Those who are either hotel buyers, hotel owners, or hotel investors have to know how a PIP (Property Improvement Plan) works. For this reason, we’ve composed a guide on how PIPs work, how to be prepared for them, and their benefits.
When they want to increase their overall revenue, hotels have to follow the new trends, refresh their brand, and carry out some renovations to meet their competition in the hotel market. Brand refreshing would include a reinforced website, a new logo, new marketing strategies, etc.
Refreshing a hotel brand, defined by PIPs, are initiatives that many hotels have made an essential part of their hotel ownership. However, these types of boosts sometimes come along with significant economic losses.
Therefore, resorting to a PIP can include some very expensive and extensive renovations, and failing to comply with them can result in fees. In worst-case scenarios, it can result in the termination of the franchise as a whole. Yes, PIPs are effective in maintaining the consistent branding of a hotel, but is that all?
We’re here to determine whether PIPs should be the main interest of hotel owners nowadays and whether they effectively drive hotels out of the contract to re-franchise them. When the times are good, brands let PIPs become a wish list, for lack of better words, remodeling each hotel’s square foot and improving the exterior. However, before you decide to sign a PIP, there are some things you have to consider.
All about PIPs in the hotel industry
A PIP is all about getting your property to meet all the brand requirements in the hotel industry. It’s basically a long-term plan and aims to improve and upgrade your hotel to give your customers the best possible experience.
If you implement a good Property Improvement Plan, you can increase revenue, lodging, market share, customer satisfaction, and therefore defeat your competitors. Implementing a PIP for mobility or daily living can also reduce the price of your council tax bill.
This reduction also adds up to the increase in revenue; however, it’s hard to say just how much money you will get off the council tax bill because it all depends on the rate and the component of the PIP you opted for. Your council can give you this information.
If your hotel is flagged, you probably opted for a PIP during the very purchase of the hotel.
Most hotels give their best to retain their luxury, value, service, and cleanliness to be the leading brands with a good reputation. Implementing a PIP to keep this reputation usually includes improvements in instances listed below.
Parking, landscaping, meeting rooms, elevators, stairways, plumbing, electrical system efficiency, interior, and exterior lighting, facilities for food and drinks, communications systems, fitness centers, swimming pools, mechanical systems, corridors, and guest rooms can all be renovated through PIPs.
How often do hotels get PIP?
As we’ve listed what instances of a hotel can be improved with implementing a PIP, we come to the following question, “How often do hotels do this, and what does it cost”?. Obviously, a hotel would have to be in an impoverished state to go on a renovation spree with such big expenditures.
Implementing a PIP does not happen very often. These expenditures will definitely increase the asset value of your hotel, and you could forecast what your earnings will be in the future. A good PIP could save you from signing up your hotel for a lease.
How much does an average PIP cost?
Making your hotel more efficient by implementing a PIP will ensure future profits for your business. However, a PIP is a costly undertaking, and small franchises can witness a significant financial burden when they sign one.
We say that PIPs are a costly undertaking. If you own a hotel with 100 rooms, a design-oriented PIP can cost you approximately $200.000. Of course, there are other ways to go about this calculation. Here, for example, it says that the PIP for the Holiday Inn establishment is between $10,000 and $15,000 per room. The Hampton Inn’s Forever Young initiative is another popular PIP, which experts estimate will cost between $15,000 and $40,000 per room.
Some hotel PIPs may not extend beyond a ten-year period, but a reasonable price is 7.5% to 8% of revenues regardless of the duration. The cost of the PIP will depend on the work required to meet the standards of the brand.
If you check here, they are basically saying that it is risky to define a specific amount of housing for the pipeline.
The factor of the cost, therefore, depends on the size of the hotel in question, the time needed to complete the renovation, and the condition of the property.
If we take all of this information into consideration, we can conclude only one thing – it is not easy to properly define the quantity when it comes to hotel PIPs.
Benefits of hotel PIPS
Implementing a good PIP will give hotels a great number of opportunities to improve their business. First, they improve the overall feel and look of the property. When the renovation process is finished, hotels can throw a reopening party.
Such parties are a great way to increase booking by using property PR strategies. With adequate negotiations upon the very implementation of the PIP, hotels can receive waivers for some of their brand’s standards.
All these improvements will lead to a revenue increase and capture new guests that the previous setting of the hotel couldn’t. In the long run, when owners want to sell that hotel, involving a broker would guarantee a good sale.
Namely, suppose the owner has invested money to expand the hotel and has increased its revenue before selling it. In that case, the broker will believe that the property can generate a particular amount per key. Having this safety net at hand for the future is probably the best benefit of PIPs.
Tips on how to be ready for a PIP and how to face it properly
Five steps on what to think about before opting for a PIP in order not to disrupt your career opportunities:
- Review the PIP thoroughly with a professional – some PIPs can be oversimplified, resulting in worst-case scenarios of these management agreements. For example, a PIP can require that you replace all PTAC unitsolder than five years. That’s why you need a professional to help you with your judgments (for example, CBRE);
- Determine the subjective items in the PIP – always ask contractors to make the prices of subjective items transparent since they can turn out to cost hundreds of dollars, while they might be something that guests won’t even notice;
- Remove all long-term maintenance items from the PIP – yes, you might have to replace the roof at some point, but if it’s not necessary immediately, you should wait;
- Work on what guests will notice first – if you first work on what will affect the experience of your guests, you will increase guest satisfaction, which will, in turn, increase your rates;
- Have a team of professionals in hospitality work – if you choose the wrong people in this field, you can scratch all the effort in the previous four steps (for example, HVS);
- Renovation of premium inventory – you can create something like deluxe rooms that will potentially bring more revenue when booked. You can check out Upstay’s solution and discover how to increase your revenue taking advantage of premium inventory.
Also, when deciding to implement a PIP, remember that the best deals don’t always have the best price. Hotels can achieve the maximum value if they follow the five steps mentioned above, with compromises made on all sides to achieve a profitable hotel with a good brand.
Graduated from Standford University, Arielle has over 5 years of experience in the Hospitality industry. She holds an MBA in business administration from the IDC Herzliya, Israel. She currently works as Account Manager at UpStay, building and maintaining strong, long-lasting customer relationships. She is deeply passionate about helping hoteliers unlock significant new revenue streams from unsold premium inventory.