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  • Writer's pictureAndre Watson

New Union Agreement for Suburban New York Hotels Delivers Biggest Pay Raise in 100 Years

Five-Year Contract Will Likely Result in a Negative Impact on Hotel Asset Values

A rooftop lounge view from Wall Street. (Getty Images)

The New York Hotel and Gaming Trades Council confirmed it has reached a deal with hotel owners and operators that will boost the wages of hospitality workers by $7.50 an hour, or approximately 35%, representing the largest increase in the union’s 100-year history.

The agreement also raises employer contributions to the union’s defined-benefit pension plan by 40% over the life of the contract, including new benefits to subsidize childcare and housing costs. Under the new union contract, housekeeper and front-desk-worker hourly wages will increase from $20 an hour to $27 by 2028, depending on their location. Hourly wages for cooks will grow to about $31.

The agreement covers 7,000 members of the union who work at 87 suburban hotels from Princeton, New Jersey, to New York’s Albany region and Long Island. The five-year contract has been ratified by the employers and is expected to be ratified by employees this month. The new contract does not include New York City hotels, where union members are also represented by the Hotel and Gaming Trades Council and where wages are still at a premium compared with the suburbs, though with the new agreement for suburban hotels, the gap is closing.

The new contract, with its added costs, comes at a time when several of the suburban markets have not yet fully recovered compared to pre-pandemic levels. This significant additional cost pressure will certainly impact profit margins and NOI, or net operating income, potentially eroding the long-term asset values of these hospitality properties.

Revenue per available room — or RevPAR, an industry standard metric of hotel performance — in the Newark hotel market and the central New Jersey hotel market came in at 91% and 93% of 2019 levels, respectively, according to STR, CoStar’s data analytics company tracking the global hospitality industry. The Long Island hotel market had fully recovered to pre-pandemic levels in 2022, coming in at 109% of 2019 RevPAR performance.

The 2023 forecast for these markets is a 93% RevPAR recovery for the Newark and central New Jersey markets and a 108% recovery for Long Island. All three of these markets are expected to fully recover in 2024.

With record-high inflation already impacting hotel profit margins, the additional cost pressure as a result of these material increases in wage and benefit costs should further impact NOI and asset values.

Hotel owners and operators will need to get creative and implement further operating efficiencies to mitigate the impact of these increases in payroll costs and preserve the value of their properties.

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