Money and structure
Preferred return
Also called pref, coupon, preferred distribution.
A claim to be paid first out of an EB-5 project's distributions, ahead of the sponsor, up to a stated rate. Immigration law does not define the term, which EB-5 borrows from private fund practice, and the rate an offering quotes is a priority rather than a promise: capital carrying a guaranteed rate of return is excluded from the statutory meaning of capital. Rates quoted in EB-5 offerings typically sit far below what a commercial lender or ordinary equity investor in the same project would require.
What it decides
USCIS permits an investor to receive a return on capital as a distribution of profits from the new commercial enterprise. That distribution may be paid during the conditional residency period and before the required jobs are created, but it cannot be a portion of the investor's minimum qualifying investment and cannot have been guaranteed to the investor (6 USCIS-PM G.2(A)(2), Guaranteed Returns). So "preferred" has to carry its private fund meaning, priority in the distribution waterfall, and nothing beyond that. Guarantee the rate and the consequence is not a smaller return, it is a defective petition. USCIS follows Matter of Izummi, 22 I&N Dec. 169, 180-188 (Assoc. Comm. 1998): where an investor is guaranteed a return, or a rate of return, on all or part of the capital, that amount was never at risk, and 8 CFR 204.6(j)(2) requires the required amount of capital to be placed at risk. For petitions filed on or after 15 March 2022 the statute goes further and takes such money outside the definition of capital altogether, at 8 U.S.C. 1153(b)(5)(D)(ii)(III)(cc). Two adjacent rules catch structures built around a stated rate. If the rate accrues as a fixed entitlement instead of being paid out of profits when profits exist, it reads as a guaranteed rate of return under (cc). If the offering pairs the rate with an exit right, 8 U.S.C. 1153(b)(5)(D)(ii)(III)(dd) excludes capital subject to any agreement giving the investor a contractual right to repayment, such as a mandatory redemption or a put or sell-back option, even where payment depends on the project having sufficient available cash flow. The regulation is the only primary source that uses the word preferred: 8 CFR 204.6(j)(2)(iv) accepts money transferred in exchange for common or preferred stock, but the stock may not include terms requiring the enterprise to redeem it at the holder's request. The rate is also pricing information. EB-5 offerings typically state rates well below what a commercial lender or ordinary equity investor in the same project would require, because subscribers accept a low yield for the sake of the immigration benefit while the capital stays at genuine risk of loss. A rate drifting toward commercial terms is worth reading as a question about what the sponsor could raise elsewhere. That last point is market observation rather than a rule: no government source sets or comments on preferred return rates.
Where this is explained properly
Pages here that go into preferred return rather than mentioning it.
Related terms
- Guaranteed returnA promise that the investor will earn a set return, or will get the principal back, which the EB-5 statute strikes out of the capital that counts, to the extent of the amount guaranteed.
- Redemption and buy-back optionA redemption or put right is a contract term letting the investor demand that the new commercial enterprise repay or repurchase the investment, and by statute it takes the money out of the definition of capital. A buy back option is the mirror image, exercisable by the enterprise rather than the investor, and it is the one such term the statute allows.
- Capital accountThe ledger a limited partnership or LLC keeps for each investor, recording capital contributed, profit and loss allocated, and anything distributed back out. It is an accounting term, not an immigration one.
Checked against primary sources on . Back to the glossary