Hotel Executives Sound Alarm on Wage Increase

The Los Angeles City Council voted in favor of increasing the minimum wage for hotel workers to $30 an hour by 2028. Now it heads to Mayor Karen Bass. If she signs, more distress could follow. 

Los Angeles’ hotels suffered throughout the pandemic and haven’t totally recovered. Revenues are flat and operating costs are swelling. Plus, an earlier piece of legislation capped the amount of floor space housekeepers can clean. So another labor cost could only hurt an industry that has been through it, whether it be the pandemic, or the actors’ strike or the wildfires. Hotel executives warn the increase could make investors and developers more skittish and trigger distress sales. 

“I’ve never seen so many hotels on the market right now, and none of them are selling,” Hotel Angeleno owner Mark Beccaria said. “No one wants to pay anywhere close to what they’re worth,” because they know the cost they’ll incur owning a hotel in Los Angeles. Beccaria’s loan comes due next July. Hotel Angeleno has defaulted on that loan already, and he doesn’t know that he’ll secure another, so he is holding off on renovating. Beccaria may consider selling. 

Then there’s Pebblebrook Hotel Trust chairman and chief executive Jon Bortz, who won’t expand his Los Angeles portfolio.  

“We won’t make any further investment,” Bortz said. “There’s no return on that money…there’ll be no transactions in the market other than lenders taking properties back. There’ll be no new development—doesn’t pencil, doesn’t make any economic sense, and it’s not financeable.”

Impact on Hotel Industry

The hotel industry in Los Angeles is facing significant challenges, including flat revenues and increasing operating costs. The proposed wage increase could further exacerbate these issues, leading to distress sales and a decline in investment.

Development and Investment

Despite the challenges facing the hotel industry, other sectors are seeing development and investment. Hines finally got the go-ahead to develop a 13-story, 435,000-square-foot tower in the Arts District after a labor-backed appeal was denied. It’ll replace two commercial buildings and sit next to the Ford Factory complex.

Go Forth

The planned 217-foot tower would hold offices atop 15,500 square feet of ground-floor shops and restaurants and a multi-tiered parking garage. The six-acre site can accommodate more offices and shops, too. The development is designed by Rios and will take three years to build, per Hines. Cost estimates were not disclosed.

The Show Must Go On

Fairfax Theatre owner Alex Gorby is looking for a buyer. A partial demolition cleared the way for development. Now the 29,000-square-foot lot on Beverly Boulevard is on the market for $45 million.

Big Deal

Elevate Aircraft Seating signed a deal for a Prologis-owned 280,500-square-foot, two-story office and warehouse in Huntington Beach. Terms were not disclosed. It’ll be a “new manufacturing facility to increase its production and distribution capabilities,” according to Savills’ Chris O’Connor.

Upstream

Stream Realty Partners received approval to build a 100,000-square-foot warehouse in Cudahy after securing entitlements from Gateway City to build the two-story industrial building on Cecilia Street.

Prolonged Pain

Southern California’s commercial real estate sector faces increased uncertainty because of tariffs, high interest rates and surging construction costs worsened by wildfires, per a Los Angeles Times analysis. Obviously, the market was already strained, especially where office is concerned.

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Conclusion

The proposed wage increase for hotel workers in Los Angeles has sparked concerns among hotel executives, who warn that it could lead to distress sales and a decline in investment. While other sectors are seeing development and investment, the hotel industry is facing significant challenges. The impact of the wage increase will depend on various factors, including the state of the economy and the ability of hotels to absorb the increased labor costs.

FAQs

Q: What is the proposed wage increase for hotel workers in Los Angeles?
A: The proposed wage increase is $30 an hour by 2028.
Q: How will the wage increase affect the hotel industry?
A: The wage increase could lead to distress sales and a decline in investment, as hotels may struggle to absorb the increased labor costs.
Q: Are other sectors seeing development and investment in Los Angeles?
A: Yes, other sectors such as office and industrial are seeing development and investment in Los Angeles.
Q: What is the current state of the commercial real estate market in Southern California?
A: The market is facing increased uncertainty due to tariffs, high interest rates, and surging construction costs worsened by wildfires.