ATLANTA—For branded hotels, the property improvement plan, or PIP, plays a huge part in the cost of doing business, particularly when it comes to buying or selling a hotel.
“The PIP is the most sought-after document in the war room that potential investors look at,” said Bill Robinson, owner of RAM Group. “The minute you know you’re going to market, order up a PIP.”
PIPs are required at various stages of a hotel’s life cycle: At change of ownership, at relicensing, at reflagging and at regular renovation cycle intervals beyond that.
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The goal? Brand protection. The pain point? Cost. Hotel owners bear the financial burden of ordering a PIP from brands, costing it out and complying with the requirements.
“It’s important to remember the purpose of PIPs is for compliance with existing and new brand standards, and to maintain brand standards so franchisors can protect the brand for their investors and franchisees,” said Matt Arrants, managing director of Pinnacle Advisory Group. “The brands we most often complain about are often the ones we want most. PIPs can be extremely painful if you’re not prepared, so it’s really about preparation.”
Arrants moderated a panel at the Hunter Hotel Investment Conference on which speakers shared advice for navigating the PIP process, and discussed new changes and trends to keep an eye on.
1. Start early and prepare to spend
Preparation is key when it comes to ordering PIPs as part of a hotel transaction, panelists said. It’s a given in today’s competitive environment that sellers should have a current PIP in hand when putting their property on the market.
“That buyer should know what he’s about to buy,” said Michael Rosenman, VP, owner & franchise services, The Americas, at Marriott International. “Are there hotels that go to market without PIPs or with old ones? Yes, but I wouldn’t recommend it. The buyers you want are sophisticated enough to know.”
The panelists cautioned owners to plan ahead since PIPs can take a while for franchisors to prepare, and once done, they don’t last forever. Robinson said that in his experience, PIPs from most large brands such as Marriott and IHG take from four to six weeks to prepare.
From there, PIPs are generally valid for six months (for Marriott select-service brands and Hilton brands) to a year (for Marriott full-service brands), according to Rosenman and Rajan Lalwani, director of product improvement global brand operations for Hilton.
As for costs, be prepared to spend. Marriott PIPs for select-service brands cost $8,000 and full-service PIPs are $20,000, Rosenman said. Hilton’s are $7,500, Lalwani said. Both said their companies are willing to extend terms within reason if a transaction is delayed.
When it comes to change-of-flag PIPs, Rosenman said Marriott is seeing a lot of PIP activity related to the Starwood Hotels & Resorts Worldwide acquisition.
“Now we’re in a world where there’s much more interest in changing brands within the Marriott family, and we have to PIP,” he said. “Plus, Starwood used the term ‘PIP’ more broadly than we do at Marriott,” particularly surrounding the renovation cycle, he said. Now, all owners in the system must comply with Marriott’s PIP requirements, he said.
2. Be involved in the process
Once a franchisor issues a PIP for a property, it goes into an estimating process. Here is where owners should work with professionals to price out the PIP rather than try to estimate it themselves, the panelists said.
Most importantly, they said, owners should get involved in the process because they know their properties better than anyone.
“After you get the PIP document from the brand, it behooves the asset manager or owner to walk the hotel and look at every single item,” Robinson said. “Go through everything and try to negotiate it out with the brand company if you can and if you believe in it.”
That type of negotiation is expected, Rosenman and Lalwani said, and they emphasized that brands are doing their best to balance costs to owners with the importance of brand standards.
“When it comes to different brand PIPs, we look at signature or core elements that absolutely have to be in the PIP,” Lalwani said. “That creates the swim lanes between brands. Second, we look at the useful life of the elements in the hotel and the property’s renovation history. We want to come up with a strategic, cohesive plan so the owner gets the most bang for (his or her) buck.”
Lalwani and Rosenman said that while it’s easy for owners to see the importance of replacing casegoods that are worn out, for example, it can be tougher to communicate why it’s also important for the brand to replace casegoods just because of their style.
“If you have a lifestyle hotel that has casegoods that are 12 years old, even if they’re in good condition, that doesn’t say ‘lifestyle hotel,’” Rosenman said. “You have to look like the brand.”
3. Stay on top of trends
Staying abreast of customer-driven trends helps owners know what to expect from their next PIP, the panelists said. Right now, the biggest trends in the guestroom are technology upgrades and tub-to-shower conversions.
“Trying to stay on top of technology needs is one of the biggest issues,” Robinson said. “On every PIP, one of the first lines calls for you to ensure you have the correct property internet standards.”
However, Rosenman said, compliance to internet standards isn’t too much of an issue these days, because most properties have met that. “Internet (bandwidth) was the top customer complaint three years ago so we implemented a standard, and the truth is that, mostly, every owner has complied,” he said.
Next on the tech compliance front are in-room entertainment items, and RFID lock systems.
Lalwani said the digital key is Hilton’s top initiative right now.
“This can mean lock replacements or retrofits for owners, and it could have a domino effect with regard to the condition of hardware,” he said. “It’s going to continue for the next few years.”
On the tub-to-shower conversion front: It’s true that guests want showers more than tubs these days, the panelists said, but the timeline for owners to make conversions can depend on how proactive they want to be, not only in anticipating what their future guests will want, but in planning for future franchise agreements.
“Tub-to-shower is coming down in cost,” said Ben Wallace, president of River Ridge Renovations. “We see both scenarios: Some owners want to delete scope from a PIP (so they don’t want to do it), and others want to add scope” because they know they’ll need to do it eventually.
Lalwani said that for Hilton, all new-builds and new brands have showers. Beyond that, different brands have different requirements, and the company considers many factors when including them on a PIP.
“Certain brands think of tub-to-shower conversions as really relevant,” he said. “In other cases, we’ll look at the tub surround. Is it old? Is it in bad condition? That’s when we’ll write in a tub-to-shower conversion.”