New York City Hotel Labor Deal Creates Hurdles for Hospitality Underwriting

The myriad headwinds facing New York City hotel investors just got even stiffer.

The Big Apple’s hospitality industry confronted rising operating and borrowing costs from persistent inflation in recent years that was further compounded by a big drop in international tourism since President Donald Trump assumed office for his second term. Disappointing booking numbers for FIFA World Cup matches held at nearby MetLife Stadium in June and July dealt an additional blow.

The latest financial obstacle might be the biggest and longest-lasting of all — and, in the process, create more barriers to obtaining necessary capital to keep the lights on. 

The Hotel Association of New York City (HANYC) reached a historic eight-year labor deal this spring covering over 27,000 workers at more than 200 hotels. Among other provisions, it puts housekeepers and non-tipped staff on track to earn over $100,000 annually by 2034. The agreement will make it that much more challenging for hotel owners to obtain financing as lenders tighten their underwriting standards to reflect the higher labor costs. 

“Labor can be up to 50 percent of your operating expenses, and even higher in a luxury property or a very service-intensive property,” said Solomon Garber, co-founder and chief revenue officer of Erithmitic, a tech-oriented lending platform focused on the hospitality industry. “The fixed labor costs, including wages, health care, pension and staffing requirements, can be up to 30 percent higher than the same hotel that is nonunion.”

The HANYC contract that took effect July 1 will raise wages by more than 50 percent over the life of the agreement, which runs through June 30, 2034, according to a summary of the deal released by the Hotel and Gaming Trades Council, the union representing hotel workers. The added expenses to wages and benefits from the contract are projected to increase annual property costs for hospitality owners by 15 percent, according to HANYC.

Garber noted that even a 10 percent rise in operating costs can drive a hotel operator’s earnings before interest, taxes and amortization (EBITA) down by 4 to 6 percent if revenue doesn’t keep pace. Despite the increased underwriting pressure, Garber stressed that lending on New York City hotels still has value and will require more parties in deals to make them pencil either from preferred equity or mezzanine lenders.

“Every deal that looks good on its surface deserves a second look and a deeper dive and, in this case, it just means knowing how the regulatory environment is changing and knowing what the contracts say,” Garber said. “I think lenders should lean into New York hotels and they shouldn’t shy away from union deals, but they have to do a lot more work and have a lot more resources to understand what all the latest changes are, and then [they] have to read the contract and bake in some big conservatism.” 

New York City is not the only place where generous hotel labor deals create hurdles for underwriting.

San Francisco hotel workers ratified a four-year contract in late 2024 following a 93-day strike that provided an immediate $3 hourly wage increase along with additional raises throughout the length of the agreement. The deal for workers at hotels operated by Hilton, Hyatt and Marriott was struck by UNITE HERE Local 2, which has been credited for securing hospitality wages that are among the highest in the nation.

Las Vegas also boasts many unionized hotels represented by the powerful Culinary Workers Union, which represents 60,000 workers. The group struck a 32 percent wage hike in late 2023 under a five-year agreement for 15,000 workers at non-gaming hotels.

Jeff Miller, executive director at brokerage Talonvest Capital, said cities where there is a heavy union presence like New York, San Francisco, Las Vegas, Los Angeles and Chicago create underwriting pressures for hospitality deals even when a hotel is not unionized since it tends to push wages up across the metro region. Miller stressed, though, that hospitality remains an attractive property sector from a lending perspective in many of these markets due to strong demand drivers like low supply and active business travel. 

“For lenders, it really comes down to: How aggressive do I want to be and how do I protect my downside?” said Miller, who prior to joining Talonvest in late 2025 spent nearly a decade at Wells Fargo’s hospitality finance group leading its underwriting team. “There is more stringent structuring like [periodic financial checks], a shorter interest-only period, and some other lender protections have increased around the margins as a result of this.”

Miller noted that underwriting has grown more conservative for hospitality deals in New York in the last seven years with the initial advance rate, the amount of the property the owner can borrow on, now numbering around 60 percent compared to 65 percent before the 2020 COVID-19 pandemic. He said debt transactions for Big Apple hotels also often require a partial recourse to provide added security for lenders against potential losses, or an extension test earlier in the loan’s maturity to ensure the property is meeting performance metrics before granting extra time on the debt.

As hotel sponsors seek more capital sources to help bring financing to the finish line, Commercial Property Assessed Clean Energy (C-PACE) loans are poised for increased usage, according to Laura Rapaport, founder and CEO of C-PACE lender North Bridge.

Rapaport noted that C-PACE debt, which is typically structured as fixed-rate, 30-year loans funded by a special assessment on property tax bills, can arm hotel owners with increased flexibility to combat increased costs associated with the labor deal. She said New York hotels, which need constant renovations and upgrades to attract business, are particularly conducive to C-PACE loans while owners are confronting higher costs from the labor deal. 

“If there is going to be an increase in the expenses, and even if the revenue is increasing or if it stays flat, your profit is going to be impacted,” Rapaport said. “So when it comes to a refi and future projections, one needs to take into account what the true stabilized cash flow might be and could be. One of the things that C-PACE does is bring down the overall cost of capital and,  because it’s paid in New York twice a year whenever the taxes are due in January and July, there is an arbitrage for those in the stack to not have to pay us monthly or current. So if the cash flow is lumpy and if it takes more time to stabilize, C-PACE is absolutely a great tool to be utilized.”

Hospitality owners can also benefit from C-PACE in New York, according to Rapaport, from a three-year look-back period enabling borrowers to retroactively finance eligible sustainability improvements given that hotels are some of the most energy-intensive buildings.

The decision to originate loans in the hospitality sector in union-influenced cities can vary based on demand drivers in the individual markets, according to Rohit Mathur, co-founder and CEO of Bridge, an AI-driven direct lender for hotel owners.

Mathur said New York and San Francisco have seen revenue per available room (RevPAR) increase enough due to strong demand drivers such as low supply to offset higher operating costs. Los Angeles, however, has not kept pace as much in RevPAR due to more supply and the city’s infamous sprawl, according to Mathur.

“Each market is slightly different, and each market has its own metrics,” Mathur said. “It is a very deal-by-deal, case-by-case basis.”

Andrew Coen can be reached at acoen@commercialobserver.com.