ownership interest in the JCE , the mezzanine lender is still subject to the full senior debt and any loan payments still due under the senior debt .
In other words , the security provided to EB-5 investors for a mezzanine loan simply means that the EB-5 investors become common equity owners , which is the bottom of the capital stack in getting any payments . The mezzanine lender would need to operate the business and any property upon foreclosure of the loan , which would require spending money to hire professionals since it is unlikely that the EB-5 investors have the ability to run the JCE ’ s former business . Many EB-5 investors target mezzanine debt investment opportunities because they view the existence of a senior lender , who has done its own diligence , as a sign that the JCE is a safe investment opportunity . However , a senior lender needs only to ensure it ultimately has adequate collateral for its security and that it has first priority in that collateral . If the project were to fail and the JCE becomes insolvent , the senior lender will foreclose on any real property and all other assets – and the mezzanine lender is left with a pledge of ownership in an insolvent entity .
the senior debt holder , the preferred equity holder has no collateral to fall back on , but may have the opportunity to take control of the ownership entity if things take a turn for the worse similar to the rights of the mezzanine debt holders .
COMMON EQUITY
" Common equity has the best potential return on investment if all goes well , but has the highest risk of receiving nothing if it does not ."
At the very top of the capital stack is the common equity . Common equity has the best potential return on investment if all goes well , but has the highest risk of receiving nothing if it does not . Common equity distributions are paid out last after all debt and preferred equity is paid out . In most cases , there is not enough income to go around and the common equity holders receive nothing . On the other hand , if the asset or real property outperforms expectations , common equity holders stand to receive the highest return on investment . In the case of a real estate investment , if the real property appreciates significantly and is sold , common equity holders have no limitations on how much they receive back and receive the greatest benefit relative to their capital investment .
PREFERRED EQUITY
An EB-5 investor looking to maximize profit and who is less concerned about getting their capital investment back might be interested in making an equity investment . Preferred equity investments allow someone to make an investment in the indirect ( through the JCE ) ownership of the real property or other asset that is the target of the investment transaction . Preferred equity holders have priority when getting paid cash flow distributions over common equity holders , but there may be limitations on how much income the preferred equity investor is able to receive if the project does better than expected . Unlike
Ultimately , EB-5 investors should take into account whether their investment will be repaid when reviewing whether a particular investment is a safe or good investment . As described above , not all types of investments create the same outcome for an investor . In addition to hiring immigration advisors who can help determine whether an investment will meet the conditions to enable the EB-5 investor to obtain permanent residency , EB-5 investors should consider hiring financial or investment advisors who can review an investment opportunity with a view towards repayment of capital and , if a priority for the investor , potential profits .
Jennifer Moseley is a corporate and securities partner at Burr & Forman LLP in Atlanta , and advises small start-ups to large , public companies in an array of transactions and capital raising activities . She enjoys assisting her clients in her role as counselor to start-up and developmental stage companies . Moseley was introduced to EB-5 in early 2008 and addressed securities law implications in EB-5 during the “ early years ” when securities law was not at the forefront of EB-5 related discussions . She continues to help clients navigate the intricacies of securities laws with practical solutions to meet their goals .
Ashmin Chowdhury is an associate in the Atlanta office of Burr & Forman , LLP . She represents financial institutions , as well as borrowers , in connection with both corporate and real estate loan transactions .
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