Upcoming layoffs at The Modern Honolulu are likely tied to rising labor costs and the challenge of running a hotel with too few rooms to support the public space that came with it.

Diamond Resorts of Las Vegas, which bought The Modern Honolulu in April 2018 for a reported $225 million, recently notified 78 of the hotel’s workers that their positions were to be eliminated in the next 30 days.

In a statement May 3, Diamond Resorts said, “We don’t take the decision to lay off any employee lightly, which is why we’re offering every one of these team members — full time, part time and casual — a severance package,” the statement said. “We want to make sure they have support as they transition to new careers and we will be here for them through that process as we convert the property into a vacation ownership resort.”

Labor union Unite Here Local 5 posted a press release on its website saying that the layoffs, which affect about 30% of the hotel’s staff, are spread across multiple departments, including: housekeeping, banquets, pool, in-room dining, reservations, and food and beverage. Local 5 represents 270 workers at The Modern Honolulu, which is one of 21 hotels and timeshares within Diamond Resorts’ international network of managed or affiliated properties.

The union’s relationship with The Modern Honolulu began in 2013 when workers at the property first secured a Local 5 union contract. That five-year contract included a successor provision that secured workers’ jobs if Modern Honolulu were sold to another company, or changed ownership or management. At the time, the union said this provision was important because the property’s ownership history had been turbulent.

From 1964 to 2006, the property was known as the Yacht Harbor Tower of the Ilikai Hotel. In 2006, Brian Anderson bought the Ilikai, but sold off the Yacht Harbor Tower to eRealty. Hundreds of workers lost their jobs when the Yacht Harbor Tower closed for renovations. It reopened in 2010 as the Waikiki Edition.

In 2011, the hotel was renamed The Modern Honolulu when its owner M Waikiki LLC, a subsidiary of eRealty, ousted Marriott International Inc. as the hotel’s management company and hired Modern Management Services LLC, an affiliate of Aqua-Aston Hospitality, to manage it. It sold again to investors roughly three to four years ago.

More changes came last spring when Diamond Resorts purchased the property at a per-room price of approximately $637,393. While the purchase price was slightly lower than the per room price in Hawaii in 2018, it was much higher than the national average. According to STR, a data and analytics company, on average hotel buyers paid $725,000 per room in 2018 in Hawaii, nationwide was $279,000.

The asset’s high 2018 sale price may have a role to play in the layoffs, which could signal an exit strategy or a move to timeshare, said Keith Vieira, principal at KV &Associates Hospitality Consulting.

“Conversions to partial or full timeshares usually occur when there is a big capital investment needed. Borrowing comes with a long-term payback, but timeshare is an upfront payment so investors can recoup investments faster,” Vieira said.

The union has said Diamond Resorts expressed interest in partially or fully converting the property into a timeshare and cutting guest services. The union, which did not return a call to the Honolulu Star- Advertiser, also filed charges with the National Labor Relations Board May 4, claiming that Diamond Resorts had failed to bargain in good faith and had violated federal labor law rights.

Joseph Toy, president and CEO of Hospitality Advisors LLC, said a timeshare is probably one of the most viable redevelopment plans for the property, which has struggled since the Yacht Harbor Tower was spun off from the Ilikai.

“It’s got a great waterfront location. But it never had enough rooms to support all of the public space, including restaurants and ballrooms,” Toy said. “A timeshare would allow Diamond Resorts to spread some of the operating costs to timeshare owners. Continuing as a hotel doesn’t work because there is just a high operating cost burden — including labor— on too few rooms.”

Toy said timeshare conversions typically save on labor costs because they don’t require as many employees as a full-service hotel. That could be significant since costs to employ Local 5 workers are poised to go up.

Toy said the Modern Honolulu layoffs also could be related to financial ramifications from the contract that workers at Kyo-ya owned, Marriott managed Hawaii properties secured following a 51-day strike that ended in late November.

As is the pattern with hotel-union contract negotiations in Hawaii, once one major hotel group has agreed to wage and benefit increases, workers at other hotels will ask for a similar package. But this one, which provided union members with up to $6.13 an hour in pay and benefit hikes over four years, was more costly than most.

“Labor costs aren’t an insignificant calculation,” Toy said.

The union’s woes at The Modern Honolulu also come in the midst of protracted negotiations with Hilton Hawaiian Village, where 1,700 Local 5 members work. On April 26, Local 5 members at the Hilton Hawaiian Village voted to authorize a strike there. But Hilton Hawaiian Village said progress is being made during negotiations.