{"id":590,"date":"2020-03-19T16:15:36","date_gmt":"2020-03-19T22:15:36","guid":{"rendered":"http:\/\/agcus.net\/?p=590"},"modified":"2026-02-04T19:16:46","modified_gmt":"2026-02-05T01:16:46","slug":"pip-commercial-loans","status":"publish","type":"post","link":"http:\/\/streamapse.com\/TAR\/?p=590","title":{"rendered":"PIP Commercial Loans"},"content":{"rendered":"

George Smith Partners recently released a tombstone about a commercial loan closing that used a financial term of which I had never heard:<\/p>\n

“George Smith Partners arranged $23,750,000 in bridge financing for the refinance of a 229-key, full-service hotel located in Downtown Minneapolis, Minnesota… \u00a0The Property, built in 1986, underwent a PIP<\/strong> in 2017.”<\/p>\n

What in heavens is a PIP?<\/span><\/span><\/p>\n

A PIP<\/strong><\/em> is a Property Improvement Plan required by a brand or franchise – usually a hotel franchise, like Marriott or Hilton – to maintain or improve standards. \u00a0Often the property owner needs to obtain a secondary loan or refinance the property.<\/p>\n

A property improvement plan (PIP) is required to bring a hotel in compliance with brand standards. \u00a0According to HVS, an effective PIP should help owners gain market share, increase guest satisfaction, drive revenue performance, and enhance profitability. \u00a0Elements like lighting, faucets, and fixtures are foundational for brand standards, but now energy-efficient equipment upgrades are entering the equation.<\/p>\n

One hotel franchisor recently said that her company is pushing hard to incorporate sustainability measures into the conversion process. There are things that the franchise is recommending in order for the franchisee to run an efficient building.<\/span><\/span><\/p>\n

For instance, if a boiler system has a 30-year life expectancy, but it\u2019s only 20-years-old, the franchisee might consider changing it out early because there is no down time, new systems are 30 percent more energy efficient, and there is a good ROI attached. \u00a0\u201cWe\u2019re looking at mechanical systems, chillers, boilers, and things that are not very sexy,\u201d she says. \u201cIt\u2019s really important in looking at how much it\u2019s going to cost to operate that piece of property.\u201d<\/p>\n

Property Improvement Plans (PIP’s) are not cheap. \u00a0PIP costs can vary greatly with different brands, hotel sizes, and property locations. \u00a0One of the most popular PIP’s, Holiday Inn’s Formula Blue, usually costs between $10,000 and $25,000 per room. \u00a0Since the average Holiday Inn Express location has around 75 rooms, that adds up to between $750,000 and $1.875 million in total costs. \u00a0Hampton Inn’s Forever Young Initiative is another popular PIP, which experts estimate will cost between $15,000 and $40,000 per room.<\/p>\n

Yikes. \u00a0That’s real money. SBA loans are often, but not always, utilized to finance a PIP. \u00a0It is important to understand the types of improvements a prospective hotel owner can make using SBA funds. \u00a0Experienced hotel owners often focus on the following areas:<\/span><\/span><\/p>\n