Midas Hospitality closes second opportunity zone fund, shares tips for success

Midas Hospitality, the Maryland Heights-based hotel developer and operator, has closed on its second opportunity zone fund.

The $11 million fund was designated for the company’s first hotel in California, a 107-room Residence Inn in Los Angeles County. That project, whose total investment is about $25 million, will be delivered in 2021 and managed by Midas. The company’s first opportunity zone fund, for $35 million, was for Midas’ two projects in the city of St. Louis — the 29-room Aloft Hotel in the Cortex district and the 152-room Element Hotel in Midtown.

The closing of Midas’ second fund comes relatively soon after the launch of opportunity zone program, which allows investors to reinvest capital gains in designated economically disadvantaged areas. The program, established as part of the Tax Cut and Jobs Act of 2017, has been slow to take off in the St. Louis, though it has led to a few deals and notable developers such as Steve Smith and Bob Clark have launched their own funds.

We asked Midas what’s made its OZ funds successful.

Pick the right project

“For us, it’s always about the investment first,” said Midas co-founder and Managing Partner J.T. Norville. “We’ve been successful because our opportunity zone fund is project specific. It has to be underwitten and make sense to drive returns.”

Midas, which owns and manages 38 hotels across the U.S., evaluates what demand there is for hotels, what the barriers to entry are and what future that particular market holds, he said. The firm also doesn’t go hunting for opportunity zone funds, he added.

Midas has used its experience of delivering on hotel builds and deals to attract investors to its previous OZ funds. It gives a network of about 200 investors the first chance to take part, and then relies on word of mouth to attract others.

It’s the same strategy it employs for its open fund, Midas Hotel Fund, which has attracted $25 million worth of capital with a $75 million additional goal, company officials said.

Don’t skimp on education

The OZ program is about long-term holdings. To get the maximum benefit, investors have to hold on for years (at the launch of the program, the long-term was at least 10 years). And that means taking the time to educate investors on what they’re getting into, Norville said.

“For investors to really maximize the return, they need to be investing eligible capital gains,” he said. “If you aren’t, then you are not getting opportunity zone tax benefit.”

Investors also should keep in mind that they have 180 days from a sale to invest their capital gains into a fund.