This is part one of a two-part series on PIPs in the hospitality industry. Check back Wednesday, May 21, for part two of the series.
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. 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.
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.”
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.
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.”