Could debt problems and delayed PIPs lead to more opportunities for hotel investors? – Hotel Management

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Hotel brands allowed hotels to delay action on property improvement plans scheduled during or shortly after the COVID-19 pandemic. Supply chain issues also made it difficult to complete PIPs started prior to the pandemic, according to Washington D.C.-based Tom Rowley, executive managing director and national practice lead for Hospitality and Leisure at Cushman & Wakefield. 

While brands have been slow to demand owners complete PIPs, now that hotels are ‘back on their feet,’ so-to-speak,” he said, “we are seeing a greater push to get PIP programs back on schedule to ensure a consistent level of offerings throughout the flag.”

If funding is required to complete the PIP, hotel owners are continuing to delay PIP requirements due to the high cost of capital, Rowley added, noting that delayed PIPs have not had a significant impact on occupancy yet. “But as competing hotels begin to renovate, we do expect an impact on achievable rate, more than occupancy, at hotels that have not renovated,” he added. 

“Overall, lodging demand has been strong and new supply is limited, so generally speaking, occupancy has not necessarily been impacted in the immediate term, concurred Chicago-based Adam McGaughy, senior managing director in JLL’s Hotels & Hospitality Group.  He noted that how guests rate a hotel depends on the cycle of the PIP. “Guests have become very sophisticated on brand standards, and if a hotel hasn’t been renovated for say 10-plus years, they will often find a substitute hotel in the same brand family to move their allegiances until renovation work is completed.”

Some hotel owners have always looked for reasons to delay PIPs, suggested Atlanta-based Steve Schrope, senior director of Hospitality Project Management-CBRE Hotels, but the main reason now is cashflow. “They may not have enough funds to execute the level of PIP the brand requires,” he said, noting that higher interest rates and maturing mortgages also may be causing delays in PIPs.

Read the full article on our sister site, Hospitality Investor.

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