Hilton Universal City Developer Kills Expansion in Wake of L.A.’s Hotel Wage Hike

The hotel developer behind the Hilton Universal City complex has pulled the plug on a major 18-story expansion set to open before the 2028 Summer Olympics after the Los Angeles City Council voted in favor of a plan to significantly raise the floor on hospitality wages. 

The City Council voted 12-3 on Wednesday in support of the wage hike, which would rise gradually through 2028 ahead of the upcoming Summer Olympics. Sun Hill Properties, the L.A.-based developer behind the 495-key hotel at the Universal Studios theme park, has opted to nix the hotel’s expansion in response, Mark Davis, Sun Hill’s president and CEO, told Commercial Observer on Thursday. 

The developer’s shareholders have “lost confidence in this market with city leaders not leading forward to support business when critical evidence is presented,” Davis told CO. 

The long-gestating ordinance would significantly boost many hotel and airport workers’ wages ahead of the Games. Minimum hourly payments for hospitality and tourism employees — at hotels with at least 60 rooms and businesses operating at Los Angeles International Airport — would increase from their current levels of $20.32 per hour and $19.28 per hour, respectively, to $22.50 this July, $25 in 2026, $27.50 in 2027 and $30 in summer 2028. The hourly minimum wage for nearly all other workers in L.A. is $17.28. 

The measure includes other payment and benefit requirements for hospitality employers as well, such as providing six hours of paid annual training for each employee, and providing $8.35 per hour toward each employee’s healthcare. The increases would ultimately result in a nearly 48 percent bump in pay for hotel workers and a nearly 56 percent bump for qualifying airport employees within just three years.

The City Council will hold a final vote on the measure next week because Wednesday’s vote was not unanimous. The new rules would go into effect immediately if approved for the second time and signed by Mayor Karen Bass. 

Sun Hill earlier this year received city approval for the Hilton Universal City expansion, more than seven years after originally announcing the plan. But, even with that expansion now nixed, the ordinance will ultimately result in job loss, closures of some smaller hotels, and a reduction in services in most hotels as companies reckon with the pay mandates, Davis said.

Further, Sun Hill will from now on look outside of L.A. for future projects, he told CO.

“All our efforts to educate the council on the impact is real and valid, and there will be job loss, in reduced hours and services — the only response any business has when the rules are changed to balance negative financial impact forced by the city passing bad ideas,” Davis said. “[The City Council] supports every idea presented by organized labor carte blanche … Our shareholders do not want to invest in a market with no end in sight for targeting businesses, with no checks and balances on this runaway train.”

Proponents of the measure, which include Councilmembers Hugo Soto-Martinez and Curren Price, argue that the pay increase is all about fairness for the city’s hospitality workers amid sky-high cost of living in Southern California. The city’s tourism industry supports more than 540,000 Angelenos, according to the American Hotel and Lodging Association (AHLA).

“For too long, the workers who make this city run have been treated as disposable,” Soto-Martinez told CO in an emailed statement. “This ordinance makes it clear if you work in this city, you deserve to live in this city — with dignity, health care and a living wage.”

“The Olympic and Paralympic Wage is the first step to ensure these mega events benefit hardworking families and not just bosses and billionaires,” Kurt Petersen, co-president of hospitality union Unite Here Local 11, said in a statement. The union represents some 32,000 hospitality and airport workers in Southern California and Arizona.

Yet L.A.’s tourism industry hasn’t fully recovered from the pandemic, the AHLA said in April, with international visitors still at only 79 percent of 2019 levels, and lagging well behind other major U.S. cities. Labor costs account for about 50 percent of a given hotel’s total costs and have continually outpaced revenue growth in L.A. since 2020, per the AHLA. 

“With L.A. facing a significant budget deficit, the City Council continues to advance legislation that will further reduce tax revenue generated by the tourism industry, while multiplying hotel operating costs, risking thousands of layoffs, and forcing some small business hotel owners to shut their doors,” Rosanna Maietta, AHLA president and CEO, said in a statement in April. “We urge the city to delay further consideration of this effort and partner with us to ensure we can continue to create jobs and prepare the city to welcome thousands of visitors ahead of upcoming major sporting events.”

The organization, which is against the new law, also argued that the new wage ordinance would only worsen the city’s already poor economic health, predicting the elimination of about 15,000 hotel jobs, cost $169 million in local and state tax revenue, and disincentivize nearly $350 million in hotel construction investments.

Nick Trombola can be reached at [email protected].