Enterprises and Job Creation, Direct vs Regional Center: Basic Components of an EB-5 project

There are three main requirements from an EB-5 Immigrant Investor which dramatically impact the outcome of an EB-5 petition:

1. Investors must be admissible to the U.S. in accordance with the conditions of the Immigration and Nationality Act. Some of these factors may include inadmissible crimes, past immigration record and unlawful presence, health status, among other disqualifications.
2. Sources for investment capital must be well-documented, official, legal, and verifiable to an incredibly detailed degree. These documents must include the source of income used to pay for leases, deeds, and debts going back decades. 
3. Investment capital must be invested in a qualified EB-5 project in which the investor’s funds create and sustain at least ten new jobs. Investment capital must be spent according to the detailed business plans submitted with the investor’s initial petition.

Prospective investors seeking EB-5 visas are required to invest their funds into a New Commercial Enterprise (NCE) for a specified period of time. Generally, investors have two options when choosing how to invest their funds:

“Regional Center investment” through EB-5 Investment Issuers

The majority of EB-5 investors invest in a project offering through an investment issuer or a regional center. In 1993, Congress created the Regional Center (RC) Program, which allowed investment issuers to pool investment funds from multiple investors into a singular project. The purpose of the RC program was to concentrate the economic impact of an EB-5 project by allowing pooled investment projects to be erected in specific geographic areas with economic incentives. The program benefits the investors by allowing for flexible job creation and benefits the developers and business owners by allowing for larger, more expensive projects to receive EB-5 funding.

In an “regional center” investment scenario, the issuer takes care of the responsibilities over the business operation. Generally, investors tend to prefer this investment option, as it is passive and does not require them to be actively involved in the day to day needs of the project. Additionally, investment issuers are more likely to have experience with investment intake and disbursement, immigration documentation, and have more resources at their disposal to take care of such needs.

When calculating job creation, investment issuers use a statistical economic model to determine the economic impact of the project and estimate how much of the investment funds were spent purely on wages or contractor services. Job creation is then quantified and divided amongst the number of investors in a project. Depending on how the offering is structured, job creation is a first-come, first-serve variable. Investors who receive their conditional residency first will receive the first ten jobs, and so forth, until all jobs have been claimed by the investors.

Example: There are ten investors in one indirect investment project. Because each investor’s green card status is contingent on the creation of ten jobs, this pooled project must create at least 100 jobs (ten investors x ten jobs = 100 jobs necessary for all investors to receive a green card). If only 90 jobs are created, then only the first nine investors in the project receive their green cards; the last investor will likely receive a denial unless ten more jobs can be created.

Regional Center Investment

• Multiple investors can participate in an investment offering for one sponsored project.
• Direct, indirect, and induced employment all count toward the job creation minimum. Job creation is calculated based on an economic model rather than measured exactly.
• Well-suited for larger real estate developments or other large scale projects with significant funding requirements.
• Investment can be structured in the form of debt or equity 
• If the project is foreclosed, unfinished, or declares bankruptcy, investors may still be able to complete the immigration process despite project failure (provided the EB-5 money was spent correctly and the economic model reflects enough jobs created for all investors).

Direct Investment through Entrepreneurial or Distressed Businesses

Alternatively, an investor can create their own EB-5 projects or invest in a troubled business, thereby making a direct investment into the project’s business fund. In direct investments, the investors are responsible for building an enterprise that can create and maintain ten full time positions, making these types of projects fairly burdensome for EB-5 investors. While the investor cannot actively run the business until they are authorized to work in the U.S, they can hire someone to manage this enterprise in the meantime. This option is favored mostly by experienced entrepreneurs looking to build labor-intensive businesses.

Direct Investment

• Only one investor per commercial enterprise
• Only direct jobs (W-2 positions created directly by the commercial enterprise) count towards the job creation minimum
• Well-suited for small businesses
• All risk is assumed by the investor and project owner. Asset protection comes at the cost of the investor given their percentage of equity ownership in the project.
• The project must be successful in maintaining at least 10 full time jobs and financial stability through the conditional residency period. Project success is crucial to a successful immigration process

New Commercial Enterprises

A New Commercial Enterprise (NCE) is the entity which the investors must send their money to. When using the Direct investment model, the money invested must be spent by the NCE to hire employees needed to fulfill the terms of the EB-5 program. In the Regional Center model, the NCE is where all project investors ‘pool’ their money before it is invested either in the form of a debt or an equity offering into another entity which will then spend the money to create jobs on behalf of the NCE.

Job Creating Entity

In a Regional Center model a separate entity would be created, referred to as the job creating entity (JCE). A Job Creating Entity (JCE) is essentially the EB-5 project, typically an affiliated entity of the sponsor that is developing or operating the project that receives EB-5 funds in the form of loan or equity. This is also where investor’s money is spent to create the requisite jobs. In a Regional Center project, the NCE and the JCE are distinct and separate entities. Whereas the NCE is capitalized by equity contribution from the EB-5 investors, the JCE is capitalized by an investment (equity model) or loan (loan model) from the NCE and is the entity directly engaged in project development.

Its responsibilities include creating at least ten (10) jobs per investor and maintaining these jobs for at least two years. The JCE receives money from the NCE for expenses such as construction, independent contractors, leasing, equipment, land surveys, and more. Nearly any expense related to the development of jobs and property is a valid expense type for these entities. JCEs must submit both their business plans and expense reports to comply with the requirements of the EB-5 program. Once the project has been completed or the loan period has expired, the JCE disburses repayment funds back to the NCE, who then repays the investor when eligible.

Embed Image showing NCE JCE structure