San Francisco-based Kimpton Hotels & Restaurants has
lost most of its home-city portfolio because of an effort by the hotels’ owners
to head off unionization and potentially higher labor costs.
Kimpton was acquired by InterContinental Hotels Group (IHG)
earlier this year for $430 million. Last month, it discontinued managing seven
of its nine San Francisco hotels.
Four of the properties — the Argonaut, the Tuscan, the
Prescott and Hotel Palomar (since renamed Hotel Zelos) — are owned by
Pebblebrook Hotel Trust, a real estate investment trust (REIT). Noble House
Hotels took over management of the Argonaut and Tuscan, while management of the
Prescott and Palomar was handed over to Viceroy Hotels and Benchmark
Hospitality, respectively.
The other three — Harbor Court, Hotel Triton and Hotel
Monaco (since renamed the Marker) — are owned by LaSalle Hotel Properties, also
a REIT. OLS Hotels now manages the Harbor Court and Triton; the Marker is
managed by Destination Hotels.
While IHG has not offered a specific reason for the loss of the hotels from its
portfolio, a hotel workers union said the management changes stemmed from a
labor-related issue. Kimpton continues to operate two unionized hotels in San
Francisco, the Sir Francis Drake and the Buchanan.
The loss of the seven San Francisco properties was “driven
by a specific issue and will not impact other growth plans in the U.S. or
overseas,” IHG CEO Richard Solomons said during a July 30 conference call with
analysts.
Solomons declined to state the nature of the issue, but in a
July 28 statement, Unite Here Local 2, which represents hotel workers, said
that in June it requested that IHG maintain a neutral stance on union organizing
drives at the seven Kimpton hotels.
IHG’s other San Francisco properties, including the iconic
InterContinental Mark Hopkins, have long been unionized, suggesting that the
hotels’ owners, all REITs, opted to remove IHG rather than face the possibility
of higher labor costs and lower profits resulting from unionization.
Overall, hotel labor costs account for about 32% of hotel
revenue, ranging from 22% at select-service properties to 35% for full-service
hotels, according to PKF Consulting.
While specific differences in labor costs and margins
between union and nonunion hotels in general are difficult to calculate because
of vast differences from location to location, hourly wages for union workers
among all industries in 2011 were 18% higher than nonunion wages, according to
the U.S. Department of Labor’s Bureau of Labor Statistics.
San Francisco’s per-room hotel costs are among the country’s
highest, and the average per-key sales price for hotels has risen about 50%
since 2012, to more than $300,000, according to a report published by Jones
Lang LaSalle in June.
Pebblebrook acquired the 221-room Tuscan in June for $122
million ($552,000 per room) and bought the Prescott last year for $49 million
($306,000 per room). LaSalle acquired the Triton and Harbor Court in 2013 for a
combined $47.8 million ($180,000 per room).
Unite Here alleged that IHG relinquished management of the
seven hotels even though they were performing well. The union also
asserted that “numerous” employees lost
jobs because of the management changeovers.
“This is a transparent effort to evade commitments that have
been in place for years,” Unite Here Local 2 President Anand Singh said in a
statement. Pebblebrook, LaSalle and IHG, he said, “are acting in extreme bad
faith, and their decision to take such radical action now has caused real harm
to hotel workers in San Francisco.”
IHG representatives declined to respond to the union’s
allegations. Neither LaSalle nor Pebblebrook responded to requests for comment
last week.
IHG said it secured five management agreements for new
Kimpton hotels in other locations this year. Kimpton also recently added the
Hotel Monaco in Pittsburgh and the Palladian in Seattle to its portfolio, and
it has made efforts in recent years to expand its presence throughout the
southeastern part of the U.S.
In the first six months of 2015, revenue per available room
at hotels in the San Francisco-San Mateo area rose 11% from a year earlier, to
$178 a night, the third-highest in the U.S. after New York and Oahu, according
to STR.
Kimpton, which was founded in San Francisco in 1981 by the
late Bill Kimpton, is considered a pioneer in the boutique-hotel sector and
made much of its reputation by including well-regarded restaurants within the
properties.
The company manages some 60 North American hotels through
sub-brands such as Palomar and Monaco as well as independently branded hotels.
U.K.-based IHG, which manages or franchises more than 4,900
hotels worldwide under brands such as Holiday Inn, Holiday Inn Express and
InterContinental, has been trying to boost its exposure in the boutique sector
via its Hotel Indigo badge and through the Kimpton purchase.
As for re-establishing Kimpton in its hometown, San
Francisco-based hotel consultant Rick Swig, whose family owned the city’s
Fairmont from 1945 to 1998, said IHG could face a challenge finding a willing
hotel owner/partner because of its longtime union affiliation in the city.
“If IHG wants to get back into the San Francisco market with
the Palomar, Monaco or another Kimpton brand, they have to be prepared to do
that under an organized labor contract,” Swig said. “So it would either have to
be with an investor that’s comfortable with organized labor or develop it
themselves.”