As a broker, I have been presented with an opportunity to acquire one or two hotels in an OZ. However, the construction of the hotels is completed. Does OZ capital have to be used to substantially improve the project or could the hotel acquisition qualify for the OZ tax benefit?
The only way this can potentially qualify is if the hotels have not yet been placed in service for federal income tax purposes. Even then, it's a risky proposition. If you have investors, you will need to consult with a securities counsel to see what kind of impact this would have on your fiduciary duty and whether any reversal would open you up to a lawsuit.
Yes, OZ capital has to be used to substantially improve the project for the hotel acquisition to qualify for the OZ tax benefit. The substantial improvement test requires that you would have to invest an amount equal to the value of the improved portion of the property in order for the benefit to be available.
No, the hotel would have to be purchased just before the certificate of occupancy is issued. Or, to be precise, it would be "at a time when the hotel has not had any depreciation."
If the hotel has completed construction and been placed in service by the seller, then it would be difficult to structure something that works. I would need to know more specifics, though.
You either have to substantially improve or set the fund up as a ground lease.
It will depend on whether the property meets the original use requirements or not. If it has not been placed on service for depreciation or amortization purposes before, it may qualify with no substantial improvement requirement. Careful analysis of all facts must be made before you invest.
You need to substantially improve the property. OZ money does not work for purchasing a finished project.
If the construction is nearly complete and the hotels had not yet been placed in service, there may be a way to get this to qualify.
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