A major hotel landlord is openly threatening to walk away from San Francisco, warning that a new Sacramento proposal from Assemblymember Matt Haney could strip real estate investment trusts of key tax perks and inject fresh risk into downtown’s already shaky rebound. Pebblebrook Hotel Trust’s chief executive says the company would sell its California hotels if AB 1869 becomes law, setting up a very public clash between labor-backed reformers and tourism and business groups. The bill seeks to draw a sharper line between passive ownership and active management by REITs and to give workers a formal channel to flag suspected overreach. The fight sits at the crossroads of tax policy, labor rules, and tourism at a moment when San Francisco is still trying to get its economic footing back.
Jon Bortz, Pebblebrook’s CEO, told reporters, “If you’re saying that we can’t have any say at all in how they are run, then we’re simply not going to invest here,” as reported by The San Francisco Standard. The Standard reports the Maryland-based REIT owns dozens of hotels nationwide and, per the article, operates seven San Francisco properties, including the Argonaut, Hotel Zelos, and Hotel Zeppelin, that would fall under the bill’s scope. Pebblebrook’s proxy also shows it owned 44 hotels as of March 25, a reminder that one major seller can jolt local markets. Industry leaders say the bill’s language could expose long-standing practices to tax scrutiny and, in a worst-case scenario, lead to sales or closures.
What AB 1869 Would Do
AB 1869 would explicitly treat certain actions, such as exercising control over wages, hours, or working conditions, as operating or managing a lodging facility, which can affect a REIT’s tax status, according to a state tax office analysis from the Franchise Tax Board. The bill would also create a process for affected employees or their representatives to submit evidence to the Labor Commissioner or the Franchise Tax Board and require a written response and forwarding of any findings. Supporters say the change is meant to clarify, not punish, existing rules, while arguing it finally gives workers an enforcement path that has been missing.
Industry Pushback
Hotel owners and trade groups counter that the proposal would upend long-standing federal conformity and pile new administrative burdens onto state agencies. In a May 1 letter, a coalition that includes the California Hotel & Lodging Association, the San Francisco Chamber and the Hotel Council warned lawmakers that AB 1869 could depress tax revenue, spur forced sales and drag labor regulators into dense tax disputes. The letter argues the reporting system could prompt waves of complaints timed to contract renewals and collective bargaining cycles, straining agency staff and local budgets, as per the Coalition letter.
Workers and Unions
Unite Here and other labor supporters say REIT owners have steadily increased their influence over day-to-day operations while still claiming passive status, leaving front-line workers with no clear way to hold ultimate decision-makers to account. Union witnesses urged the Assembly’s Labor and Employment Committee to advance the bill at an April hearing, arguing that the reporting mechanism would get evidence into the record and prevent owners from hiding behind management contracts. Reporting and committee transcripts indicate Unite Here Local 2 represents roughly 3,000 San Francisco hospitality workers and helped craft the proposal. See the committee record for the testimony: Committee transcript.
Why It Matters For San Francisco
San Francisco’s downtown comeback still leans heavily on hotels for tax revenue, jobs and convention business, so major ownership churn could have outsized local fallout. The San Francisco Travel Association projects about 24.2 million visitors this year, a modest uptick that still leaves occupancy below pre-pandemic peaks and makes steady investment especially precious. Industry groups warn that forced sales and transition periods can temporarily drag down transient-occupancy tax receipts and disrupt service levels at properties already running on thin margins, as reported by the San Francisco Travel.
Legal And Tax Implications
At the core of the dispute is whether the state should treat certain REIT behavior as incompatible with the tax rules that make REIT status possible in the first place. The bill’s sponsors describe the language as clarifying and focused on enforcement, while legal and tax advisers warn that negative findings could expose owners to back taxes, penalties or even loss of REIT treatment, outcomes that usually lead to lengthy audits and litigation. Those stakes help explain why legislative counsel is scrutinizing the proposal and why industry groups worry about retroactive risks to routine contracts. See the bill text for technical details: California Legislative Information…