If you’ve been following our updates at Goodegg Investments, you know that select-service hotels—think trusty, highly efficient brands like Hampton Inn, Courtyard by Marriott, or Hilton Garden Inn—are one of our favorite tools for diversification and hedging against inflation.

Because hotel rooms re-price every single night, hospitality assets give us a unique dynamic edge that traditional 12-month apartment leases can’t match. But to unlock that value, hospitality assets rely on an operational engine that many passive real estate investors aren’t as familiar with: the Property Improvement Plan, or PIP.

If you’ve ever read through a hotel deal deck and wondered, “What exactly is a PIP, why does the franchisor mandate it, and where does all that capital actually go?”—you’re in the right place. Today, we’re lifting the hood on Property Improvement Plans: what they are, why they exist, how we manage them step-by-step, and how they ultimately supercharge property valuations and investor distributions.

What Is A Property Improvement Plan (PIP)?

At its most basic level, a Property Improvement Plan (PIP) is a specialized, mandated action plan required by major hotel brand franchisors (like Marriott, Hilton, or Hyatt) to bring a hotel property up to the brand’s newest design, safety, and operational standards.

When an investor group acquires a franchised hotel, they aren’t just buying the physical real estate—they are purchasing the right to fly that brand’s flag. That flag gives the hotel instant access to powerful global reservation systems, massive customer loyalty programs, and trusted brand equity.

However, major hotel brands are fanatical about brand consistency. A business traveler booking a room at a Marriott Courtyard in Dallas expects the exact same standard of quality, bedding, lighting, and technology as a Courtyard in Chicago or Phoenix. A PIP is the brand’s legal mechanism to ensure that the physical property never feels tired, outdated, or off-brand.

Why Are PIPs Required? 

Franchisors don’t just issue PIPs at random. In commercial hospitality, a PIP is typically triggered by one of three major events:

1. Change Of Ownership (The Acquisition PIP)

This is the most common scenario for private equity and syndication buyers. When a buyer acquires a hotel, the existing franchise agreement terminates, and a new 10- to 20-year franchise agreement must be executed. As a condition of granting the new license, the brand sends an inspector to conduct a comprehensive audit of the property and produces a customized PIP document outlining everything that must be renovated upon transfer of ownership.

2. Scheduled Brand License Renewals

Even if an owner stays the same, hotel franchise agreements operate on strict lifecycles (typically 10 to 15 years). When an existing contract nears its expiration date, the brand requires a comprehensive PIP to refresh the asset before extending the franchise agreement for another term.

3. Mid-Cycle Refreshes (“Soft Goods” vs. “Hard Goods”)

Hotel brands generally operate on a 6-to-12-year renovation cycle:

• Soft Goods PIP (Every 6–8 years): Focuses on surface-level aesthetic elements that show wear and tear quickly—such as new carpeting, fresh paint, updated drapes, bedding, wall coverings, and seating upholstery.

• Hard Goods / Full Capital PIP (Every 12–14 years): A top-to-bottom renovation. This includes all soft goods plus major structural, technological, and architectural overhauls—such as new case goods (desks, dressers, headboards), complete bathroom remodels (replacing tubs with modern walk-in tile showers), lobby redesigns, exterior façade facelifts, and major Mechanical, Electrical, and Plumbing (MEP) upgrades.

What Does A PIP Actually Entail?

A PIP document is remarkably thorough, often spanning dozens of pages of highly specific requirements. To make sense of it, we break down a typical PIP budget into three primary core categories:

The PIP Journey: Step-by-Step Execution

Executing a multimillion-dollar hotel PIP without disrupting daily guest experiences or tanking cash flow requires meticulous project management. Here is the step-by-step roadmap we follow:

Step 1: Underwriting & Negotiation

As owners, we bring in experienced hotel project managers and general contractors to cost out every single line item in a PIP. We then negotiate directly with the brand to waive redundant items or extend execution timelines—while simultaneously negotiating purchase price credits with the seller to offset the required capital expenditure.

Step 2: Phase-by-Phase Construction Management

Closing down an entire hotel to complete a PIP is an operational disaster—it cuts off revenue completely while fixed overhead costs remain. Instead, experienced hospitality operators execute PIPs in phases:

• Block-by-Block Room Renovations: Rooms are renovated in floor-by-floor or wing-by-wing blocks during seasonal low-demand periods. This ensures the remainder of the hotel stays operational, taking in room revenue and keeping the staff employed.

• Off-Peak Public Area Work: High-impact areas like the lobby or breakfast bar are renovated during overnight hours or partitioned off with elegant temporary walls to minimize guest friction.

Step 3: Final Brand Inspection & Re-Flagging

Once construction is complete, the brand representative returns for a final walkthrough. After verifying that every line item has been satisfied according to exact brand specifications, the franchisor issues a formal Certificate of Compliance, securing our long-term franchise agreement.

The Investor Impact: Why PIPs Are A Major Value Driver

To an outsider, a PIP might look like a massive, expensive list of chores imposed by a corporate franchisor. But to experienced commercial real estate investors, a well-managed PIP is an incredible value-creation tool.

1. Appreciation Through ADR (Average Daily Rate)

Unlike multifamily apartments where rent growth is capped by local lease comps and gradual annual increases, a newly renovated, modern hotel can immediately raise its room rates. When a guest walks into a sparkling, newly renovated room with a modern walk-in shower and high-end lighting, they are willing to pay $20 to $40 more per night.

Because hotel metrics are hyper-quantifiable, a $25 bump in Average Daily Rate (ADR) across a 120-room hotel operating at 75% occupancy generates roughly $800,000 in new top-line revenue.

2. Competing On Revenue Per Available Room (RevPAR)

Hotels compete directly against a local “Competitive Set” (Comp Set) of nearby hotels. Properties with fresh PIPs consistently steal market share from older, un-renovated competitors in their local area, driving higher occupancy and securing a higher RevPAR Index.

3. Efficiencies On Operating Expenses (OpEx)

A PIP isn’t just about pretty pillows; it’s about mechanical efficiency. Replacing 15-year-old air conditioning units with modern, energy-efficient HVAC systems, switching all property lighting to LEDs, and installing low-flow plumbing fixtures drastically slashes monthly utility expenses. Every dollar saved in operating expenses goes straight to Net Operating Income (NOI).

4. Multiple Expansion At Exit

When it comes time to sell the hotel after a 5-to-7-year hold period, having a clean, fully executed PIP with years remaining on the franchise agreement makes the asset vastly more attractive to institutional buyers. Buyers are willing to pay a premium—accepting a lower cap rate—for a turnkey asset that requires zero immediate capital deployment.

Active Stewardship Over Passive Assets

At Goodegg Investments, we view PIPs as the ultimate expression of active asset management. While a PIP requires capital, coordination, and disciplined execution, it transforms a standard real estate asset into a modern, high-performing investment engine.

By pairing disciplined underwriting with proactive brand negotiations, we ensure our hotel investments enter their hold period with a clear roadmap for forced appreciation—protecting investor capital while optimizing long-term yields.