No, the parcel of land on which your hotel building is located does not need to be substantially improved.
The regulations provide that if a building is used in the active conduct of a trade or business, you generally do not need to substantially improve the parcel of land on which the building is located. Specifically, "Subsection 1.1400Z2(d)-2(b)(4)(iv)(E)" states that there is no requirement to separately substantially improve the land upon which the building is located when determining whether the substantial improvement test for the building has been met.
However, if the land is unimproved or minimally improved, and it was purchased with the expectation that it would not be improved by more than an insubstantial amount, then the land must be substantially improved. This is clarified in "Subsection 1.1400Z2(d)-2(b)(4)(iv)(C)," which states that unimproved or minimally improved land must be substantially improved if it was purchased with the intention not to improve it by more than an insubstantial amount within 30 months after the date of purchase.
In summary, for your hotel building, the land does not need to be substantially improved unless it is unimproved or minimally improved and was purchased with the expectation of not being significantly improved.
Sources:
§ 1.1400Z2(d)-1. Qualified opportunity funds and qualified opportunity zone businesses.
Rev. Rul. 2018-29
Instructions for Form 8996 (12/2023)
Qualified Opportunity Zones: Hot Tubs and Other Hot Topics
§ 1.1400Z2(d)-2. Qualified opportunity zone business property.
Qualified Opportunity Zones: Final Regulations Provide Clarity
