Hotels Magazine: WHY HANYC REGRETTABLY MUST SUE TO SUPPORT ITS MEMBERS
By VIJAY DANDAPANI
October 22, 2021
Early in October, HANYC (the Hotel Association of New York City) filed a lawsuit in federal district court in a bid to strike down a New York City law that requires shuttered hotels to open by November 1, 2021, with 25% of the pre-pandemic workforce or pay US$500 a week in “severance pay” for 30 weeks to every person employed in the hotel in March 2020.
Contributed by Vijay Dandapani, president and CEO, the Hotel Association of New York City
While the law applies to all closed hotels of 100 rooms or more, the pain inflicted on hotels that are part of an industry wide bargaining agreement is even greater as, in the immediate aftermath of the pandemic, they all had collectively paid nearly US$500 million in severance.
HANYC’s lawsuit filed in the Southern District of New York argues that the “Severance Law” violates both state and federal laws by preempting New York State’s Municipal Home Rule and the Federal Employee Retirement Income Security Act of 1974 (ESIRA), and looks to void the law as well as seek an injunction to prevent anyone from enforcing it.
The foregoing law is an unprecedented assault on the beleaguered hotel industry in New York City, which is still reeling from the effects of the pandemic. The city’s hotels were arguably the hardest hit in the country given that the initial onslaught of the pandemic was felt most in New York City with hundreds of thousands of infections and tens of thousands dead. Nearly 200 hotels closed within days with over 50 announcing that they were never going to reopen.
STR has occupancy and RevPAR for a rolling 12-month period ending September 2021 at 51% and US$132, respectively, leaving a 65% chasm in revenue when compared to the same period in 2019. Unhelpfully, fixed costs such as real property taxes payable to the City of New York hover at nearly 80% of 2019 levels.
In the run up to the signing of the bill there was a brief, if pre-destined to failure, window of opportunity for public testimony. Within the allotted time of 3 minutes at the virtual public hearing I pointed out to the mayor and other elected officials in the City Council that the legislation would place an extra burden on an industry struggling to get back on its feet – an industry that has been decimated by the economic effects of COVID-19. Further, I underscored the fact that the bill will stall the city’s recovery by forcing hotels to shut down permanently or convert to other uses thereby putting more workers out of the hotel workforce.
New York City’s hotel industry has been among the hardest-hit by COVID-19, shuttering hundreds of hotels, with many on the verge of bankruptcy. More than 200 New York hotels have closed during the pandemic, leaving tens of thousands of New York hotel workers out of work. Before the pandemic, the hotel industry employed more than 50,000 people who are mostly immigrants and people of color, raised US$3.2 billion a year in city tax revenue, and added US$22 billion annually to the economy.
Estimates from CBRE, Lodging Advisors and others note that the hotel industry won’t fully recover until 2025. According to STR, the latest hotel occupancy rate for a 12-month period is at 51%, compared to 86% for the same period in 2019. Pre-COVID, hotels had a disproportionately large property tax burden compared to other properties. Now, with industry revenue down more than 65%, an additional severance to employees of partially closed hotels will only continue to delay their recovery, or permanently derail it.
The industry has been a significant stakeholder in the city employing over 50,000 workers pre-pandemic while bringing in over US$3.5 billion in taxes to the city’s coffers. When the pandemic hit, the city urgently needed help to move the homeless from congregate settings to avoid super-spreading events. HANYC, on behalf of its members, stepped up to the plate and offered to administer, pro-bono, what turned out to be nearly a US$1 billion contract to house the homeless. Not only did it save many lives, it served to keep several hotels afloat along with their employees when there was no other business.
Instead of recognizing the many contributions from the industry, particularly in the midst of the worst crisis in post-war history, the city has singled out the hotel industry with this punitive measure.
A transparent and participatory mechanism to reopen hotels would almost surely have resulted in a win for all: the city, the hotels and the thousands of talented associates employed in the industry. Regrettably, the only recourse is a lawsuit the merits of which clearly lie on the side of the industry.