In order to "substantially improve" a property in the Opportunity Zone, you must spend enough on renovations/improvements to double the basis of the existing structure. It certainly may be possible to meet that threshold on a hotel to multi-family housing conversion, but it will be the renovation expenses that determine your compliance rather than the fact the property's use is changing. A couple things to keep in mind: Firstly, you get to pull out the basis in the land when determining your substantial improvement threshold. So if you purchase the hotel for $2 million and value the land at $800,000 then you basis in the structure is $1.2 million, and that's the amount you'd need to spend in improvements over a 30-month period to meet the substantial improvement threshold. Secondly, furniture, fixtures and equipment used in the trade/business can count toward the substantial improvement threshold. So things like adding common area amenities or furnishing some/all of the units could be qualifying expenses, in addition to the capitalized improvements you are completing on the structure.
