PLAINFIELD, IL, OCTOBER 17, 2019 -- Following a decade of record growth, hotel franchisors are putting new focus on ensuring their brands’ flags are in tip-top condition. Tired, neglected properties with lower quality index scores are being issued property improvement plans (PIPS) to upgrade. Failing to comply with even the smallest PIP detail may put the hotel owner in jeopardy of having their flag pulled.
PIPS are an expensive proposition. Not unsurprisingly, few hotel owners welcome them. But because PIPs are part and parcel of hotel ownership, the challenge is how to make an older hotel thoroughly brand compliant, while keeping PIP cost reasonable.
According to Cicero's Development Corp., a general contractor specializing in hotel renovations, before signing off on a PIP agreement, hotel franchisees should pay close attention to avoid potentially costly mistakes. Although situations differ from brand to brand, terms are typically negotiable. Brands are especially receptive to negotiating PIPs with hotel owners who have existing relationships with the brand or who own or manage other franchised properties.
TIPS FOR PIPS
If owners are careful about expenditures, they can save money during a PIP, reports Sam Cicero, president of Cicero's Development Corp., who offers the following Tips for PIPS.
- Painstakingly review PIP requirements with the PIP brand representative to quantify its content and to assist with judgment calls. It is not uncommon for franchisors to oversimplify PIP elements with words like “all” or “throughout the property,” which leaves contractors having to price in the most expensive scenarios.
- Identify other negotiable items in the PIP agreement such as the types of flooring tiles or wall finishes. These can vary widely in price. Ask your general contractor to break out the price of alternative items because they may be the first things to propose as "value engineering" points to the franchisor.
- As a rule, any long-term maintenance items should be removed from the PIP. Yes, the hot-water heaters and roof will have to be replaced at some point, but if it’s not immediately necessary, wait.
- Sometimes franchisors allow PIP work to be broken into several stages that coincide with the hotel’s cash flow. While this sounds good in theory, it usually increases the overall PIP cost because the contractor has to repeatedly restage. Don’t take the bait. A better approach is to devise a plan keeping the work to a single floor at a time, while other floors are left open for guests. Besides keeping revenues flowing into your operation, it isolates the work and will minimize guest inconvenience.
- It is not uncommon for time-consuming disruptions to occur in the course of implementing a PIP. Before getting started you will want to discuss the implications of disruptions with the franchisor as it effects deadline requirements and possible penalties.
- If you feel your property is being unfairly targeted for an extensive PIP, research if there is another property under the same flag that recently underwent a PIP but was not subjected to the same requirements. This knowledge may give you leverage during negotiations.
Finally, once you have settled on the entire scope and details with your franchisor, be sure to select a team of contracting professionals who specialize in hospitality work. Choosing the wrong contractor can negate all the benefits made in steps one through six.
CONCLUSION
Like most elements of a business transaction, PIPs are negotiable in both their scope and timeframe. It is recommended that hotel owners negotiate as much as they can up-front before signing off on their PIP agreement, or before sharing the PIP with potential investors. Keep in mind that it is the end-goal of the franchisor to not only make the best deal, but to maintain the highest brand standards and the best appearance for your hotel. The key is to find a balanced cost solution that meets brand requirements and the hotel owner's budget.
For more information visit www.cicerosdev.com