From NCE to JCE: Understanding the Core Entities

Regional center projects are structured in layers and involve multiple entities, including the regional center, the developer and the entities that facilitate the investment and distribution of EB-5 funds.

New Commercial Enterprise (NCE)

For the purpose of raising EB-5 investment capital for a specific project, the project sponsor establishes a New Commercial Enterprise (NCE), either in the form of a Limited Liability Company (LLC) or Limited Partnership (LP). The NCE’s main function is to pool funds from multiple investors (whose numbers could range from a handful to a few hundred) and then either invest or loan those funds to the Job Creating Entity (JCE) to develop the project and create jobs.

When an investor contributes capital to a NCE, they hold an equity share in the NCE, which holds equal weight to all other EB-5 investors in their project offering. Although they may not hold equity in the project itself, the financial structure of a NCE requires that all EB-5 investors hold a form of ownership.

When an investor contributes capital to an NCE, they are purchasing an equity (ownership) share in that entity. Usually, NCEs are formed as LLCs or LPs. Ownership interests are split equally among EB-5 investors. At the end of the investment period, the NCE is either paid back with the loan it issued to the JCE (“loan model”) or is paid out distributions from the sale or refinancing of the project (“equity model”). When the NCE is paid back, it in turn pays back the capital contributed by investing members during the dissolution process.

In many cases, and depending on the offering, investors will also be promised a return on investment. Returns are either current, and paid out quarterly or annually, or accrued, and paid out at exit. Thus, when the project pays back the NCE, EB-5 investors are paid back their original investment in addition to the value of the preferred returns they received over the life of their investment. Returns are not guaranteed. In conservatively structured projects, returns are generally low.

NCE Manager

Every NCE has a Manager (typically a Managing Member or General Partner) who conducts all business with investors and project developers. In most cases, the regional center (or an affiliate of the regional center) serves as the NCE Manager. The NCE Manager’s duties include the following:

• Oversee transfer of funds to and from NCE
• Handle NCE’s administrative duties and securities laws compliance
• Formulate all project and subscription documents for investors and regulatory authorities
• Maintain agreements with developer
• Monitor and share information about project progress with stakeholders on a regular basis*
• Oversee all business conducted by the NCE including control construction loan draws and debt servicing by borrower
• Eventually manage repayment to investors for their initial investment

Legally, the NCE Manager has to protect the interests of all investors in the NCE when administering the pooled investment capital. However, investors should be aware that managers often have to balance investor interests with the often-conflicting financial interests of the NCE and regional center. Therefore, it is advisable to closely review all offering documents to identify potential conflicts of interests and also to ensure the investor’s rights include monitoring the investment capital and the activities of the NCE Manager.

Job Creating Entity (JCE)

A Job Creating Entity (JCE) is typically the developer or affiliated development corporation which is developing or operating the project receiving EB-5 capital. The main function of a JCE is to create at least ten (10) full time jobs per EB-5 investor, oftentimes through construction or redevelopment.

The JCE receives the pooled investment capital from the NCE after most investors in the project have been solicited. The NCE will either invest the capital in the JCE as an equity share (investors own a specific % of the business) or a repayable loan. The investment model used by the company determines how much ownership an investor has over a project’s activity and how they will be repaid.

In a regional center project, the NCE and the JCE are distinct and separate entities. Whereas the NCE receives equity contributions from their EB-5 investors and manages immigration benefits, the JCE is funded by an equity investment or loan from the NCE and manages project development.

Repayment flow between JCE and NCE

At the end of the investment term, the NCE is paid back by the JCE either proceeds from the sale or refinancing of the project (equity) or in cash (loan). When the NCE is paid back, it then repays the capital to its pool of EB-5 investors, provided their sustainment period and “at risk” requirements have been met.

Returned Capital Interest

When the project pays back the NCE, EB-5 investors are generally paid back their original investment capital in addition to interest generated on their investment. Different offerings offer different forms of interest returns for investor capital. Returns are either current – paid out quarterly or annually – or accrued – paid out at exit. The interest rates offered to EB-5 investors are usually incredibly low, given that the real payout of an EB-5 investment is not capital gains, but green cards. This is why high-interest rates on offerings may be a red flag, seeking to attract investors looking for high payouts with high risk projects.