CHICAGO—The recession put a lot of things on hold. Most hotel brands, for example, allowed owners to curtail expenses by putting regular property improvement planson the shelf for years. But now that a recovery seems to have taken hold, many brands have decided now is the time to implement the plans, known as PIPs, and press owners to add new amenities like big-screen televisions, paint jobs, furniture and signage, among many other features. Many owners have balked at the expense, and some have even decided to cash in now and sell their properties, making this a busy time for brokers.

“PIPS are a big concern because they cost a lot of money,” Jeffrey J. Preston, a Chicago-based vice president of HREC Investment Advisors, a company that specializes in the lodging and gaming industries, told GlobeSt.com. Preston had been speaking as part of a panel on the current climate for hotel brokerage at last week's North America Hotel Investment Conference in Chicago. “It scares a lot of people when they first look at the numbers.”

Preston added that the hotel owners driven to sell by this don't yet constitute “a flood,” but “many of them do feel up against it. They have survived the past five years, but once hit with a PIP, they feel they don't have a chance to catch their breath.”

He recommends that owners not do anything rash. The new amenities that brands want to see in their hotels are, after all, things that customers demand. And from what Preston has seen, many brands have proven they are good listeners, and are willing to negotiate over what is essential in a PIP, and what can be put off again.

Furthermore, a good PIP will increase the attractiveness of a hotel, bring in more customers and boost the value of a property. And with so many buyers in the market for hotels, beginning a PIP, even an expensive one, can ultimately pay off. In fact, the first question asked by prospective hotel buyers is “'what's my PIP going to be?'” said Chuck Nester, another panelist and president of Westlake Village, CA-based Brown Nester Hospitality Services. “Having the PIP upfront is a plus. In this market it's one of the major factors.”

William Sipple, the Denver-based executive managing director of the HVS Capital Corp., pointed out that selling a hotel can take six months. By putting in improvements and boosting customer satisfaction “you've got an opportunity to grow your NOI and increase your price.”

And Ted Mandigo, the director of TR Mandigo & Co., a hotel consulting firm based in the Chicago area, added that those thinking about selling should do many of these tasks, including giving the place a new coat of paint and cleaning up the loan structure, as a matter of course. “It's the same thing as if you were selling a residence. And if you go in and do some of those things,” the subsequent boost in value means “you might decide to keep it.”

Instant Insights /

PIPs Motivating Hotel Owners to Sell

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