NYC’s Hotel Safety Bill Would Kill Small Operators, Hoteliers Warn

Hospitality operators and owners in New York City say a city council bill poses an existential threat to many of the city’s hotels.

The Safe Hotels Act, a bill introduced by City Council Member Julie Menin in mid-July, has caused an uproar among hotel owners, who say its labor requirements and proposed licensing process will place the city’s entire industry in a stranglehold.

The bill, Int. 991, would mandate that hotel owners obtain a license that has to be renewed every couple of years. It would also outlaw hotels' use of third-party contractors, require hotels to install panic buttons, mandate human trafficking training for staff and require hotels to have at least one security guard on the premises around the clock. 

This week, a group of Indian hotel owners banded together to form their own advocacy group, the NYC Minority Hotel Association. The group, composed of around 50 members, represents almost 120 hotels and more than 900 employees and says that small-business owners will be the most affected by the legislation.

“We are first-generation Indians here. We worked very hard and we started investing into a smaller business, like hotels,” developer Mukush Patel, whose company, Globiwest Hospitality, owns and operates around six hotel properties spanning 500 rooms in the outer boroughs, told Bisnow. “This bill is definitely going to kill our American dream.”

The Safe Hotel Act’s introduction came as a shock to the industry, said Anudeep Gosal, a senior director at Besen Partners’ hotel advisory group. An industry acquaintance came across it by coincidence and reached out. The language left them both with the impression that the bill was “almost like a hit job” from one of the city’s most powerful unions, the Hotel and Gaming Trades Council.

“At that point, there was already a hearing date set for August for this bill to be voted on, and not one person in the industry had any idea that this was happening,” Gosal said. “The alarms went off immediately.”

The bill has the backing of the labor union, known as HTC, which was described to Politico as “most politically powerful union in the city.” It also has support from the NYC Police Benevolent Association and Queens Borough President Donovan Richards.

Menin said the bill will help the estimated 3,000 people “in human trafficking situations in New York hotels.” 

Richards, meanwhile, cited the more than 14,000 criminal complaints lodged with the NYPD over the past five years from NYC’s hotels and motels.

Richards also said the city’s hotel industry no longer faces the type of economic pain it did during the pandemic. The tourism industry drew more than 62 million visitors last year, generating almost $5B in tourism-related tax revenue. 

In the weeks following the Safe Hotel Act’s introduction, industry group Hotel Owners of New York announced plans to raise $20M to lobby against the legislation. A national industry group, the American Hotel and Lodging Association, issued a statement saying the bill would do nothing for the safety of hotel guests and workers but would jeopardize NYC’s hotel and tourism businesses.

For Patel, the licensing requirements are a nonstarter. Banks won't finance hotels and will even see existing loans as risky, he said. 

The authors of the Safe Hotels Act changed the licensing requirement from its initial version after the industry’s loud, immediate backlash to its previous one-year license proposal. The current text of the bill on the city council website has extended the period to two years, but the risk remains the same, Gosal said.

“I am in talks with multiple large national hotel owners funds, private equity funds that have currently paused,” he said. “They feel that New York is not a safe regulatory space to invest in. They have modified their acquisition criteria to not include New York.”

That means that hotel transactions in NYC are also on pause, he said. Lenders and investors looking to the future are also worried the bill would result in hotels losing their ability to operate periodically due to the renewal process and would therefore be unable to pay down any debts they hold.

“How does a lender give a 30-year mortgage on a license that is only valid for one year at a time?” Gosal said. “You are putting a lot of small-business owners at technical default because of a legislative issue.”

The bill also allows for “third party triggers” to interfere with a hotel’s license, Hotel Association of New York President Vijay Dandapani told Bisnow by email. Those triggers can include failures to restore elevators, WiFi or water service, and noise levels that the bill labeled as “excessive,” a term it didn't further define.

Dandapani said the increased cost of the labor requirements in the bill could devastate the industry. Without youth hostels and with a significantly reduced number of Airbnbs in the wake of Local Law 18 enforcement, the bill could also threaten tourist appetite to visit, he said.

“The city already has a high cost thanks to banning affordable accommodation via youth hostels,” he said. “Many, if not most, hotels in Queens, the Bronx and parts of Brooklyn will go out of business resulting in compression and raised prices for the remaining hotels.”

Hotels rely on third-party contractors for everything from housekeeping, linen and laundry services and maintenance work to security guards, sales and marketing, Gosal said. Even in a tourism-driven city like NYC, hotels are seasonal operations and need the flexibility to staff up accordingly, he said.

Those roles may not get outsourced all the time, but the flexibility to do so is fundamental to keeping operating costs and hotel rates in line with demand, he said. Without it, the hotels at risk are the city’s budget and economy options, creating even less flexibility for less affluent tourists and funneling demand to large operators.

“The math is very simple. Anybody with less than 100 or 120 keys, especially independent properties, cannot pay their mortgage if they have to follow this bill in its entirety, exactly how it is, and if they have to apply union labor rates now,” Gosal said. 

Ultimately, the bill wouldn’t make guests any safer, Gosal and Dandapani argued. Hotels are often under 24-hour surveillance and require keycards to even use an elevator. 

“There already are numerous checks and balances on hotel operations starting with the Certificate of Occupancy which is an exhaustive and multi-year process to obtain,” Dandapani said. “If at all ‘safety and health’ are real issues in a few outlier hotels, a bill that addresses those can be crafted.”