Quinn Palomino

The first opportunity zone fund development has officially broken ground. Private equity firm Virtua Partners and its hotel management affiliate Hotel Equities has started development on the 130-room Springhill Suites by Marriott in the Phoenix suburb of Avondale. This is seemingly early project in the opportunity zone saga, and is moving forward as Treasury officials map out the remaining regulations for these investment-friendly zones. However, Virtua was an earlier believer in the model and began fund raising last summer and planning a development pipeline even earlier.

“Our investments over the years have always been tax-centric. We followed the legislation as it made its way through Congress in 2017, and when it passed, we knew that it was going to have a pretty transformational impact on commercial real estate,” Quinn Palomino, principal and co-founder of Virtua Partners, tells GlobeSt.com. “As soon as it was passed, we put together a pipeline of projects. We currently have a pipeline of more than 120 projects across the country, mostly concentrated in the Sunbelt and primarily in residential and hospitality assets.”

So far, opportunity zone investing has been focused on developing affordable housing in underserved communities, but Palomino says that hospitality actually offers a better return for investors under the opportunity zone model. “Many investors are looking for cash flow in their opportunity zone investments, and in the commercial real estate sector, hospitality has the highest cashflow. With hospitality, we are able to achieve a double-digit cash-on-cash return over the 10 years with an IRR in the upper teens,” she explains. “There are pretty hefty tax benefits out of the tax reform in the form of increased in expensing and accelerated depreciation. These passive losses can be used to offset other income. For these reasons, hospitality is the strongest return profile of the major commercial real estate sectors.”