CMBS Loans and Hotel PIPs

If you own a branded hotel or hotel franchise, you may be interested in participating in your franchise’s property improvement plan (PIP). Property improvement plans are typically required in order to bring a hotel in line with the franchise’s latest design standards, and in some cases, are mandatory, especially if a franchisee wants to expand their hotel or purchase a new franchise location. However, PIPs can be incredibly expensive— which is why many hotel owners turn to CMBS cash-out financing in order to fund them.

How Much Does a Property Improvement Plan Cost?

PIP costs can vary greatly with different brands, hotel sizes, and property locations. One of the most popular hotel PIPs, Holiday Inn Express’s Formula Blue, usually costs between $10,000 and $25,000 per room. Since the average Holiday Inn Express location has around 75 rooms, that adds up to between $750,000 and $1.875 million in total costs. Hampton Inn’s Forever Young initiative is another popular PIP, which experts estimate will cost between $15,000 and $40,000 per room.

Is it Worth it to Take Out a CMBS Loan for a Hotel PIP?

Getting a CMBS cash-out refinance to initiate a hotel PIP is a major decision, and shouldn’t be taken lightly. If your hotel is more recent, and you plan to hold onto it for a long time, getting CMBS financing for a property improvement plan could be a great way to increase the value and profitability of your property for years to come. In comparison, if your hotel is much older, a PIP could be prohibitively expensive to execute— and, if you’re not planning to hold onto the property for at least several years, it may not be worth your time and effort.