What is a JCE?
In the EB-5 process, the job-creating entity (JCE), is the entity that the new commercial entity (NCE) invests or loans EB-5 investors funds into. As its title indicates, the JCE is the target investment project that creates the required jobs.
Generally, in the Regional Center Program, the regional center controls the NCE, and the project’s developer usually controls the JCE.
While EB-5 investor capital must always be invested as equity into the NCE, the NCE can invest the EB-5 capital into the JCE as either a equity or a loan.
Equity investment into the JCE
In the equity model, EB-5 capital can either be invested directly into the JCE as common or preferred equity, with the investors being equity owner of the JCE, or the NCE can be a preferred owner of the JCE.
The equity model may offer less certainty regarding an investment exit strategy as the repayment may depend on market conditions — however, this may also offer an opportunity for a more significant return in the right market.
Loan investment into the JCE
Generally, regional center investments are structured as loan to the JCE. In the loan model, the loan to the JCE may be secured by a senior or junior mortgage, equity interest, or may even be unsecured.
The loan model may present more certainty of the structure and timing of the exit for EB-5 investors.
Standard loan provisions usually include loan term, maturity date, interest rate, repayment terms, representations and warranties, conditions precedent to any loan advance, affirmative and negative covenants, terms of collateral, clearly defined events of default (and notice of such events and cure periods), and remedies.
The loan from the NCE to the JCE is typically for five years, if there are no extensions.
How can the JCE spend EB-5 capital?
The full amount of EB-5 investment capital must be deployed into the JCE, be sustained “at risk” for the required amount of time so that the EB-5 investors are eligible for immigration benefits, and spent in the project; this capital cannot held in reserve or otherwise be unspent.
The EB-5 capital must be spent by the project but does not have to be spent directly on job-creating activity, as United States Citizenship and Immigration Service (USCIS) allows the JCE to spend EB-5 capital on certain project expenses, such as land, insurance, permits, or developer's fees. However, EB-5 capital cannot be used by to pay NCE's administrative expenses such as its legal or accounting expenses.
The JCE often uses EB-5 capital to repay bridge loans
EB-5 projects often get started by the JCE long before EB-5 capital is raised. In such cases, the project can be structured with short-term financing, often known as a bridge loan. With such projects, EB-5 funds given to the JCE are usually used to repay prior bridge financing.
This allows developers to start their projects sooner by using their own equity or more expensive bank financing.
A bridge loan is also beneficial for EB-5 investors as, prior to investing, they can review a project that is already in development and creating jobs. Additionally, bridge financing can create qualifying EB-5 jobs before EB-5 capital is even invested.
Early return of EB-5 capital by the JCE
If the JCE plans to return the EB-5 funds to the NCE before the adjudication of an investors I-526E petition, USCIS requires that the NCE must reinvest, or redeploy, the investor capital, within a commercially reasonable time, into another business — again with a risk of loss and a chance for gain. If the initial investment did not create the 10 required jobs, the redeployment must also be made into the same JCE.
Can the NCE and the JCE be the same?
In direct EB-5 investments, the NCE and the JCE are the usually the same corporate entity.
However, in the Regional Center Program, the relationship between the NCE and the JCE can vary; at times, the principals of the NCE and the JCE are the same, and at others they are separate entities.