The manifold challenges for New York hotel investors have further intensified. In recent years, the Big Apple's hotel industry has faced rising operating and financing costs due to persistent inflation, additionally burdened by a significant decline in international tourism since President Donald Trump took office for his second term. Disappointing booking figures for the FIFA World Cup matches at the nearby MetLife Stadium in June and July represented another setback.
The latest financial hurdle could be the largest and longest-lasting – and simultaneously create further barriers to securing necessary capital. The Hotel Association of New York City (HANYC) concluded a historic eight-year labour agreement this spring. This covers over 27,000 employees in more than 200 hotels. Among other provisions, the contract stipulates that chambermaids and non-tipped staff will earn over $100,000 annually by 2034.
The agreement will make it significantly more difficult for hotel owners to obtain financing, as lenders adjust their underwriting standards to the increased labour costs. Solomon Garber, co-founder and Chief Revenue Officer of Erithmitic, a technology-driven lending platform for the hospitality industry, noted: "Staff costs can account for up to 50 percent of operating expenses, and even higher in luxury properties or very service-intensive establishments. Fixed labour costs, including wages, healthcare, pensions, and staffing requirements, can be up to 30 percent higher than in a comparable hotel without a collective bargaining agreement."
The HANYC contract, which came into effect on 1 July, will increase wages by more than 50 percent over the life of the agreement, which runs until 30 June 2034, according to a summary of the deal by the Hotel and Gaming Trades Council, the union representing hotel employees. The additional expenditure for wages and benefits from the contract is expected to increase hoteliers' annual property costs by 15 percent, according to HANYC. Garber pointed out that even a 10 percent increase in operating costs can reduce a hotel operator's earnings before interest, taxes, depreciation, and amortisation (EBITDA) by 4 to 6 percent if revenues do not grow at the same rate.
Despite the increased pressure on underwriting, Garber emphasised that lending to New York hotels remains attractive, but must involve more parties in the deals, for example through preferred equity or mezzanine loans. "Every deal that looks good at first glance deserves a second, deeper look. In this case, that means knowing how the regulatory environment is changing and what the contracts state," said Garber. "I think lenders should focus on New York hotels and not shy away from collective bargaining agreements, but they need to do significantly more work and expend significantly more resources to understand the latest changes, and then read the contract and factor in a high degree of conservatism."
New York City is not the only location where generous collective bargaining agreements in the hotel sector are complicating underwriting. Hotel employees in San Francisco ratified a four-year contract at the end of 2024 after a 93-day strike, which provided for an immediate wage increase of $3 per hour as well as further increases over the term of the agreement. This deal for employees at Hilton, Hyatt, and Marriott hotels was negotiated by UNITE HERE Local 2, which is credited with securing hotel wages among the highest in the country. Las Vegas also has many unionised hotels, represented by the powerful Culinary Workers Union, which represents 60,000 employees. The group achieved a 32 percent wage increase at the end of 2023 as part of a five-year agreement for 15,000 employees in non-gaming hotels.
Jeff Miller, Executive Director at the brokerage firm Talonvest Capital, explained that cities with a strong union presence, such as New York, San Francisco, Las Vegas, Los Angeles, and Chicago, put pressure on underwriting in the hospitality sector, even if a hotel is not unionised, as this tends to drive up wages across the metropolitan area. However, Miller stressed that the hotel industry in many of these markets remains an attractive real estate sector from a lending perspective due to strong demand factors such as low supply and active business travel.
Miller, who headed the underwriting department at Wells Fargo's Hospitality Finance Group for nearly a decade before joining Talonvest at the end of 2025, explained: "For lenders, it's really about: How ambitious do I want to be and how do I protect my risk?" He added that stricter structures such as regular financial audits, shorter interest-only periods, and other creditor protection measures have consequently increased at the margins. Miller noted that underwriting for hospitality deals in New York has become more conservative over the past seven years, with the initial loan-to-value ratio, the amount the owner can borrow against the property, now around 60 percent, compared to 65 percent before the COVID-19 pandemic in 2020. He said that debt transactions for hotels in the Big Apple often also require a partial recourse guarantee to provide lenders with additional security against potential losses, or an extension test earlier in the loan term to ensure the property meets performance metrics before additional time is granted for the debt.
As hotel sponsors seek more capital sources to finalise financing, Commercial Property Assessed Clean Energy (C-PACE) loans offer increased utility, 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, is financed through a special assessment.
