Los Angeles hotel executives warn distress to follow wage hike
'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. One expansion has already been killed.
Los Angeles' hotels suffered throughout the pandemic and haven't fully recovered. More labor costs mean more pain. Hotel sales will fall further, Atlas Hospitality Group president Alan Reay believes.
'The higher the wages, the lower the net operating income, the lower the net operating income, the lower the sales price,' Raey explained. Sellers want to sell at what they believe the hotels are worth, but buyers can't purchase at that price while considering operating costs.
Increasing hotel costs when revenue is flat is a concern, Pebblebrook Hotel Trust chairman and CEO Jon Bortz said. Adding that he 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.'
The proposal requires hotels with more than 60 rooms and companies that do business at Los Angeles International Airport to increase wages over a three year period ending 2028, the same year the Summer Olympics will be held in the city. For hotel workers, it's a 48-percent increase. But for hotel owners, developers, brokers and investors, it's the last nail in the coffin. Beccaria didn't mince words: 'It's only going to get worse once this goes into effect.'
Hotels will have to reduce services and amenities, raise rates and lay off workers. And when hotels raise rates for stays, people go elsewhere, and they lose business, he said. In anticipation, his hotel has made layoffs. Beccaria's loan comes due next July. Hotel Angeleno has also already defaulted on that loan. He doesn't know that he'll secure another, so he is holding off on renovating. Beccaria may consider selling or choosing another location where he'd get a better return.
Beccaria and Bortz mentioned an earlier piece of legislation that reduced hotel housekeepers' workloads, capping floor space cleaning. Bortz said that was the last straw, but that was before the current proposal. Bortz said he'll probably shrink or eliminate food and beverage at his hotels; Beccaria floated getting rid of valet. In either case, it appears jobs will be lost. Not to mention, it could hurt the Olympics atmosphere.
Bortz suspects hotels will be in poor conditions and provide poor service once the Olympics come around. Beccaria said some hotels are attempting to pull out of their Summer Olympics stay agreements.
'The L.A. hotel industry is in a depression,' Bortz said. 'I'm not exaggerating. It's horrible.'
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This article originally appeared on The Real Deal. Click here to read the full story.
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