Hotel owners in Los Angeles are expressing deep concern and considering leaving the area entirely, citing financial distress due to rising minimum wages and a lack of buyers for their properties.
John Boltz, who leads Pebblebrook Hotel Trust and manages eight hotels, is eager to sell but has found no buyers. “We sold one last year, but we’ve been open about wanting to sell more,” he shared, adding that the market is just too quiet.
Another hotel owner, who preferred to stay anonymous, echoed this sentiment, lamenting that he would leave California immediately if he could, but the unfavorable market conditions make selling nearly impossible.
The recent city decision to raise the minimum wage to $30 an hour for hotel workers has been particularly alarming for these owners. As one put it, this move felt like the “final nail in the coffin.” There’s a sense that many policies are enacted without fully grasping their consequences.
This ordinance, implemented in May, will gradually increase wages over the coming years, eventually reaching $30 by 2028 for larger, non-union hotels. Boltz noted that such wage hikes, compounded by the Hotel Worker Protection Act—which mandates safety measures for employees—have hit the industry hard.
Reflecting on the financial toll, Boltz mentioned, “In 2016, we valued our portfolio at $1.5 billion, but now it’s down to $500 million. We’ve effectively lost $1 billion over a decade.”
Faced with escalating payroll costs, hotel owners have had to make tough choices. Boltz mentioned they’ve had to let go of staff, including a restaurant host and an assistant manager, and are now contemplating further cuts like eliminating valet services. He predicts that staffing reductions will average around 5% annually over the next few years.
To counter these rising costs, some hotels are turning to artificial intelligence for various tasks, integrating technology like robot vacuums and deliveries in a bid for efficiency. Dr. Jackie Fila, leading the Hotel Association of Los Angeles, warned that the landscape could worsen by 2028 if the wage increases continue unchecked. “I’m very concerned that some hotels won’t survive,” she noted, emphasizing the need for reevaluation of current policies.
In a report released earlier this year, HALA highlighted that many hotels might face severe challenges related to minimum wage increases. It cited several establishments on a public loan watch list due to financial struggles, with many properties listed for sale at drastically reduced prices compared to previous years.
One notable case involved the iconic Hilton Checkers hotel, which, despite a significant renovation investment, sold for a mere fraction of its appraised value—only $12.5 million compared to its $88 million estimation after renovations.
“Why would anyone want to operate in such a market with unreasonable operational demands?” Boltz questioned, mentioning how some are turning to unions to advocate for change due to the unsustainable nature of their current obligations.
Hotel owners have raised their concerns with city officials but feel their voices have gone unheard. The future of hospitality in Los Angeles, as it stands, seems uncertain. Boltz stressed, “If you can’t make money, you can’t invest or maintain a hotel. Customers may still find open hotels, but they won’t be the same quality, especially with the upcoming Olympics.”
