First Hotel on Lancaster Blvd.

A project to erect the first hotel along Lancaster Boulevard holds the promise of upgrading the entire downtown section of the city. Developed as a joint venture between InSite Development in Woodland Hills and St. Louis hotel firm Midas Hospitality, the project will create a $25 million, 107-key extended-stay Residence Inn by Marriott International at 857 W. Lancaster Blvd. on the Antelope Valley’s busiest thoroughfare. Construction of the four-story, 80,000-square-foot building is scheduled to begin later this year, with the hotel’s opening planned for early 2021. It will be the first hotel in Lancaster that isn’t located along the 14 freeway. According to InSite partner Steve Eglash, the project “means everything to the downtown.” The Residence Inn will serve the area’s bustling business traveler market, particularly the military and private sector contractors who temporarily relocate to Lancaster for jobs at Edwards Air Force Base, Air Force Plant 42, Northrop Grumman Corp., Boeing Co. or Lockheed Martin Corp. Eglash said giving these folks a place to stay on the boulevard will bolster foot traffic at nearby retail and service businesses, including about a dozen restaurants, multiple upscale movie theaters, a brewery, a country bar with live music, a bowling lounge, the Lancaster Performing Arts Center and the Museum of Art and History. “Every business on the boulevard is going to benefit from the hotel. It’s going to help all the businessowners and stakeholders in downtown Lancaster,” said Eglash. That’s not to mention the hundreds of construction jobs the project will bring to the area, nor the 40 permanent jobs the hotel will provide once open. Despite the impact this project will have, Eglash said, it almost didn’t happen. It was only possible because the property falls inside an “Opportunity Zone.” Opportunity Zones Opportunity Zones are Census Bureau tracts comprising low-income or underserved communities where investors can qualify for tax advantages on housing and commercial developments. These zones and their investment incentives were established as part of the Trump administration’s Tax Cuts and Jobs Act in 2017. Opportunity Zones cover more than 850 Census tracts throughout California and more than 8,700 nationally. To stimulate private investment in these zones, the federal government provides tantalizing immediate and long-term benefits for investors. First, investors can enjoy temporary tax deferral on any prior capital gains invested in an opportunity fund until the investment is sold or until Dec. 31, 2026, whichever comes first. Doing this lets investors put more money to work for a longer time. If the investment is held for five years or longer, there is a 10 percent exclusion of the deferred gain. If held for seven years, that exclusion is raised to 15 percent. And if held for 10 years or longer, the investor pays no capital gains tax whatsoever. That can lead to a massive increase in an investor’s annual returns. Carolyn Hull, vice president of strategic initiatives at Los Angeles County Economic Development Corp., summed it up: “The longer you hold the property, the better the tax gain.” Midas expects these incentives will enable it to raise the $12 million needed for the Lancaster project. The company put up the other half of the funding itself. “The Opportunity Zone made (this project) financially viable,” Eglash said. “We were looking at doing it ourselves. … I doubt it would’ve come to fruition.” Lancaster Blvd. has blossomed in the last decade (thanks in large part to InSite), so its inclusion in an opportunity zone may seem out of place. But Hull said the city planners who proposed the zones in 2017 likely remember downtown Lancaster’s formerly blighted state all too well. “Many jurisdictions were very conscious of the areas they were choosing for opportunity zones because they wanted to stimulate development into these underserved communities,” said Hull. “Some of the better jurisdictions looked at areas they were already trying to redevelop and used this as an overlay tool.” Midas touch Before being demolished earlier this year, the lot where the Residence Inn will rise was a parking lot for a Union Bank. InSite bought the property in 2016 and turned the 6,800-square-foot bank into a small shopping center with Starbucks Corp. as the anchor tenant. It looked at the possibility of razing the parking lot to make space for a hotel, but quickly realized it couldn’t take on the project alone. “We’ve never developed hospitality before,” said Eglash. “Building apartments or commercial doesn’t qualify you to build hotels. … And we wanted a partner for the aspect of property management.” Eglash said a friend referred him to Midas Hospitality, a group out of Missouri that develops, builds, renovates and manages hotels, of which it currently has 38 in 14 states, primarily under the Marriott and Hilton brands. Earlier this year, Midas raised $35 million in just four months for two Marriott projects that fall within Opportunity Zones in St. Louis. With that in mind, the Lancaster project seemed right in Midas’ wheelhouse. “(This project) was very attractive to us,” said Midas partner and co-founder J.T. Norville. “The Marriott Residence Inn brand has been one of our most successful brands. And we love what’s going on in the Lancaster-Palmdale community, as well as the history with (InSite) and what they’ve done with the boulevard.” In July, Midas launched Opportunity Zone Fund II seeking investors for the Lancaster project. The fund has raised $1.3 million so far and accepts minimum investments of $100,000. Midas expects to be fully subscribed by December 31. Norville explained that while Opportunity Zone benefits can serve as a cherry on top for investors, they alone are not a reason to greenlight a project. “The first thing we look at in any hotel development is: Is this a good investment? Does the area have the demand to support a hotel and generate ROI to our investors?” he said. “If it doesn’t generate a return, those Opportunity Zone benefits won’t kick in.” The Lancaster project checked all the boxes. “Demand for hotel rooms in Lancaster is significant. It has seen great population growth and it’s just right for an extended stay hotel,” he said. “This investment was justified regardless of the Opportunity Zone benefits.”