Editor’s note: This is the first installment in a three-part series on hotel turnaround strategies.
REPORT FROM THE U.S.—Property improvement plans play a big role in turnaround plans. But financing for PIPs remains difficult to find.
- Read “The pending PIP monster.”
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Equity that once was the primary pool for collateral has come far down in value, which has made money scarce, hoteliers report.
“It’s very difficult … First mortgage money is very hard to find,” said Kirby Payne, co-president of HVS Hotel Management.
But franchisors have not taken their foot off the pedal as it relates to completing PIPs.
InterContinental Hotels Group is certainly no stranger to PIPs. The company executes about 1,000 per year, said COO Angela Brav. The company writes a PIP every time it goes through a license change.
“It keeps hotels fresh and relevant to the customer,” she said
“We can’t let economic conditions dictate” whether or not the company goes through a PIP, she said.
Poor economic conditions aren’t necessarily going to get hoteliers off the hook, but there are still ways to get PIPs done economy notwithstanding, hoteliers said.
The lender you know
There are still PIPs under way, said Mark Carrier, chairman of IAHI, the owners’ association for IHG, and executive VP of B.F. Saul’s hotel division. But the money has to be spent wisely.
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Mark Carrier |
“Dollars you spend have to be productive,” he said. Going with the lender you know is one successful strategy when searching for PIP financing. Trying to obtain financing with a lender with which you have not previously obtained a loan? Good luck, hoteliers said.
Late last year, HVS Hotel Management was able to finish a PIP on a 100-room property in Boynton Beach, Florida. Approaching a lender the company had an existing relationship with likely helped secure the financing needed, Payne said.
“(The lender) was agreeable … They knew us already. It was a decent deal,” he said.
Franchisors also provide support for their franchisees. Choice Hotels International, for instance, connects its franchisees with Choice’s procurement services department, which can get the franchisee better deals from vendors, said Christopher Arnett, Choice’s senior director of franchise management.
As for where not to spend money? Hoteliers said it’s best not to focus in those areas that guests will not see with their own eyes.
Desperate contractors
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Michael Allen |
Allen Management Hotel Group of Newport News, Virginia, is currently in the middle of a US$500,000-US$600,000 PIP to renovate the bathrooms of its 14 Virginia hotels. The project comprises approximately 1,000 rooms. The average age of the properties is 20 years, said Michael Allen, president of Allen Management.
“Our product certainly has some age on it,” he said. “Fortunately, the product has held up pretty well.”
Still, the work needed to be done.
“The silver lining to today’s down economy is that there are a fair number of well-qualified, good contractors scrambling for work,” Allen said. “We’ve reached out to contractors who wouldn’t even take my call four or five years ago.”