Hotel Property Improvement Plans: What Buyers Should Resolve Before Closing

Contributed perspective | Hotel acquisition diligence

There is a special kind of optimism in a hotel acquisition model: the single line marked Property Improvement Plan. It has a dollar amount, a closing date and, occasionally, a contingency that looks as though somebody picked it out of a hat. On paper, the problem is handled.

Then someone opens the actual PIP. The scope is older than the price quote. A guestroom standard has changed. The brand expects a different completion date. The lender has conditions for releasing funds. And the general manager is trying to explain why rooms are supposed to come out of service during the property’s busiest month.

A buyer should not wait until after closing to learn which statements are obligations, assumptions or hopes. A PIP is a set of decisions about the brand relationship, the building, financing and the business that must earn its way through renovation.

The essential question is not simply how much the PIP costs. It is which exact work this buyer must complete, by what date, and who has agreed to that answer.

Separate required work from owner choices

I would put proposed improvements into four categories:

• Brand-required: work identified by the franchisor in a current written plan or binding standards.

• Regulatory and life-safety: requirements independently imposed by applicable building, fire, accessibility and other authorities.

• Owner-elected: improvements intended to strengthen rates, guest experience or operating efficiency.

• Negotiated: requirements with a specific waiver, substitution, phasing arrangement or extension approved in writing.

A buyer may be able to defer an elective lobby upgrade. A brand-required bathroom renovation may not be optional simply because the seller calls it cosmetic. Pebblebrook Hotel Trust’s 2025 Form 10-K describes acquisition-related PIPs needed to meet franchisor or brand standards.

Brand standards do not replace code diligence. Qualifying alterations can trigger accessibility obligations under the Justice Department’s 2010 ADA Standards, including Sections 202.3 and 202.4. The buyer’s architect and counsel should assess the applicable requirements with relevant authorities.

Find out whose PIP you are reviewing

The seller’s plan may have been prepared for another ownership structure, franchise term or earlier brand standard. That does not establish that the acquiring entity can adopt it unchanged.

Obtain the full plan and addenda, issuance and expiration dates, extension history, transfer or relicensing requirements, and the identity of the brand’s approval authority.

Marriott’s 2024 Four Points Franchise Disclosure Document, Item 5, describes PIPs effective for 12 months after issuance and separate revision and refresh fees. That is a dated example of plan validity, not a universal deadline for completing renovation work. Current transaction documents govern.

For a new franchise arrangement, obtain the current FDD and related agreements. For franchise sales covered by the federal rule, 16 CFR 436.2(a) generally requires delivery of the current FDD at least 14 calendar days before a prospective franchisee signs a binding agreement with, or makes any payment to, the franchisor or an affiliate in connection with the proposed franchise sale. Specified exemptions may apply; the rule does not automatically apply to every hotel asset purchase. A PIP review does not replace franchise diligence.

Get a written brand response tied to the buyer

An encouraging conversation is not a documented approval. Assemble one confirmation packet covering the exact PIP and drawings, mandatory items, deadlines, inspection milestones, approved substitutions and deferrals, and the process for changes.

Send it to the brand’s designated approval authority with the proposed purchaser and closing structure identified. Ask what applies to this transaction, what remains subject to review, who may approve changes and what constitutes satisfactory completion.

If the brand will not make a definitive pre-closing determination, identify what remains open and price that uncertainty. Do not treat silence as approval.

Underwrite the hotel operating through the work

A contractor’s schedule may be technically sound and commercially brutal. Twenty rooms out of order in a soft period are different from twenty rooms unavailable on high-demand nights.

Build a week-by-week schedule of sellable rooms, displaced demand, rates, group commitments, guest arrangements, incremental labor, procurement lead times and recovery after completion. Separate lost room revenue from lost profit.

Consider a hypothetical 80-room hotel with 20 rooms unavailable for a 14-night renovation phase. The property has only 60 rooms physically sellable per night during that period: 280 potential room-nights (20 × 14) have been removed from inventory. That is not automatically 280 lost room-night sales. The effect depends on demand, relocations and how much business can be recovered. Quantify the rooms actually displaced, the revenue at risk and the profit contribution lost after avoided variable costs.

Present a clearly defined revenue-per-available-room (RevPAR) forecast alongside the room-night schedule, explicitly stating the available-room denominator and treatment of rooms out of order. RevPAR alone cannot explain the operating impact of the renovation.

Reconcile the brand and lender calendars

A brand wants compliant product and completed inspections. A lender wants an adequately funded project and compliance with its loan documents. Neither protects every assumption in the buyer’s model.

An SEC-filed loan agreement dated February 12, 2026, filed by Sotherly Hotels, illustrates lender controls over PIP plans, schedules, material budget changes, contingency reallocations, advances and deficiency funding. See Sections 2.1.2(b)(iii), 5.1.35 and 7.3. This is one transaction, not a universal loan form. Brand approval does not establish that lender funding conditions are satisfied.

Sotherly’s 2025 Form 10-K, under Capital Expenditures, also describes franchise-required improvements and monthly capital-improvement set-asides required by several mortgage lenders.

Underwrite the physical work and its financing together, rather than in separate binders that meet after closing.

Give the team three closing choices

Close as planned when scope, cost, brand response, timing and funding are clear.

Reprice or restructure when the work is known but the economics have changed. A negotiated seller credit, escrow or financing adjustment may allocate the risk differently.

Extend or condition closing when a material PIP issue, waiver, permit or funding requirement remains unresolved. The available choices depend on the purchase agreement, franchise documents and financing terms, which the buyer’s advisers should assess.

A PIP closing-file checklist

• Scope: one dated PIP with revisions and required, elected and negotiated work separated.

• Brand control: a written response addressing the actual buyer, transfer, waivers and approval path.

• Timing: brand, design, permitting, procurement and lender milestones on one calendar.

• Budget: trade pricing, contingency and documented cost-overrun allocation.

• Operating downside: phased room closures, displaced revenue, lost contribution and recovery.

• Capital: sources and uses, funded reserves, equity timing and draw conditions.

• Ownership: a named person for each unresolved decision and an explicit closing condition or risk allocation.

Buying a hotel means taking responsibility for an operating business that must survive renovation. The least expensive time to discover a disagreement about the PIP is before the keys change hands.

About the author

Marty McDaniel, CHA, is Chairman and CEO of The Northstar Companies and a second-generation hotelier. His contributed perspectives address hotel operations, acquisitions, renovations and owner/lender decisions. MartyMcDaniel.com

Related: Value-Add Hotel Deals Need an Execution-Capacity Test

Disclosure: This is an unpaid editorial contribution. McDaniel is Chairman and CEO of The Northstar Companies. He says the company examples are drawn from cited public materials, rather than confidential client information.