Working with franchise companies on PIPs is a ‘win-win’
Working with franchise companies on PIPs is a ‘win-win’
13 MARCH 2018 7:33 AM

Brands set the standards, but owners have the option to make PIPs as effective as possible for their properties.

One thing most of us can agree upon is that product improvement plans are essential. They ensure your hotel remains competitive, while safeguarding the look and the feel of the brand image.

With every new build, or when a property has a change of ownership, major franchise companies require a hotel to meet current brand standards. With a new build, these requirements are built into the design document. A PIP is created by the brand for an acquisition, which will typically become part of the franchise agreement and must be completed within a certain timeframe. In addition to the PIP, brands will require the ownership to update the properties at certain cycles or when driven by quality assurance audits. These refreshes are equally important and critical to maintain brand standard and quality.

As with any capital improvements, these upgrades can be costly. Our experiences have found the brands understand this impact to the overall revenues and have allowed some leeway as long as the standards are maintained and the intent of the PIP obligation is fulfilled. The brand is not expecting ownerships to break the bank, but they do want the property to conform to the essence of the brand and have been reasonable and are willing to collaborate on the design intent.

For example, as part of Hilton’s Forever Young Initiative for the Hampton brand and Marriott’s Courtyard recently announced Gen 1 and 2 façade reimaging, there are ways to save money simply by proper planning and/or value engineering.

When selecting a team, it is important to engage individuals who take on the owner’s interest. They will review the existing conditions of the property and will provide value-engineering options to the project while still creating the same result at a lower price point. At H-CPM, our team, along with the designers, contractors and procurement groups work together during the initial phases as well as throughout the project to review these challenges and find cost effective methods. This allows the ownership the best and most cost-effective way to complete required scope. With brands understanding the overall impact of cost to ownerships and them knowing their own acceptable requirements, they are more willing to work with ownerships.

When commencing an upgrade on an existing property, H-CPM recommends completing the entire renovation at once, rather than piecemeal over several years. While the initial cash outlay is greater, contractor general conditions costs would be lower as the mobilization fees would be reduced. In addition, the revenue impact would be less since guestrooms are only taken out of service once. Lastly, it is also easier for ownerships to push rate when the overall property has been completely renovated (since the impact to the guests is widely visible) rather than upgrading select elements.

With material and labor costs rising, and most projects a rush job, another way to save is to plan early and be aware of challenges that can delay or affect cost beyond the scope. A few examples are, be aware of The Chinese New Year, with most furniture, fixtures and equipment shipping from Asia. If your project is in the cycle or in production during this time, there can be a delay of a month or more in receiving goods. Also, it is important to understand there are certain times a year where a majority of hotel renovations take place. This is due to ownerships minimizing the revenue displacement during certain seasons. Having a general contractor on board well in advance of these time periods allows general contractors and their subcontractors to create a backlog, which can be an advantage to ownerships on cost. If you are planning exterior upgrades, be aware of seasonality and winter conditions, too.

You, as the owner, have the ultimate power in making a legitimate difference to your PIP bottom line. After all, your hotel is your livelihood, and you can control your PIP destiny. The brands know it, but the question is, do you?

Stephen Siegel is principal of H-CPM (Hospitality CPM) and a proven professional in the areas of design, engineering, contractor negotiation and project management for new construction and renovation projects. He earned both a Bachelor’s and Master’s Degree in Construction Management from the University of Florida.

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that might be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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