Seven months ago, at a luxury ski resort in Lake Tahoe, California’s biggest hotel lobbying group honored Assemblymember Matt Haney as its “distinguished travel champion.”

Now he may be persona non grata.

In February, Haney, who represents San Francisco, introduced legislation that most of the industry now formally opposes (opens in new tab). One major hotel owner is threatening to sell all its properties and exit the city if the measure becomes law. 

AB 1869 targets a tax benefit that has quietly shaped who owns California’s hotels. Over two decades, real estate investment trusts, or REITs, have purchased a sizable share of San Francisco hotels. Two of the city’s biggest — Parc 55 and Hilton SF — were once owned by Park Hotels, a Virginia-based REIT. Federal law enables REITs to avoid corporate tax on income distributed to shareholders, provided they don’t actively operate the properties.

Haney’s bill would set clearer standards. Any REIT actions related to controlling workers’ wages, hours, or union contracts would count as direct operation rather than passive ownership. A noncompliant REIT could lose its special tax privileges. 

At least one hotel REIT says the law would make it impossible to stay in business.

“We oversee billions of dollars in investments in San Francisco,” said Jon Bortz, CEO of Pebblebrook Hotel Trust. “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.” 

The Maryland-based company owns 23 hotels in California. Seven, including the Argonaut Hotel, Hotel Zelos, and Hotel Zeppelin, are in San Francisco. Bortz said that if Haney’s measure becomes law, his company will sell its hotels and leave the state, since any tax liability or restrictions on how it operates would be untenable to investors. 

Congress created REITs in 1960 to let ordinary people pool their money — often retirement savings — for collective ownership of hotels, office towers, and shopping centers that were previously affordable only to institutions and the very wealthy. To qualify for the tax benefit, REITs can’t directly manage the properties — they must hire independent contractors handling day-to-day operations.

But the line between passive and active management has always been blurry. 

Supporters of AB 1869, including Unite Here Local 2, which represents some 3,000 hospitality workers in San Francisco, say legal clarification is long overdue. Anand Singh, director of the union, said certain hotel operators have been dodging accountability for labor violations by deferring to their REIT owners, who can’t legally sit at the negotiating table without jeopardizing their tax status.

“We’re getting to the point where we’re no longer talking to the actual decision-makers,” Singh said. “These [REIT] owners are making cost decisions that have direct labor implications, and we have no ability to negotiate with them.” 

Unite Here crafted AB 1869 after the 2024 hotel workers strike and took it to Haney, whose district includes Union Square and the Financial District, where many of the city’s hotels are located. 

“What we lack right now is any type of enforcement when [REIT] law is broken,” Haney said. 

Beyond clarifying what counts as “operating or managing” a lodging facility, AB 1869 creates an enforcement pathway for workers. Employees could file complaints with the state labor commissioner if they believe a REIT is actually operating or managing their hotel. The evidence can be kept confidential at the worker’s request, and the commissioner must respond within 45 days and forward a copy to the Franchise Tax Board, which could scrutinize the owners’ tax status.

“If you’re following the law, you have nothing to worry about,” Haney said. “But when you have entities that are supposed to be passive but are actually getting their hands into operations and are getting a tax break for it, then that just causes more strife across the board.” 

One of Bortz’s sharpest objections is a single line buried in the bill that says the conduct it explicitly prohibits was already prohibited — meaning that years of standard REIT practice may not have been legal.

For Pebblebrook, that language transforms a forward-looking compliance question into a potentially open-ended liability, giving California tax authorities grounds to scrutinize prior years of conduct the company considered to be fully legal.

“We’ve been obeying the law,” Bortz said. “To suddenly say that we haven’t been is not fair, right, or appropriate.” 

Neither Haney nor Singh said they could recall Pebblebrook or any other hotel REIT owners in San Francisco violating any laws. 

“It is not my intention to punish people for books that have been closed,” Haney said, adding that AB 1869 could be revised in committee before reaching a floor vote. 

“I don’t think it does us any good to look at sins of the past,” Singh said. “The accountability piece of this reform still needs to be addressed. Right now, giving the state the ability to call out REITs for operating outside the bounds of law is important.” 

Pebblebrook is not alone in its opposition. The California Hotel & Lodging Association, the San Francisco Chamber of Commerce, Advance SF, and the Hotel Council of San Francisco are among a coalition of 28 travel and business organizations that wrote to the Assembly this week (opens in new tab) warning that the bill would strain the labor commissioner’s office with staffing demands, reduce tax revenues, and impose significant costs on the industry.

“We need to make it so that people are encouraged to invest in San Francisco,” said Alex Bastian, CEO of the Hotel Council. San Francisco Travel, the city’s tourism bureau, said in its annual forecast that the city will welcome 24.2 million visitors this year, versus 23.7 million last year. 

Some of the bill’s opponents see irony in its author. Haney chairs the Assembly’s Downtown Recovery Select Committee, making him one of Sacramento’s most prominent advocates for San Francisco’s post-pandemic comeback. Critics argue that AB 1869 cuts against that work — making the city a less attractive place for the businesses its downtown depends on. 

Industry groups warn that if hotel owners abandon their properties, guests will face reduced service, lower quality, or outright closures. For an industry yet to return to pre-pandemic revenue levels, that would be insurmountable, they say.

Haney pushed back. 

“How is investment encouraged when one set of people are following the rules and another gets a tax break even when they break the law?” Haney asked. “That’s not a good investment climate. If I was a hotel owner, I would want a level playing field. I would hope that taxpayers, owners, and workers would want that too.”