Opportunities for hotel transactions abound, if only the economy would play ball. Hoteliers are bearing witness to an incredibly active travel season, but the current state of development continues to stop and start due to economic factors few owners can cope with.

Many hotel owners are considering whether to sell or invest the capital to maintain an asset. Usually, the answer would be a clear yes: Completing a property improvement plan raises the value of an asset, reduces the likelihood of guest complaints and creates stronger bonds between brands and franchisees. However, it’s important to consider recent history before embarking on unnecessary investments. If the timing is right, your hotel may be able to avoid postponing its PIP obligation while raising the asset's value.

Many hotels across the industry put the finishing touches on a multimillion-dollar refresh around February 2020 — just in time for an almost total freeze on hotel occupancy for 12 to 15 months. As a result, these hotels sat unused with brand-new case goods, furniture, fixtures and more. Now, the owners of these properties are eyeing a potential exit strategy while staring down a rapidly approaching seven-year refresh cycle on their PIP.

During normal business periods, hoteliers would be asked to update perfectly good material that is barely used and, in many cases, still have life cycle left. These properties are reasonably positioned to bargain with any attached brands on potential PIP or franchise agreement adjustments. If the end goal for all parties is to attain high guest satisfaction and raise the value of an asset, it’s essential to identify areas where this is felt most and rework any plans for the future.

The greatest mistake many operators are making today is failing to bring these concerns to their branded partners for fear of an adverse reaction. For example, just because a hotel guestroom’s soft goods are 6 years old, does it need to be replaced within the next cycle, typically seven years, on a select-service asset? In most cases, considering the lower guest activity during the height of the pandemic, keeping them is worth consideration. This requires good faith and evaluation of the hotel and the state of its FF&E with the brand.

Once the conversation is open, hoteliers must thoroughly assess what they believe needs to be replaced during the next round of capital investments. Ideal areas for consideration include:

• Lighting: Modern LED lights last as long as 100,000 hours, so unless your property opts for mood lighting in select areas, consider an investment in LED technology as soon as possible.
  
• Art: A hotel’s art selection typically gets an update with new ownership but could be retained if it gives a hotel a proper sense of place without remaining dated.
  
• Case goods: Typically, case goods are updated between 14 and 21 years, and brands can extend this cycle if the opportunity presents itself.
  
• Decorative furnishings: With any decorative items within a hotel that do not typically make contact with guests, there are opportunities to extend their longevity.

Ultimately, brands do not want to extend PIPs if possible and would like their properties updated uniformly and consistently. In practice, this only sometimes works, and in some cases, brands have relaxed their requirements during the negotiation process. That does not mean that they are lenient, however. Owners and operators must come to the bargaining table with strong reasoning about why PIPs should be altered, starting with their high QA scores. This is where having a seasoned mediator — such as an experienced project manager firm with a good relationship with the brand — can make or break the negotiations.

When hotels can show which amenities affect the guest experience and how they are prioritizing those during a refresh, it makes it easier for brands to relent on some aspects of their list. This process should be accompanied by a thorough audit conducted by the hotel’s operations team, where they go room-by-room to identify the status of every item on property. After they assess and present it to the brand, they could buy more time for a long-term refresh.

The key is to ensure owners, operators and brands are all on board with the same plan before charging ahead. All three parties are invested in maintaining the same asset and rely on PIPs to add asset value and enhance the guest experience. Adjusting the agreement is fine, but committing to raising the value of your hotel asset requires an ongoing commitment, from touching up walls to breathing new life into the carpeting. Operators like it when brands respond to their queries quickly, and brands like it when their operators show their belief in the brand.

Stephen Siegel is principal of H-CPM (Hospitality CPM).

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or CoStar Group and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to contact an editor with any questions or concern.

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