PIPs change with industry in recovery

Apple REIT Cos. owns the Dallas Park Cities Hilton National Report – Now might be the time for buying and selling a hotel, but that’s not the only activity happening. Hotel renovations, particularly those related to relicensing or change-of-ownership product-improvement plans, are on the rise as well. According to the most recent Hotel Management “Voice of the GM” survey, more than 50 percent of participating GMs made brand-mandated upgrades at their properties within the past 12 months.

Picture:  Apple REIT cos. Apple REIT Cos. owns the Dallas Park Cities Hilton and facilitated a change-of-ownership product-improvement plan involving a full guestroom and public space renovation. 

But like most hotel activity since the recession, navigating the PIP process has changed. Hotel Management had a conversation recently with a group of executives involved in the process of planning and executing PIPs.

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Negotiating the PIP

The first level of PIP planning still happens between the franchise company and the owner.

Today, both parties expect negotiations. “There will always be elements in PIPs that might not make sense for your hotel,” said Craig Amos, EVP of capital investments for ownership company Apple REIT Cos. “The best way to negotiate is to explain to the brands what makes sense and what doesn’t—we don’t do renovations just because a brand tells us to; we have to be able to articulate the need in the market for it.”

Hvs HVS Design did the interior design for the renovation of the Hampton Inn Crosstown in Boston.Kurt Smith, VP of product quality and innovation for Hilton Worldwide’s focused-service brands, agreed that negotiation is just part of the process. “Have reasons behind the elements you want or don’t want. We understand that one size doesn’t fit all,” he said. Smith’s biggest caution was for owners tasked with a PIP who don’t eschew certain elements without alerting the brand. “If the owner just goes dark, he’s going to fail the quality assurance process down the road, creating more problems and lost revenue for everyone,” he said. 

Picture: Hvs HVS Design did the interior design for the renovation of the Hampton Inn Crosstown in Boston.

Jonathan Nehmer, president of Jonathan Nehmer + Associates, and Sam Cicero Sr., founder of Cicero’s Development Corp., both said they’re getting involved in the negotiation process as well, particularly to lend insights into money-saving specifications.

“It’s great to involve the design and construction team in negotiations because we can help find some ‘other ways to skin the cat,’ so to speak,” Nehmer said. “For example, there are a lot of new safety initiatives and we can find alternative approaches that can save the owner money.”

And the negotiation process isn’t just between the franchisor and the owner. Nehmer said his firm is getting more involved with negotiating with general contractors, rather than restricting the selection process to bids only. He said negotiating with a general contractor who knows the company and the business often can save time and money in the long run. “We know these contractors’ fees and general conditions, so we tell them the budget and we work with them,” he said.  

Amos, on the other hand, said his company still is bidding out general contractor jobs. “We’re still seeing about a 25-percent variance from high to low bids,” he said. “When that gap narrows, which it is doing, we might go back to negotiating.”

Stick to the schedule

For any PIP to reach completion on time and on budget, strict schedules are a necessity, and that schedule always comes down to money—specifically, how to maximize rooms revenue during the renovation, while having construction crews that can handle schedule shifts.

Amos said the process of scheduling “involves some science and some art,” as owners and designers plan around low seasons and big events.

“The biggest problem is displacing business or running over schedule and then running into graduation weekend,” Amos said. “We can quantify the number of rooms out of service and what that will cost us and we can forecast our occupancy. What’s tougher to quantify is what business we lose when guests see a renovation and walk away.”

Here again, communication is key. Both Nehmer and Cicero said they get general contractors involved as early in the scheduling and planning process as possible. Cicero has daily stand-up meetings during projects to keep the conversation going.

He said it’s also becoming more common to house construction crews off-site rather than in rooms, which can save all parties money while keeping more rooms in service.

Nehmer said that with more compression on time, money and product availability, he sees renovation scheduling changing to adapt start-stop timeframes.

“We see this happening in hot markets like Orlando,” he said. “We’re asked to work for a month, then go away for a month.”

While that start-stop schedule sounds crazy, Nehmer said it works when it’s planned well from the beginning. 

From a brands perspective, Smith said that while start-stop renovations aren’t everyday occurrences, Hilton is comfortable working with owners to time the PIP to avoid busy times. “We traditionally used to write PIPs for 12 months, but we’ve stretched that out to 18 months, even 24 months or longer if necessary.”

Speed and costs

With more properties involved in PIPs now that conditions are more favorable, product suppliers and procurement companies are feeling the pinch as well. 

“We know that nobody likes to say ‘no,’ but we absolutely have to make sure everyone involved in the renovation is telling the truth when it comes to what they can deliver and when,” he said.Hilton’s Forever Young initiative for its Hampton brand includes interior and exterior updates that will factor into property PIPs.

He said when his firm begins a renovation, he does a day-by-day schedule with the contractor on the first room, then applies those specs to the rest of the schedule.

Picture: Hilton Hilton’s Forever Young initiative for its Hampton brand includes interior and exterior updates that will factor into property PIPs.

Cicero works with his contractors to schedule how many workers are necessary for different parts of the job.

Relationships become a key part of keeping the schedule running when it comes to ordering and receiving materials.

“You can buy the same carpet made by a lot of different manufacturers,” Nehmer pointed out. “Your purchasing agent knows who has the time to produce it, the best price and the best delivery.”

Amos agreed. “It’s also about buying power and leverage with vendors,” he said. “If I call a carpet vendor because roll sizes are wrong, he might not take my call. But when the purchasing agent who has real clout makes the call, he gets through.”

These relationships don’t just expedite completion times, they can save money as well, Nehmer said, especially when ancillary costs and savings—like freight costs and utilities rebates—are factored in from the beginning.

“You don’t have to use a freight manager, but normally their fee is built into the fact that they’re going to save you 4 to 5 percent, and that’s a big chunk of change at the end of the day,” he said.

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