The requirement of hotel property-improvement plans is going to become more frequent but also more expensive going forward, according to experts speaking during a Pinkowski & Co. roundtable in partnership with Hotel News Now.
Micajah Sturdivant, CEO of MMI Hospitality, said PIPs — or renovations mandated by the brands — are going to influence the hotel industry more in the next few years than they have in a long time.
"For the brands, the core prototypical brands where it's all about consistency, it's not there today. And I don't know how they're going to get it back," he said.
On the soft-branded side, Sturdivant said hotel design is so subjective according to each market, that when it comes time to replace furniture or a fixture, owners might not see the return on investment in unique pieces.
Paul Novak, executive director of lodging at real estate private equity firm Whitman Peterson, said if an owner doesn't invest in PIPs, they're at risk of "losing the brand." His firm invests in outdoor lodging brand AutoCamp.
"That's the big issue with what's going to happen with PIPs coming due. If you don't do it, you'll lose the brand as a franchisee," he said.
Of the acquisition opportunities that MMI has considered, Sturdivant said, many hotels under the Curio Collection by Hilton or Autograph Collection by Marriott flags are being converted into a Tapestry Collection by Hilton or a Tribute Portfolio by Marriott instead of owners performing PIPs on the existing brands.
Though hotels in the luxury segment have gotten lots of positive attention, Novak warned hoteliers not to write off Hilton Garden Inns, Homewood Suites or Residence Inns just yet.
Brands "are still very dependent on their select-service brands," he said. "Now, older first-generation product is in big trouble. I don't know that there's a single [generation-one] Fairfield Inn left that I developed — 125 of them — in the Fairfield Inn system. But I guarantee you that there is a new-generation Fairfield in that same submarket," he said.
He added that very few generation-one and generation-two Courtyards have gone out of the system.
Novak developed 225 Courtyards. He opened the first one for the brand in October 1983.
"Until [Service Properties Trust] defaulted Marriott and took out 100 gen-one Courtyards ... the first 225 Courtyards that I developed, probably 215 to 220, were still in the system. Those that came out from the conversion to Sonesta, it was only two years ago. If it hadn't been for [SVC] defaulting Marriott, those hotels would still be Courtyards," he said.
Prices Not Going Down
Novak said a key piece of history to remember is the Great Recession.
"Hotels were devastated. There was no money to renovate. In '11, '12 and even '13, the brands were relatively accepting of the condition of the hotel. But by '14, it was over. All the brands came in and said, 'We've given you enough time to recover,'" he said. "So when you look at a lot of the hotels that were renovated in '12, '13, '14 and '15, they're the ones that are not coming out against the seven-year Great Recession. Then, we got hit with COVID."
As a result, there's a lot of hotels that are now well past the 14-year case-goods replacement timeline, he added.
The brands now are going to have no choice but to "force the hand of owners or they're going to default them out of the system," Novak said.
PIPs are still very tough for owners from a cost perspective, said Roger Hill, chairman and CEO of The Gettys Group.
"From a transaction perspective or even just an existing owner that's talking to their partners, [they] planned to do a renovation, put it on pause because of COVID, and now it's 30% more for the exact same thing. That's painful," he said.
Lee Hunter, chief operating officer at Hunter Hotel Advisors, said he's seen PIPs now cost between $35,000 to $40,000 per key for a mid-market, select-service hotel.