Hotel Developers Have Mixed Feelings About Opportunity Zones

March 7, 2019

When it comes to the new opportunity zone program that gives investors a hefty tax incentive in return for investing in designated opportunity zones that are in mostly low-income areas, many hotel executives are still leery of the federal program and how to take advantage of it. You can’t place a hotel in an area with little infrastructure, no job growth or main commercial drivers, Lifeafar Investments Chief Financial Officer Cole Shephard said.

“These [designated] opportunity zones are usually in the third-tier areas,” Shephard said. “If someone wanted to build a hotel there, they would have already done it.” One year since it was passed under President Donald Trump’s Tax Cuts and Jobs Act in 2017, the opportunity zone program has generated a lot of excitement, optimism and cautiousness. But as the commercial real estate industry waits on the federal government to release the second round of guidelines, hotel executives and hospitality experts aren’t quite sure what to make of the program yet. Last year, state governors — using census information — designated certain areas in their states as opportunity zones. These zones are for the most part low-income or distressed areas that may not have historically seen a lot of commercial investment. The program allows investors to roll over capital gains from another investment or traditionally invest in a business or property in a designated opportunity zone area in exchange for a deferment or elimination of capital gains depending on how long they hold the project. "This [legislation] happened pretty quick," said Radisson President, Americas Ken Greene during a panel at the Americas Lodging and Investment Summit or ALIS conference in Los Angeles. "I think it’s a real opportunity if you’re in the right marketplace." Marriott International Chief Development Officer Eric Jacobs said there is not a day that has gone by that a broker has not contacted him about a site in a designated opportunity zone. “I think we’re early,” Jacobs said. “Everyone is still trying to understand it and how it works.” 

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