Delayed Hotel PIPs? How Key Money and Brand Switching Can Protect Property Value
In the hospitality industry, delayed Property Improvement Plans (PIPs) have become a growing challenge for hotel owners. Rising interest rates, supply chain disruptions, and financial constraints have forced many properties to defer these essential upgrades, leaving owners searching for creative solutions to keep their properties competitive.
How Key Money Helps Hotel Owners Overcome Delayed PIPs
Key money — a financial incentive offered by hotel brands to secure franchise or management agreements — is gaining traction as a solution for hotel owners grappling with PIP delays. Typically representing no more than approximately 5% of the total deal cost, key money provides upfront capital that owners can use to fund renovations and improvements.
How It Works
- Negotiating key money with a new brand. The owner approaches a new brand that offers key money to fund the PIP requirements.
- Exiting the current agreement. To rebrand, the owner must terminate their existing franchise or management agreement.
- Meeting the new brand’s PIP requirements. Additional upgrades may be required to align with the new brand’s standards.
- Rebranding and operational transition. The property undergoes a rebranding process, which may temporarily disrupt operations.
When Does Switching Make Sense?
Switching brands and accepting key money may be worth exploring when the current brand relationship is unsustainable, financial viability favors the move, the new brand offers better market positioning, or the brand provides access to additional resources.
