Labor Works Against Hotel?

Los Angeles Business Journal
09/29/17

Labor Works Against Hotel?
HOSPITALITY: Westin sale may reflect union pull in LB.
By Caroline Anderson

http://labusinessjournal.com/news/2017/sep/29/labor-works-against-hotel-hospitality/

 

The recent deal for a Long Beach hotel below its last sale price could be a sign of tangible effects that labor action is having on the Long Beach hotel market, analysts said.

The $88.1 million deal for the Westin Long Beach, one of the city’s four major convention center hotels, follows efforts in recent years to unionize workers and control operations in the increasingly important hospitality industry in this waterfront community.

The city’s political climate has encouraged labor advocates, whose tactics have impacted the Westin and other businesses, said Randy Gordon, chief executive of the Long Beach Area Chamber of Commerce.

“They found a stronghold in Long Beach because not every city has pro-union council members,” Gordon said. “(There were) marches at 6 a.m. banging drums with signs saying, ‘Don’t stay here.’ We lost a lot of conventions along the way. They’ve upset people.”

The 469-room Westin was sold in August for $88.4 million, about $300,000 less than what it went for more than a decade ago, according to CoStar.

The lower price came in spite of a generally hot market for hotels in Los Angeles County. The first six months of this year saw 26 hotel properties sold countywide, fetching a total of $780 million. The number of deals were even with the year prior, while the total value was up 46.1 percent, according to a report by Irvine hotel brokerage Atlas Hospitality Group.

The new owner and operator of the Westin Long Beach – Boston real estate investment firm Rockpoint Group and New York hospitality management company Highgate Hotels, respectively – almost immediately agreed to allow the hotel’s employees to unionize.

The decision followed an aggressive multiyear campaign by Unite Here Local 11 against the Westin’s former co-owners, downtown-based real estate investment firm AEW Capital Management and Noble Investment Group of Atlanta, which the union accused of labor violations. The co-owners found themselves at odds with a changing business environment for hotels in Long Beach.

Voters there passed a measure requiring a higher minimum wage than the state’s for hotel workers in 2012, while the largely labor-friendly City Council narrowly voted down a proposal last month to limit hospitality employees’ workloads.

Such measures can give potential buyers pause and put downward pressure on prices, said Robert Feist, vice president at Atlas.

Unionized hotels usually fetch lower prices because they tend to cost more to operate and potential buyers worry that a collective-bargaining agreement could spread to their other properties, analysts said.

Backed out

One of Feist’s clients, who was considering developing city-owned land at 248 E. Broadway into a 150-room hotel with ground-floor retail in May of last year, decided not to move forward after the city stipulated that the hotel would have to be union, Feist said. The client wasn’t available to speak last week.

“He wanted a Long Beach presence, but it was too tough to pencil and he didn’t want to expose his other hotels (to unionization),” said Feist.

The buyer opted instead for properties in Indio and Downey, according to Feist.

“That has happened and will continue to happen,” said chamber CEO Gordon. “We don’t have hard evidence of how many developers we’ve lost because the majority of the (City Council) is pro union. (But) we’ve no doubt lost some business from developers.”

A Rockpoint representative declined to comment, and a representative from Unite Here was mum beyond a statement announcing the unionization. AEW and Noble didn’t respond to requests for comment.

Long Beach Mayor Robert Garcia and Councilwoman Jeannine Pearce, who represents the downtown area where the city’s largest hotels are, called a press conference announcing the Westin’s unionization a few weeks ago.

Neither Garcia nor Pearce respond to requests for comment.

Making bed

The Westin Long Beach, whose 16 floors sit on 2.4 acres across from the Long Beach Convention & Entertainment Center, was built in 1988. Hospitality chain Starwood Hotels & Resorts, which has since been acquired by Marriott International Inc. and whose brands include Westin, bought the property in 1997. Starwood renovated the property in 2005 and sold it the following year, with the hotel retaining the Westin brand for operations.

In 2012, Long Beach voters passed Measure N, giving employees of nonunion hotels paid sick leave and a minimum wage of $13 an hour with an annual cost-of-living increase. The minimum wage for nonunion hotel employees rose to $14.35 this July.

The national branch of Unite Here and the Chicago-based Hyatt Hotels Corp. reached an agreement in 2013 that allows employees of some of the company’s hotels to unionize. That included the Hyatt Regency Long Beach, which is one of the city’s largest hotels at 528 rooms.

Union hotels remain an outlier, however, accounting for only about 10 percent of the U.S. market, said Daniel MacDonnell, a senior managing director at Chicago-based real estate services firm Cushman & Wakefield.

Membership tends to be concentrated at chains, since unions tend to target large hotels with well-known brands, MacDonnell said.

Buyers of such properties tend to be large institutional investors or real estate investment trusts that often steer away from the perceived risk of unionized properties, he said.

“On the exit side, when selling properties that are union, there’s a limited buyer universe,” said MacDonnell. “Large-scale owners that don’t have unions don’t want contracts migrating to their other properties.”

The Westin’s new owner, Rockpoint, has at least one other hotel that is unionized, according to Unite Here, which lists the firm as a “responsible fund manager” on one of its websites.

After Rockpoint and Highgate agreed to allow their employees to unionize, the local put out a statement praising the new owner and new operator Highgate.

“Highgate has set the standard for all hotel operators in this city,” said Lorena Lopez, organizing director. “They … immediately changed the previous owner’s strategy of fighting workers.”

Neither Highgate nor John Ault, Westin Long Beach’s general manager, responded to a request for comment.

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