The Real Estate Board of New York to The City Council Committee on Consumer and Worker Protection re: Licensing Hotels

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The Real Estate Board of New York (REBNY) is the City’s leading real estate trade association. Founded in 1896, REBNY represents commercial, residential, and institutional property owners, builders, managers, investors, brokers, salespeople and other organizations and individuals active in New York City real estate. We appreciate the opportunity to provide testimony on Intro 991-B concerning hotel licensing.

Intro 991-B proposes substantial new municipal oversight of the hotel industry. Specifically, the bill would require hotels to obtain a license from the Department of Consumer and Worker Protection (DCWP), establish certain employment standards including restrictions on the use of subcontracted labor, set standards relating to front desk coverage, staffing, room cleanliness, and employee training, and create an enforcement and penalty regime for failure to comply with the new standards.

REBNY supports Intro 991-B, although believes there is opportunity for improvement of the bill to alleviate negative and unintended repercussions on the New York City hospitality industry broadly. As is the case in other municipalities across the country, an appropriately crafted licensing scheme is a prudent way to protect workers and consumers, promote public safety, and prevent bad actors from operating.

Fortunately, Intro 991-B has been significantly improved from its prior versions so that it now strikes a better balance between these important goals and the risks of over-regulation. At the same time, REBNY encourages the Council to carefully evaluate the current hotel market and make additional improvements to Intro 991-B to mitigate aspects of the legislation that will be the most disruptive to workers and consumers.

Intro 991-B is being considered at a particularly important moment for New York City’s hotel and tourist industry, and by extension the broader local economy. While the hotel sector remains a critical part of the local economy – providing jobs to New Yorkers and tax revenue to the City and State – it is facing challenges in the form of a supply and demand mismatch that results in very high hotel prices with few affordable options available for consumers.

The supply of hotel rooms is challenged for several reasons. First, according to the New York Times, about 10 percent of hotel rooms – including many of the more affordable hotel options – have been removed from the market and are now being used as shelters for migrants. Second, future supply will be further hindered because of the City’s special permit requirement for new hotels. Since the establishment of that special permit no projects (other than those grandfathered into the pipeline) have received a special permit and only one proposed hotel has begun the process of obtaining such a permit. Third, very high construction costs – reported to be nearly $800,000 per room – make new hotel development very challenging even without a special permit.

At the same time, demand for hotel rooms has increased. This is in part due to the fact that the availability of short-term rentals like Airbnb have shrunk significantly from over 22,000 units to about 2,600 units, removing these types of options from the market. In addition, New York City continues to be a top destination for business travelers and tourists. NYC & Co is forecasting tourism to total 64.8 million in 2024, up by 4.2% from 2023 levels, reaching an all-time high of over 68 million in 2025.

The outcome of a market characterized by shrinking supply and growing demand is unaffordable prices, which is exactly the case in the New York City hotel market. Hotel room prices in New York City are already among the highest in the nation, with few options available at more affordable prices. To sustain its status as a desirable place to visit and work, New York City will need more hotel rooms at all levels, including those at price points that are affordable to more visitors. This requires ensuring that any legislation that increases operating costs – for example by restricting certain employment relationships or imposing costly regulations – is carefully tailored.

While Intro 991-B recognizes this challenge, it could be further improved in ways that focus on minimizing the impact to existing workers and consumers to avoid significant cost increase that will raise prices for consumers and/or shrink the supply of hotel rooms. Changes should include the following:

The proposed legislation would limit the ability to subcontract for housekeeping and other select types of employees. This prohibition will significantly disrupt existing employment relationships and hotel operations and increase operating costs. These added costs will make it incredibly challenging if not impossible for hotels that use subcontractors for housekeeping and other services to operate without significantly raising consumer prices. There are at least two ways the Council could amend the bill to address this challenge while ensuring the health and safety of hotel workers and guests. One option would be to allow subcontracting with a requirement that subcontractors who employee core workers be licensed with the City based on certain reasonable standards. Alternatively, if such a prohibition is to be included, existing contracts between owners and subcontractors that have an indefinite duration could be allowed to remain in place for the next two years. Either of these approaches would ensure that hotels have the time to adapt to these new standards, protect the employment of existing workers, and mitigate any immediate price increase for consumers.

Requirements to provide daily cleaning of hotel rooms should be reduced to every other day. If a daily check of a hotel room is necessary to prevent human trafficking or for other safety reasons, it could be done as a daily safety check without requiring room cleaning.

As drafted, Intro 991-B restricts assignability of a license only to those transfers made in accordance with the Displaced Hotel Service Workers Act (DHSWA), found in section 22-510 of the Administrative Code. This language is superfluous as nothing in the legislation would limit the protections imposed by the DHSWA. Furthermore, reference to the DHSWA adds ambiguity to the legislation as the DHSWA does not place any standards on the assignability of a license. To address this challenge, licenses should be assignable and there is no need to reference existing sections of law that continue to apply. Unless clarified, this language threatens to undermine the ability to invest in New York City hotels by introducing significant risk about the impact that a change in control will have on the ability to do business, further exacerbating the supply constraints facing the market today.

To ensure investor confidence and prevent unnecessary disruptions in the market, the license should be authorized for five years rather than two years. If unionized hotels are to be provided with an indefinite license, a five-year license for hotels that are not unionized is fully reasonable. There is no justification to place undue financial restraints on hotels simply because they are non-union.

In addition to restrictions on the use of subcontractors, the legislation includes several employment related changes that should be amended. As drafted, Intro 991-B requires that employees of subcontractors be offered employment by the hotel operator upon the termination of the agreement between the hotel and the contractor. Any obligation to offer employment to a worker must be consistent with other local, state, and federal employment law and regulation to avoid any conflicting mandates. In addition, requirements to provide overnight staffing at the front desk should be allowed to be satisfied by an appropriately trained and certified night auditor.

The legislation provides a hotel with 30 days to cure any deficiencies prior to having a license revoked. To provide owners with time to come into compliance and limit the impact on workers and consumers, owners should have 90 days to cure any deficiencies.

This legislation will be a substantial change for the hotel industry and City regulators alike. To provide time for this transition and to ensure that DCWP has appropriate number of staff to implement and enforce the legislation, the effective date of the legislation should be extended to one year rather than 180 days.

These changes would help ensure that the proposed legislation does not unnecessarily increase the costs of operating a hotel and provide confidence to investors that hotel ownership in New York City is worthwhile. Further, these changes can help to ensure that New York City’s hotel market has options that are affordable to all visitors – not only those who can afford the most expensive hotels in the country.

Finally, if Intro 991-B or a successor version is to be adopted by the Council, careful implementation will be critical. Regulation or enforcement activities that depart from or expand upon the written legislation could have a chilling effect on hotel owners and investors willingness to do business in New York City. Any rules that are need for implementation must be carefully crafted based on the language in the statute with a full and open notice and comment period consistent with local law.

Thank you for considering these views.