Proposed legislation pushed by New York City Mayor Bill de Blasio isn't expected to cause immediate challenges for hotel developers, but could stall future development at a time when new hotel rooms are needed in the market.

The plan, which is not yet approved to become a law, would restrict hotel development and require City Council approval for any new hotel across the city. It could also end up costing $350 million in lost taxes by 2025 and up to $7 billion over the following 10 years, The New York Times reported.

Officials are preparing to present the proposal to communities around the city. After that, it would go to the Council for a vote later this year — where it's expected to pass, according to The Times.

Dan Lesser, president and CEO of LWHA Hospitality Advisors, which has its headquarters in New York City, said he doesn't see many upsides to this plan, and many of the reasons de Blasio wants to enact it do not seem logical.

According to The New York Times, de Blasio said, "hotels create more traffic and activity than ordinary buildings, and he has defended the policy as good for both organized labor and community residents."

"The reasons for this are somewhat pathetic and don't support the notion of why this is being done at all," Lesser said. "You don't have to be a rocket scientist to figure out what the motivation is here."

If this plan were to go through and limit new hotel development, Lesser said the only the beneficiaries would be existing hotel owners and home-sharing platforms, as they could gain pricing power.

Currently, and even pre-COVID-19, there hasn't been a shortage of hotel rooms in the city, but there could be in the future.

"It's probably going to get to the point where the city does need more hotel rooms and this could be a significant hurdle to making that happen," he said.

Sean Hennessey, founder and CEO of Lodging Advisors and clinical assistant professor at NYU's Jonathan M. Tisch Center of Hospitality, said the proposal is "widely seen as something the mayor is doing based upon his ties to the hotel union," adding that it would also be a de facto requirement that any new hotel would have to be unionized to secure City Council approval.

A similar law has been put in place in some districts in the past under Mayor Mike Bloomberg, which Hennessey said has "cut the pipeline of new hotel projects back to zero."

Hennessey said he's not aware if the Real Estate Board of New York has challenged that law in the past, which would only make it harder to challenge the legality of this measure if it were to become law, too.

"It looks like if the mayor decides that's what he wants to do, it's a decent chance it will be put into place," he said.

However, even if it does become law, Lesser noted things change over time.

Developers likely will not be building more hotel rooms until the market recovers and room rates and revenues are high enough to support a unionized operation, Hennessey said.

"That will make it a longer time before we see an increase in the pipeline," he said, adding unionized hotels have been under pressure profit-wise for quite some time.

The other factor to consider is hotels are closing due to natural reasons.

He said many of the oldest hotels in the city are unionized, whereas most of the newer ones are not. Therefore, the unionized properties are more likely to reach the end of their life cycles and drop out of the supply.

That, coupled with a limited amount of new hotels entering the system, could present a challenge.

Over the long term, if the plan becomes law, it's likely to dampen prospects for the city to maximize tax revenues because there's going to be less incentive to build new hotels, Hennessey said.

It’s not unreasonable to presume the proposed legislation would affect developer appetite in the market, said Jan Freitag, national director for hospitality market analytics at CoStar.

While it would present an additional hurdle, there will always be interest in adding new supply to the market as long as there are developers who want to build a global footprint, he said.

New York City is one of those markets where “you feel like you have to be there,” he said.

The growth rate of room supply was minimal over the past several years, but occupancies have always been high in the market, he said. The city will again attract domestic travelers as soon as entertainment areas, such as Broadway, reopen — and attract more international travelers once restrictions ease.

“Just looking at the plain level of occupancy, there was always demand to sell those rooms,” he said. “At what price is another question.”

According to STR data, two new hotels have opened in the city this year: the 74-room Ascend Collection Brooklyn Vybe Hotel and the 33-room Baltic Hotel. Another 78 hotels with a combined 12,972 rooms are projected to open this year and 37 hotels with 5,699 rooms are projected to open in 2022.

STR is CoStar’s hospitality analytics firm.

Seven hotels with 792 rooms opened in New York City in 2020; 38 hotels with 6,231 rooms opened in 2019; 24 hotels with 4,134 rooms opened in 2018; and 36 hotels with 5,415 rooms opened in 2017.