5 keys to smooth hotel pip renovation

Five Keys to a Smooth Hotel PIP Renovation

In the competitive hospitality industry, every hotel company is looking for ways to stand out from the crowd. The ability to boast a beautiful new lobby, reimagined guest rooms or innovative amenities is a pivotal step in attracting customers—benefitting both the franchisor and franchisee.

When completing a property improvement plan (PIP) required by a franchisor, hotel franchisees should give careful consideration to certain components and deadlines included in the agreement. Five key areas to take into account include financing, construction, legal, regulatory and negotiation. Paying close attention to these elements can help you maximize the advantages of a PIP and avoid potentially costly mistakes.

Of course, the details of these concerns will vary on a hotel-by-hotel basis. Your specific franchise or membership, the scope of your project, available hotel financing packages, branding and other unique components may prove significant. However, in general, getting advice from well-qualified professionals in each of these five areas will serve you well during a major renovation.

  1. Financing: Simplify the Process

Property improvement plans are frequently very capital-intensive projects with complex financial implications. Seeking the best available loan programs for your particular project can be vital to meeting your obligations to the franchise. It can also facilitate the process and greatly benefit your business by wrapping up the renovations as quickly as possible and maintaining positive cash flow. Financing helps you maintain your liquidity, which is usually cheaper than raising equity on your own from investors.

The best route is to talk to a lender or bank that specializes in hotel financing. Loan programs like the Small Business Administration (SBA), in addition to conventional loans, are viable options and can be customized to meet your specific needs. Often these lenders can close and fund your project in less time than traditional banks because the process is streamlined for the hotel industry.

Another common option is leasing. Leasing the furniture, fixtures and equipment (FF&E) means that the lender owns the FF&E until the end of the lease contract, then the hotel owner purchases it from the lender. This option and other creative banking solutions are becoming increasingly popular alternatives that make PIPs easier to execute.

  1. Construction: Managing the Details

Will the franchisor select a qualified project manager, or will your business bear most of this responsibility? Have you prepared and submitted a timetable for meeting project goals? Who will draft, publicize, gather and review subcontractor bids? Before a major renovation, most franchisees will need to work closely with an assigned project manager to clarify in detail project goals and schedules. Such careful advance planning can help prevent cost overruns. Many hotel industry-focused banks can now assist you with the tasks involved in the construction phase.

There are as many reasons for construction schedule delays as there are pillows in hotels. Even when an authorized setback occurs, you still may find yourself contractually obligated to serve effective notice about anticipated completion dates. Consulting closely with your project manager helps ensure that everyone involved in your hotel renovation fully understands the expectations.

  1. Legal: Stick to the Contract

Gathering trusted legal advice at an early stage from an attorney who understands contract law and how the hotel industry operates can help you move forward efficiently. If you do experience a disruption in the course of implementing a property improvement plan, you’ll want to discuss performance obligations and deadline issues. For example, what if one of your major suppliers experiences a significant operational outage and can’t deliver your new FF&E on time? A modified time frame usually requires you to notify the franchisor about specific delays.

Also, consider that many franchises invest significant sums promoting hotel renovations and upgraded facilities. Should holdups occur, even for legitimate reasons, the documents underlying the plans for hotel renovations may require you to notify a specific office or individual in advance. Especially if your franchisor promotes thousands of hotels domestically or internationally, scheduling issues can figure prominently in maintaining a smooth business relationship. Even changing your brand within a single franchise often entails extensive planning, so make sure you understand and adhere closely to contractual provisions.

  1. Regulatory: From Ecology to Cocktails

Depending upon the extent of your project and the location of your hotel, you could encounter some regulatory issues as you prepare for renovations to begin. These concerns run the gamut from environmental factors—such as proposed refurbishments that impact environmentally fragile zones or endangered species of plants and animals—to the provision of public facilities, labor laws, and other bureaucratic matters.

If you plan to install a new upscale dining venue owned and operated directly by the hotel, you may need to check into local regulations relating to the sale and provision of alcoholic beverages. Typically, your franchisor will serve as a useful source of preliminary information about this issue since many chains possess extensive experience building and managing restaurants as well. Look to them as a valuable resource.

  1. Negotiation: Accomplishing Goals Together

Seeing eye-to-eye with the franchisor is normally a fluid process. Because you both have a sizable stake in the success of your business, it makes sense for both parties to come to a reasonable, mutual plan. No two hotel properties are the same; your hotel offers unique features, values, and challenges. Clearly communicate those to your franchise representatives while understanding that they have a brand to preserve and promote. Renovations should be viewed by both of you as an important and momentous step in the life of your hotel.

Success From Start to Finish

Carefully addressing the financing, construction, legal and regulatory issues of your PIP, then negotiating a fair plan with your franchise, is a wise path for everyone involved. At the end of the day, you are executing this PIP to enhance both the guest experience and your revenues. Advance planning will help you accomplish both.

As leading national experts in the hotel industry, Live Oak Bank assists hotel franchisees through its financing options and other phases of the hotel project. Our wealth of knowledge about this potentially complex hospitality industry is what separates us from other banks. To discuss these hotel industry topics further or explore your financing options, please contact Angus McDonald at 910-795-0055 or via angus.mcdonald@liveoakbank.com.