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The American Immigrant Investor Alliance (AIIA) seeks to increase literacy about the EB-5 Immigrant Investor Program run by U.S. Citizenship and Immigration Services (USCIS). To that end, we publish a variety of investor-focused briefs on aspects of the program. This article is one such brief about the critical process of repayment of an EB-5 investment after its sustainment period — i.e., the time for which an investment must remain “at-risk,” create/preserve 10 full-time jobs for U.S. workers, and thus make the investor eligible for immigration benefits.

At the outset, EB-5 investors must be reminded that there is no guarantee of a return on investment. EB-5 capital is placed “at risk” and the value of that investment may be subject to market forces, even if the investment meets the statutory requirements of creating 10 jobs and being sustained. Therefore, EB-5 investors should be prepared to lose money on their investments, in case such a loss is realized. 

Recall that the primary purpose of an EB-5 investment is to obtain admission or adjustment to the status of Lawful Permanent Resident (LPR) of the United States of America, immigrate to the country, and eventually naturalize as a United States citizen. As an aside, AIIA strongly encourages naturalization by all former EB-5 investors once eligible as LPRs, due to changes in immigration policy under the current presidential administration.

How To Get Repaid

For EB-5 investors who participate in the program through a Regional Center, the method of repayment will usually be specified in the investment offering documents and investment agreement between an investor and Regional Center. These documents must be read carefully, and preferably discussed with a financial advisor before the investment is executed. EB-5 investors who directly invest their money in their own ventures may have ad hoc arrangements to recover their investments, which are beyond the scope of this article.

Investors must understand their “exit strategies” from an EB-5 backed project. The term refers to an investor’s plan for divestment from a project and recovery of their funds. The exit strategy involves understanding the pathway of funds from the project to an investor’s control, tax liability, legal considerations, interest or capital gains, as well as options for investors thereafter.

Debt Investments

For debt investments, i.e., when an EB-5 investment is structured as a loan, the exit strategy usually involves repayment of the investor’s loan plus a small amount of interest. Interest rates for EB-5 projects are decidedly below-market, which is what makes the program attractive to U.S. ventures looking to raise capital.

Large projects backed by EB-5 debt have a hierarchy of creditors, where some investors will be repaid before others. The highest-ranked creditor is termed to own the “senior debt” on the project, while others own the“mezzanine debt.” EB-5 investors usually own mezzanine debt on large projects, which affects the order in which they will be repaid. The order is critical in case of project failure and bankruptcy, as creditors will usually be paid according to the hierarchy, with senior debtors receiving liquidated assets first.

Debt investments are far more secure forms of structuring an EB-5 investment, though returns may be lower than other forms with greater risk, such as equity.

Equity Investments

For equity investments, i.e., when an EB-5 investor purchases a stake in a company running a project, exit strategies can be more complicated. To exit such an investment requires the investor to have their stake of ownership in the New Commercial Enterprise (NCE) be transferred to someone else, or distributed in some way among existing shareholders, and the value of that stake fully liquidated.

The investment agreement for an equity-based EB-5 investment may have restrictive covenants. Often, other equity holders in a project may be reluctant to have a stakeholder merely sell their stake to anyone, or to even buy out a stakeholder who wants to exit. The rules of such an investment may be disadvantageous to an EB-5 investor. Furthermore, the value of equity will likely fluctuate according to the financial performance of the company, its projected valuation, and other factors. 

Therefore, it is essential to carefully read the investment agreement before proceeding with an equity investment. An EB-5 investor must decide the level of risk they wish to accept.

Forms of Repayment

For debt-based projects, as an EB-5 project is underway, the Job-Creating Entity (JCE), which actually employs the 10 full-time U.S. workers using EB-5 funds, may make interest payments to the NCE. These interest payments are usually split between the NCE’s investment manager and the EB-5 investors., with the majority of the interest going to the NCE manager. This is how investment managers, such as Regional Centers, make most of their revenue.

In this context, an EB-5 investor may be tempted to choose a higher-interest project in order to maximize returns during the investment term before full repayment. It must be known that these projects often come with higher risks, both for an investor’s return on investment as well as an EB-5 investor’s immigration process. They may be less profitable and cause more problems in the long run. AIIA cannot advise EB-5 investors on the acceptable level of risk that maximizes returns while minimizing such complications. Investors must use their discretion.

There are several ways that an EB-5 investor may be repaid. We list the most common methods, as follows:

• Refinancing: If an investment recipient wishes to keep an EB-5 investor’s money, the investor may be able to “refinance” their investments in a project after the required sustainment period. This involves signing a new investment contract that allows the original investment, and any interest accrued, to be compounded at a higher rate. Refinancing allows the EB-5 investor to align their investment with market parameters, unlike the below-market terms of most EB-5 investments. In this circumstance, the investor does not immediately redeem the cash value of their investment.

• Sale of Asset: After an investment period, the EB-5 investor may be able to sell their investment to a third party and realize the cash value of the investment immediately. The possibility of a sale will depend upon the type of investment, whether debt or equity, and the terms of the investment agreement. EB-5 debt investments on the same terms are generally unattractive to regular market-based investors (due to their low interest rates) looking to purchase prime assets for their portfolios. An EB-5 investor may be able to sell their investment to another EB-5 investor, subject to job creation potential.

• Cash Flows: This is the most common form of repayment for both debt and equity investors. The EB-5 investor will receive cash payments reflecting the value of their investments according to the terms of the agreement. In the case of debt, this would be in the form of interest payments until the whole debt is realized, and the investor is thus divested. In the case of equity, an investor may receive dividends from the company’s profits. Cash flow from the sale of equity (in whole or in part) will be realized upon the sale of the asset.

Eligibility for Repayment

EB-5 Investors are only eligible for repayment of their investments once the statutory sustainment period — i.e., the period for which an investment must remain “at risk” to receive immigration benefits, as required by the Immigration and Nationality Act (INA) — and the investment loan term (determined by the contact between the investor and the issuer) have been completed. 

It must be noted that, even after an investor reaches the end of the sustainment period, investors may have to wait for longer periods of time to be repaid. The availability of capital to repay investors depends on when their NCE is repaid by the JCE. 

An EB-5 investor who has filed an I-829 Petition by Investor to Remove Conditions on Permanent Resident Status with USCIS does not need to receive a decision on their petition in order to be repaid. Even if the petition is denied and immigration benefits are terminated, an investor may still be repaid in full.

Once the NCE has been repaid, all eligible investors can expect to have their investment amounts returned to them. Deductions to this amount may be made by the investment issuers, which will be specified in the project’s annual reports and exit documents.

Sustainment Period Completion

The sustainment period, as it affects repayment of an investment, may be different for certain investors. The main difference is between investors with Visa Bulletin Final Action Dates (FADs) before and after March 2022. The United States Congress enacted the EB-5 Reform and Integrity Act (RIA) of 2022, which changed the process of sustainment.

Investors with FADs prior to March 2022 (i.e., pre-RIA investors) will complete their sustainment period once they have held conditional LPRs for at least two years. In order to receive conditional LPR status, an investor’s I-526/I-526(E) Petition by an Immigrant Investor must be approved by USCIS and they must be granted Adjustment of Status or an Immigrant Visa to the United States. The grant of Adjustment or an Immigrant Visa depends upon an investor’s FAD being ‘Current’ on the U.S. Department of State’s Visa Bulletin, which is affected by the volume of immigration from their country of chargeability every year in relation to the INA’s statutory limit of 7 percent from each country. 

The grant of Adjustment (by USCIS) or an Immigrant Visa (by the Department of State) also depends upon processing times for such applications by the respective departmental bureaucracies, which AIIA has documented as being very slow.

Therefore, given the current Visa Bulletin FADs, pre-RIA investors, especially chargeable to Mainland China and India, may have to wait several years after their investment terms have concluded in order to be repaid. During this time, their capital must remain “at risk.”

Investors with FADs after March 2022 (i.e., post-RIA investors) will fulfill their sustainment period on the two-year anniversary of their investment capital being sent to the JCE. Therefore, these investors may seek repayment on this day and need not wait further.

Common Challenges to Repayment

Loss of Investment

The capital for an EB-5 investment’s repayment comes from projects in which the investment was made. If a project is stalled, foreclosed, or generally unprofitable, repayment may not be possible. An investor may realize a loss, or be repaid beyond the term of their investment. Investors have previously struggled to receive full repayment and felt discouraged at the small amount of interest accrued on their loans to the NCE, though this is not the case with all projects. The willingness to accept such risks is at the discretion of an EB-5 investor.

An EB-5 investor may still receive LPR status even if a project fails, so long as the sustainment period is fulfilled and a minimum of 10 full-time jobs for U.S. workers are created.

Gian lận và Lạm dụng

Regardless of the amount of interest promised to EB-5 investors, an NCE manager will often take a major share of the interest payment received from a project. This may be specified in the investment agreement an investor executes before they proceed with the investment. However, in AIIA’s experience, many NCEs often abuse their control of investor funds and may defraud investors. If you are an investor and believe you have been defrauded, or are seeking any form of repayment related support on your EB-5 investment, we recommend visiting our investment support page. AIIA is dedicated to helping EB-5 investors combat fraud and abuse by NCEs. We seek to hold these NCEs accountable and exact retribution against them, including criminal liability, for mistreatment of investors.

Redeployment

A critical, and controversial, component of any EB-5 project is the investment issuer’s right to “redeploy” investments after the invested capital is repaid back to the NCE. 

Subject to the terms of the investment agreement, an issuer may redeploy these funds into a new project, sometimes without the consent of the investor. Additionally, some issuers will issue exploitative Private Placement Memoranda (PPMs) allowing the issuer to redeploy investors’ returns if a project is repaid before an investor is eligible for repayment.

Redeployment is not always negative. Investors may still receive dividends from the NCE for their redeployed funds. However, the discretion allowed to issuers with redeployment permits them to choose any commercial enterprise regardless of the risk it may pose to investors, which exposes them to stalls, foreclosures, or general unprofitability without the ability to decline such risks.

Some issuers have been known to redeploy an investor’s interest to repay debts and loans on their projects. As the potential for redeployment abuse is greater than many investors realize when they enter into an EB-5 project, it makes reviewing a PPM and other offering documents even more important.

AIIA opposes the non-consensual redeployment of investor capital by NCEs and has supported many investors seeking to file lawsuits against such NCEs. We have a known list of unfriendly investment issuers with a history of mistreating investors with non-consensual redeployment. Please contact AIIA before making an EB-5 investment so we can help you avoid common shysters and disgraces in the EB-5 community.