When The Blackstone Group’s Jonathan Gray and Peter Rose flew down to Las Vegas a few weeks ago it was not to have a good time at the roulette wheels. The global head of real estate and global head of public affairs went to The Cosmopolitan Hotel to meet employees in the heavily unionized catering trade to talk about contracts and working conditions following Blackstone’s acquisition of the hotel from Deutsche Bank for $1.73 billion last year. There was a champagne toast but on business matters, as the two men met with union people, they reassured staff they were not to be made redundant or be forced to re-apply for their jobs.
Unions and employees are one of the trickier aspects to buying assets for which wages are a significant proportion of overall operating costs. Managing such assets require expertise in operating know-how, and it seems that not all owners of properties are in the good books of the unions.
Certainly, it is possible for a private equity real estate firm to attract negative publicity by having protests outside an asset by employees or indeed winding up on a publicly-available list naming and shaming them as ‘irresponsible’ owners. Indeed, that is precisely what has happened to 15 managers (see table). UNITE, which looks after the interests of hospitality employees throughout the US and Canada, published a list a few weeks ago alleging that while some managers such as Blackstone had demonstrated responsibility, others had not.
The Cosmopolitan itself has been at the center of a dispute involving workers. Previous owner Deutsche Bank appeared to go cold on negotiating with employees over terms and conditions for two years before it sold the hotel to Blackstone. Disgruntlement led to protests. In late March 2014, for example, thousands of members of the Culinary Union Local 226 from the Cosmopolitan and other unionizes hotels picketed outside the hotel demanding better pay and benefits. That was just one of many pickets that took place at the hotel during preceding weeks and months.
Jim Baker, spokesman for UNITE, said: “Blackstone set a new tone. Negotiations with Deutsche Bank had really gotten nowhere for the last few years.” Baker said the firm had said it wanted the workers to feel good about being there and talked about fair wages and work load. One worker at the hotel that local union, Culinary Union Local 226 put PERE in touch with said she was now “hopeful.”
Talking about the ‘irresponsible’ list, Baker said a firm would be named if there was an active, unresolved dispute with the owner. Lone Star Funds, for example, acquired the Hotel Burnham in Chicago in early 2014 for $35.3 million. On November 18 last year workers filed charges with the regional office of the National Labor Relations Board, alleging intimidation and threats from hotel management. According to Baker, the employees were told by management that Lone Star was the one that “called the shots”. “In so far as we have tried to reach out to Lone Star, maybe 10 or 15 times so far, they have been entirely unresponsive,” he said.
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