vary significantly. In some cases, a lender may divide its financing into the senior portion and mezzanine portion, with the mezzanine portion held by an affiliated entity. This approach can provide an additional layer of security by allowing the lender to hold both a mortgage on the property and a pledge of ownership interests. Depending on the structure, repayment may follow a traditional route where the senior loan is repaid first, followed by the mezzanine loan; or a pro-rated arrangement in which both loans are repaid around the same time. In either scenario, this structure enables the lender to maintain control until the full aggregate amount is repaid, thereby enhancing the oversight of the project and reducing the overall risk associated with the mezzanine portion.

Making Informed EB-5 Investment Decision

Ultimately, there is no single structure that fits every EB-5 project or investor. Each project’s capital stack must be evaluated in its entirety, taking into account where the EB-5 capital is positioned, how repayment is structured, and the level of risk associated with each layer. Beyond the capital stack, investors should also carefully assess the project’s location, market demand, and long-term value, as these factors play a critical role in the project's overall viability and success. By understanding the distinctions between senior loan, mezzanine loan, and equity - and considering the broader fundamentals of the project - investors are better equipped to make informed decisions that align with both their immigration objectives while appropriately managing their investment risks.