Get free daily email updates

Syndicate this site - RSS

Recent Posts

Blogger Menu

Click here to blog

Bruce Bialosky

The Coming Destruction of Future Hotels

You may remember that this past summer the Los Angeles City Council accepted an ordinance regarding the operation and development of hotels in the city of Los Angeles. For the time being, it has been put aside as the vote will not be until March 2024. This ordinance could not be more destructive to the hotel business in Los Angeles than if you simply blew up the buildings.

First, I must comment on the press coverage of this. It is abysmal. It is clear no reporter who wrote about this issue read the ordinance. They barely touched on the issues that are going to be voted on by residents who will never understand what is being voted on. The press in Los Angeles and Sacramento are so dismal it is no wonder this state functions as it does.

For some reason unknown to me a union, Unite Here Local 11, went out and collected the signatures to get this on the ballot. Yes, the City Council held a vote, but it was just perfunctory as they really had no say on this issue – it had to go on the ballot. In discussion with one member of the Council I suggested they could have abstained to show disdain for the policies in the ordinance, but only a couple might have considered that.

As a reminder, this is a business that brings about $230 million of taxes to the city. Why they would want to mess with that is a question in itself. My guess is they did not even consider that.

This ordinance breaks down into two areas. The first one discusses the future development of Los Angeles hotels. The ordinance affects only planned hotels with one hundred or more units. The draconian rules will shut down any development of hotels at that level as any developer will limit the size to less than that amount to avoid the rules. It is unclear whether the council at a future time could lower the parameters to less than one hundred units.

Here are some of the “choice” rules:

1. The development must provide a study to the City Council that shows a market need for the additional hotel rooms. Since developers typically acquire a market study during the development period, that does not seem like a big hurdle. The question is what are the fifteen members of the City Council going to do with that study, with which they have zero expertise to analyze? This is just going to lead to graft and groveling for developers to pass this hurdle. That is small potatoes to what comes next.

2. The developer must show the City Planning Commission that it will not “unduly and negatively impact demand in the city for affordable housing, public transit, childcare and other social services.” How in God’s name will that be done and why would someone spend millions of dollars in development try to jump those hurdles which are amorphous?

3. The developer must take measures to employ residents in the local neighborhoods, encourage employees and guests to use public transportation and not negatively impact small businesses in the immediate vicinity.

4. The development of hotels is blamed for the shortage of affordable housing. The Union says that hotels steal land that otherwise would be used for affordable housing. They “require hotel development projects to replace demolished or converted housing with housing for ‘Extremely Low, Very Low, and Moderate Incomes.’” The hotel developers are required to replace one-for-one any residential units on the property, either on the property where they are developing the hotel or elsewhere. The demolition of units on the property includes any destroyed in the five years before applying to build the hotel. The deed for the property will restrict the replacement units to the rental income levels for 99 years.

All these conditions certainly will make any developer have second thoughts about developing a hotel in Los Angeles. Then there are the other conditions that gained greater notoriety.

Each day by 2:00 P.M., any hotel in the City of Los Angeles will need to report any vacancies they have for that evening. The city program will then issue a hotel housing voucher which every hotel needs to accept as payment. The intended occupants of these rooms are homeless people.

The ordinance specifies that the hotel will be reimbursed a fair market rate based on the advertised rate by the hotel operator. For instance, I contacted the Four Seasons Beverly Hills which is in Los Angeles. Their lowest rate is $880 per night not including the 17% hotel tax of $143. Does anyone really believe this city program will be reimbursing the Four Seasons that much for their empty room? If the person (people) who show up are drugged out disheveled homeless people that the hotel finds unsuitable to be in their guest room, the city will punish the hotel with a $500 fine per day.

You may know that when hotels were closed for guests during the pandemic, the city housed some homeless in hotels. There was a lot of destruction. There were also 49 deaths in the hotels during the voluntary program. But there is no provision in the ordinance for repairs if any such behavior occurs while using a housing voucher. Also, insurance companies are going to be highly hesitant to insure hotels required to house these people based on past history.

Mayor Bass has resurrected this program under the name Inside Safe. It is a dry run for the initiative being voted on in a year. She is forcing the homeless on the hotel owners who are balking because of their past experience. It will be interesting to see how this manifests itself and whether the local press gives it honest coverage.

Then there are the people who are coming to visit Los Angeles and find out they could very well be in a hotel next to a homeless person who often is on drugs or has mental health issues. If you have a choice between staying in a Los Angeles hotel or a West Hollywood, Santa Monica, Culver City, Beverly Hills, Burbank, or other neighboring community hotel, where would you stay?

The ordinance does not provide for the transportation of these people to and from the hotels nor feeding them once in the hotel. Los Angeles will also have to bear the costs of that part of the program.

Then there are the significant administration costs borne by the hotels that are not reimbursed. More governmental mandates causing rates to go up.

This program will be put in place right in time for the 2028 Olympics. Hotel occupancies may be high for that event, but they may not be 100% which opens the hotel to housing homeless next to visitors during an international event. It has been stated by the Hotel Association that people organizing conferences for the period after the election are already considering alternative venues. Otherwise, though the election is a year from now, these conferences book far in advance and the proposal is already chilling the Los Angeles hotel business costing the area millions in revenues.

It is always fascinating to see people making decisions for other people that have neither the expertise nor skin in the game regarding the investments of the other people. The adoption of this ordinance would be disastrous for Los Angeles and is already harming the workers and people it is intended to protect.

This is not the last time you will hear of this issue.