Hotel Executives Sound Alarm on Wage Increase

The Los Angeles City Council voted in favor of increasing the minimum wage for hotel workers to $30 an hour by 2028. Now it heads to Mayor Karen Bass. If she signs, more distress could follow.

Los Angeles’ hotels suffered throughout the pandemic and haven’t totally recovered. Revenues are flat and operating costs are swelling. Plus, an earlier piece of legislation capped the amount of floor space housekeepers can clean. So another labor cost could only hurt an industry that has been through it, whether it be the pandemic, or the actors’ strike or the wildfires. Hotel executives warn the increase could make investors and developers more skittish and trigger distress sales.

“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. Beccaria’s loan comes due next July. Hotel Angeleno has defaulted on that loan already, and he doesn’t know that he’ll secure another, so he is holding off on renovating. Beccaria may consider selling.

Then there’s Pebblebrook Hotel Trust chairman and chief executive Jon Bortz, who 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.”

Go forth

Hines finally got the go-ahead to develop a 13-story, 435,000-square-foot tower in the Arts District after a labor-backed appeal was denied. It’ll replace two commercial buildings and sit next to the Ford Factory complex.

The planned 217-foot tower would hold offices atop 15,500 square feet of ground-floor shops and restaurants and a multi-tiered parking garage. The six-acre site can accommodate more offices and shops, too. The development is designed by Rios and will take three years to build, per Hines. Cost estimates were not disclosed.

It comes after office vacancy in Downtown Los Angeles soared to 31 percent in the first quarter of the year and other developers stepped back.

The show must go on

Fairfax Theatre owner Alex Gorby is looking for a buyer. A partial demolition cleared the way for development. Now the 29,000-square-foot lot on Beverly Boulevard is on the market for $45 million.

It was once home to the Art Deco venue but closed a decade and a half ago because of roof damage. It was granted Historical-Cultural Monument status in 2021; therefore, the building’s facade is protected and all that remains are street-facing walls.

The development plan was to include 71 market-rate apartments in an 80,000 square-foot building with around 10,000 square-feet of retail space. But the buyer can either move forward with that plan or choose between two other proposals by Major Properties brokerage: one that calls for a building that holds homes and shops, or another that calls for one that holds hotel rooms, homes, and shops.

“This is a once-in-a-generation opportunity at a main-and-main intersection in the heart of Los Angeles,” one of the brokers marketing the property said.

“This isn’t for someone looking for quick cash flow,” he said. “It’s for a developer with a long-term vision who wants to shape a high-profile corner of Los Angeles — and be ready by the time the world comes to town in 2028,” the year the Summer Olympics will be held in L.A.

Big deal

Elevate Aircraft Seating signed a deal for a Prologis-owned 280,500-square-foot, two-story office and warehouse in Huntington Beach. Terms were not disclosed. It’ll be a “new manufacturing facility to increase its production and distribution capabilities,” according to Savills’ Chris O’Connor.

The warehouse was built two and a half decades ago near the 405 and 22 freeways and is 13 miles from the Port of Los Angeles. It holds around 41,00 square feet of offices and was earlier occupied by Hybrid Apparel. Interestingly enough, industrial demand in Orange County fell in the first quarter of the year and vacancy rose.

Upstream

Stream Realty Partners received approval to build a 100,000-square-foot warehouse in Cudahy after securing entitlements from Gateway City to build the two-story industrial building on Cecilia Street.

The warehouse will replace a manufacturing building and will be called Central LA Commerce Center. It’ll be a LEED-certified warehouse with 5,000 square feet of speculative offices and hold a truck court. It’ll have 36-foot clear heights, 11 dock-high doors, two drive-in doors and independent entrances and exit for cars and trucks.

Stream Realty’s eighth industrial development in Southern California is near the 105 and 710 freeways and a straight shot to the ports of Los Angeles and Long Beach.

Prolonged pain

Southern California’s commercial real estate sector faces increased uncertainty because of tariffs, high interest rates and surging construction costs worsened by wildfires, per a Los Angeles Times analysis. Obviously, the market was already strained, especially where office is concerned.

The office vacancy rate in Downtown L.A. soared to 31 percent in the first quarter of the year. In broader Los Angeles County, vacancy hit 24.5 percent. In Orange County, the office vacancy rate reached 19 percent.

West Coast industrial exhibited some strength, but that is probably temporary and fueled by shippers attempting to beat anticipated tariffs. The threat of a broader trade war still looms.