LA's Hotel Pipeline Struggling With Construction Costs, Long Entitlement Periods Ahead Of Big Sporting Events

Los Angeles is gearing up to host the Olympic and Paralympic Games, a Super Bowl and World Cup games in the next decade, but its hotel landscape is facing challenges from every angle.

There are 105 hotel projects in the Greater Los Angeles area in the development process, Majestic Hospitality Group CEO Christopher Henry said, citing data from Lodging Econometrics.

Between now and the 2028 Olympics, about 22 of those 105 projects, or 2,600 rooms, are expected to open, Henry said during Bisnow's Los Angeles Hospitality and Retail Summit, held Nov. 19 at the Beverly Center.

Los Angeles County’s development landscape for hotels has been heavily impacted by increased construction costs and challenges securing financing, according to an Atlas Hospitality Group report published midyear. 

Sun Hill Properties CEO and President Mark Davis told the audience that his company has been working on securing approvals for a 400-room hotel expansion project near Universal Studios for almost nine years. 

“We're just a few months away from entitlement,” Davis said. “Construction costs have gone up about 40% since we started. We were hoping to be building when interest was 3%, now it's 7 or 8%, so it's tough to pencil in LA these days.” 

Although the pipeline faces challenges, local officials were quick to point out that the region definitely has enough hotel rooms to accommodate visitors for the 2028 Olympics. 

As a part of the bid that Los Angeles submitted in 2013 for the games, the Los Angeles Olympic committee had to guarantee 40,000 rooms in the greater LA area, Los Angeles City Tourism Department Executive Director Doane Liu said. Meeting that requirement involved locking down rooms outside of the county, “which is not unreasonable considering that many of our visitors would be going to Disneyland and other locations,” Liu said. 

“As far as the IOC goes, they're satisfied with the [hotel room] supply that we have, but of course, more hotels and closer hotels would always be better,” Liu said. 

Though the upcoming Olympics are definitely on the minds of hotel owners and operators, Davis noted that they are, in the long run, just a few weeks worth of hotel visitors and not reason enough on their own to build a hotel. 

“​​Every hotel has to lean into the demand that comes to the city,” Davis said. “LA ‘28 is a driver, but it's a very short window."

While many hotel owners are hoping to capitalize on the demand the Games will generate, they’re not likely the only thing on their minds. 

Last week, the city council postponed a vote that would have decided if hotel and airport workers received graduated pay increases leading up to the Olympics.If approved, the ordinance would raise the minimum hourly wage for workers at large hotels and Los Angeles International Airport to $30 an hour by July 2028. The postponement was due to considerable pushback from hotel owners and hotel industry groups, the Los Angeles Times reported.

"It's going to devastate the food and beverage business in hotels," Davis said. "It's going to turn LA into New York or San Francisco, where you have full-service hotels with no restaurants because they're pushing the wage so high. You know, I already charged $34 for my cheeseburger. I can't charge $65."  

The city’s strong hotel worker unions and a recent push for higher wages for hotel workers are presenting challenges not only for current hotel owners but for investors and operators that are thinking about expanding in the city, panelists said. 

These new, higher wages would potentially go into effect on a hotel industry that has, in many ways, not fully recovered from the impacts of the pandemic.

International travel, a big part of tourism in the city, has most notably not recovered. The city tourism board told the Los Angeles Times in May that the volume of domestic visitors to the city has returned to prepandemic levels but the city received only 5.8 million international visitors in 2023, or roughly three-quarters of the 2019 total. 

The slow recovery in China as well as slow visa processing times, even for tourist visas, were given as the main contributors to the city’s global traveler dropoff, panelists said. 

“Talk to your Congresspeople,” Henry said. “Push to get the State Department to move a little faster on international arrival processing, and that would help business quite a bit, I think.”