City Council advances hotel measure

About 1,000 community members from the Aikea Movement, a job preservation effort organized by Unite Here Local 5, are expected to rally at Honolulu Hale on Thursday in support of Bill 16, which seeks to preserve hotel jobs by requiring property owners to obtain a permit if they plan to convert 20 percent or more of their hotel rooms into condominiums.

The bill, which was introduced by councilmembers Ron Menor, Joey Manahan and Stanley Chang and passed first reading on Wednesday with a vote of 9-0, seeks to regulate an industry trend that over the past decade was partially responsible for the loss of 8,000 hotel units statewide, including 5,000 units in Waikiki alone. It also requires notifying employees, who would have to be retained for a 90-day period and, in the case of layoffs, be put on a preferential rehire list.

"We’re pleased that the City Council is moving forward on this very important issue that affects the future of Hawaii," said Eric Gill, Local 5’s financial secretary-treasurer. "This is just one step toward protecting our good, local jobs, and I hope this discussion on sustaining our local economy will continue."

Supporters, including the bill’s authors, union workers and Aikea Movement members, want to prevent hotel owners from converting rooms into condominiums unless they can prove that the change would not negatively impact island hotel room inventory, workers or the community.

"I think there is strong evidence to indicate that the trend that we are now seeing with respect to condo conversions is having a negative impact in terms of the loss of thousands of local hotel jobs and also in terms of loss of tax revenues to our state and county governments," Menor said Wednesday from the Council floor. "We want to place some limitations without banning condo conversions, which this bill would not do."

However, some hotel and commercial real estate veterans say they are concerned that the bill could cost jobs by making renovation and new building more risky, lengthy and less profitable.

Another criticism is that the bill would not stem room reductions because it does not apply to conversion to time-share or limited-use hotels. Nor does it address the trend of combining smaller hotel rooms to make the larger units preferred by visitors, who often travel in family groups.

"The question of capacity needs to be addressed. But we should be looking at how to make it easier for investors to come into Hawaii and for hotel owners to improve their product," said Keith Vieira, principal of hotel consultancy KV and Associates. "The reality is that hotel owners, especially those of off-beach properties, often use mixed-use concepts to offset the high cost of construction and doing business in Hawaii."

It’s nearly impossible for a traditional Hawaii hotel room to be built for under $400,000, Vieira said.

"You would have to get $400 a night to make that work, but that’s almost impossible. An owner may need to look at converting some rooms into time share or condominiums," he said.

Joe Toy, president and CEO of Hospitality Advisors LLC, said adding another regulatory process increases the upfront risk for hotel investors and could be off-putting if the requirements are onerous or capricious.

"The requirement would make it more risky for them to buy a property because they could no longer assume that conversion would be possible," Toy said. "Investors are smart. When they buy a property, they’ll look at all the options, whether it’s keeping it as a hotel or converting units to time shares or condominiums. In recent years, we’ve also seen a lot of owners combining smaller rooms to make larger units."

These trends have been especially prevalent in Waikiki, where Toy said lodging inventory, which includes time shares, declined by 3,576 units to 27,981 units between 2000 and 2012. During the same period, Waikiki’s hotel room count dropped by 5,117 to 22,241 units. Meanwhile, condominium hotels grew by 1,067 units and time shares grew by 813 units, he said.

Numbers like these are why real estate analyst Stephany Sofos said mandating conversion permits would not stop the market from pursuing its highest and best course.

"It’s a poor bill," Sofos said. "It does nothing for protection. It’s just another city revenue source."

But Manahan defended the bill, which he has called "necessary and reasonable."

"It’s very traumatic to our constituents when they don’t know the fate of their jobs … good jobs, stable jobs," he said.

Paola Rodelas, Local 5 communications specialist, estimates that 570 union jobs were lost in the past conversion cycle. For example, Joli Tokusato, a 23-year Ilikai Hotel employee, said conversions cut rooms to 200 from 800 and decreased jobs to 60 from an earlier 500. Ludivina Collins, a 23-year Ilikai housekeeper, said condominium conversions also have reduced more workers to "on-call" status.

"In November, I started working on call and now work only two, three days a week," Collins said. "There are some weeks where I don’t have any shifts scheduled, including these last two weeks. If all of our hotel rooms are converted, we’ll lose our jobs."

While conversion has cost some hotel jobs, Toy said increased efficency and improved technology also have reduced the workforce.

Councilman Breene Harimoto said although he sympathizes with the plight of hotel workers, his support for the bill’s advancement came with reservations.

"I just want to lodge concerns about whether this bill is legal, and whether the city has jurisdiction," Harimoto said, adding that he hopes these issues can be clarified in committee.

Menor says whether the city Department of Planning and Permitting or the Council would have the final say on these permits needs to be hashed out in the Budget Committee.

"It doesn’t really specify which department is going to be administering this, but it would seem to make sense that it should be in the (Land Use Ordinance)," he said after the vote. "And if we decide to do that, we would have to make amendments to spell out the procedures."

City Planning Director George Atta said his department plans to raise issues with the bill in committee.

"Normally, the LUO is not geared to enforce or regulate labor contract issues and so how that would play out in the LUO is problematic," Atta said.