Hotel Profitability, Property Values Could Be Impacted by Proposed Changes
Downtown Los Angeles' business district is visible from the Lincoln Heights neighborhood. (Getty Images/iStockphoto)
By Emmy Hise CoStar Analytics May 9, 2023 | 9:35 AM
In Los Angeles County, two laws were enacted within the past 12 months potentially impacting operating expenses and hotel values. One proposal is slated to be on a future ballot, and another proposal has been introduced that will need to be studied before a formal vote ensues. If passed, the proposals could increase minimum wages or tackle the growing population of homeless people in Los Angeles.
Hotel owners and investors likely will want to be aware of these when budgeting or underwriting, as hotel profitability and values could certainly be impacted by the changes.
Homelessness and Housing Solutions Tax
In April, the new transfer tax on residential and commercial real property went into effect, potentially impacting hotel values. Nicknamed the "Mansion Tax," officially the "Homelessness and Housing Solutions Tax," the law says that if the property sale amount exceeds $10 million, it will be subject to an additional tax rate of 5.5%. The increased taxes will be used to fund affordable housing and tenant assistance programs.
However, lawsuits are underway questioning the legality of the new tax law. Additionally, on the November 2024 statewide ballot, the Taxpayer Protection and Government Accountability Act could remove the so-called Mansion Tax, if passed.
Addressing homelessness continues to be a big topic in L.A. The Inside Safe program was also recently announced to buy more hotel buildings for housing the growing homeless population.
Housekeeping Protection Act.
In August 2022, the Los Angeles Hotel Worker Protection Ordinance took effect. New requirements for housekeepers include personal security devices, workload limitations, minimum wage increases for some hotels and mandatory daily cleaning, with no incentives to guests for passing on daily cleaning. Similar laws were passed in Santa Monica, Glendale, West Hollywood and Long Beach. In February, the first class-action lawsuit was filed to enforce hotel workload protections against the Hyatt Long Beach.
To offset increased labor costs, some hotels added a hotel worker protection ordinance costs surcharge to hotel guests. However, this strategy may not hold as President Biden spoke about removing so-called junk fees specific to hotels in his annual State of the Union address.
Los Angeles Responsible Hotel Ordinance.
In March 2024, voters will decide whether the Los Angeles Responsible Hotel Ordinance will go into effect. If passed, Los Angeles County hotel owners must provide the number of available rooms to the city housing department by 2 p.m. each day, and the available rooms could be used by homeless people.
Hotels would be paid the fair market rate with vouchers. L.A. City Council voted down the initiative in August and voted to put the measure on the ballot instead.
Minimum Wage Increase
A Los Angeles city councilman proposed that hotel employees working in hotels larger than 60 rooms and airport workers' minimum wage be increased to $25 per hour this year and increase to $30 per hour by 2028. The councilman says the increase in wages will help employees keep up with inflation and rising costs of living.
There is opposition from local hotel operators, and the proposal still needs to undergo proper research. The minimum wage for hotels with 60 or more rooms is currently $18.86 per hour.