Pico elected architect Ezra F. Kysor to develop what he imagined would be the greatest hotel in Los Angeles. Construction began in the Fall of 1869 and was opened for business in the Summer of 1870. Pio and his brother, Andres, sold most of their landholdings in the San Fernarndo Valley in order to finance the construction of the hotel.
The elegant, and ornate hotel was an immediate success, but it was short-lived. As the Southern legs of the railroad lines were completed in the 1870s, greater numbers of people flocked towards Los Angeles. The area surrounding the Pico Hotel became a racialized segment of the city. As the neighborhood declined, Pico's wealth declined as well. The Chinese Massacre of 1871 was said to have occurred very close to the Pico House. One Pico House employee claimed to have seen the massacre from his post at work.
Pico spent much of his late years involved in litigation. He lost most of his property, and was left nearly destitute. He ultimately lost the hotel in 1880.