Hotel owners are caught in a vise. On one side, brands require costly property improvement plans (PIPs). On the other, higher borrowing costs and stubborn construction pricing make those upgrades harder to fund.
For some assets, what was once treated as a routine brand refresh has become a make-or-break turning point for the asset – one that can determine whether an owner renovates, negotiates, reflags, sells or exits the brand entirely.
The vise is getting tighter at a particularly difficult moment for the industry. U.S. hotel RevPAR declined 0.3 percent in 2025, the first non-recessionary decline on record, according to HVS’s report “What Every Owner Needs to Know Before Deciding to Sell, Hold, or Renovate.” The global hospitality consulting firm additionally pointed to PIP and debt maturity pressures as key factors shaping owner decisions in 2026.
“The era of deferring brand-mandated property improvement plans is ending, hard,” the report notes. “With construction costs still elevated and interest rates squeezing returns, the PIP decision has become the most consequential transaction lever of 2026. The math is unforgiving.”
The firm says the hotel sector faces a $48 billion CMBS maturity wave for 2025 and 2026, with many borrowers now facing debt costs of 6.25 percent to 7 percent or higher after refinancing loans originated at much lower rates.
This has forced owners to confront an underwriting reality that focuses less on what the brand requires and more on what the spend can realistically deliver.
The reason? Because there are no guarantees in this industry. An owner can make all the “right moves,” and their efforts can still fall flat.
“Completing a PIP does not guarantee ADR growth, and in markets where RevPAR has plateaued or demand drivers are structurally limited, the return on that capital is difficult to justify,” says Stephen Haase, director of capital markets at Greysteel. “The underwriting question at the center of every PIP decision right now is will this investment actually move the needle on rate?”
The PIP has to prove itself
Haase believes the underwriting analysis today has to be honest about what the PIP solves and what it does not.
For example, a full soft goods and public area renovation can improve guest scores and brand standing, he notes, but it can’t fix a tertiary location, an underperforming management team or a flag that is simply not competitive in that submarket.
“A good rule of thumb is to study the comp set performance, understand which properties have recently been renovated and see how their performance has improved in relation to your asset,” Haase adds.
The pressure is especially pronounced at the lower end of the chain scale, where economy and mid-scale owners face flat or declining top-line performance, rising expenses and price-sensitive guests. In those segments, PIP costs may be lower on an absolute basis, but the return on that capital can be harder to defend.
“You can execute the renovation and still not move the needle on rate,” Haase says.
With that in mind, the conversation around brand standards is becoming more focused on return, efficiency and guest impact. Choice Hotels, for example, introduced new value-engineered prototypes for Comfort and Country Inn & Suites by Radisson last year that were designed to provide more revenue-driving spaces within the same footprint, all while achieving a 10 to 15 percent reduction in construction costs.
“We're creating an environment to help drive hotel performance," says Judd Wadholm, senior vice president and general manager of Choice Hotels' Core Brands.
What also helps create an environment that can drive hotel performance, according to Haase, is focusing the renovation scope on elements that most directly influence guest perception and brand consistency.
“That creates an opening for owners to value-engineer intelligently rather than replace everything,” he says.
Renovate, reflag or sell
Discipline around scope matters. That’s because a PIP isn’t necessarily an all-or-nothing decision. Like many potential investments, Haase sees room for a little give and take.
“PIPs are always a negotiation,” he says.
This is particularly true, he notes, for owners who have maintained open lines of communication, hit their quality assurance benchmarks and operated in good faith with the brand through prior cycles.
“They tend to find more room to negotiate scope, extend timelines or phase execution across multiple construction windows,” he explains.
That flexibility can be crucial because PIP obligations are increasingly influencing how deals are priced. When Pebblebrook Hotel Trust sold the 752-room Westin Michigan Avenue Chicago for $72 million in December, the company noted that the sale price equated to a 15.6x EBITDA multiple and a 3.5 percent NOI capitalization rate before factoring in a brand-mandated PIP and other significant capital expenses. It’s a reminder that the purchase price doesn’t always reflect the full capital required after closing.
Financing path can also influence whether renovate, reflag or sell is the viable option. Haase notes CMBS lenders may increase reserve requirements leading up to a PIP, affecting free cash flow until the work is completed. Debt funds typically want the PIP executed immediately because they’re underwriting to renovated asset value, while banks can be more flexible depending on their size and hotel lending experience.
“The more sophisticated the lender is on hotel renovation cycles, the more scrutiny will be placed on the FF&E reserve,” he says.
Then there’s the owners who arrive at the PIP negotiation with a track record of deferred maintenance and quality score issues. They face a much harder conversation.
“When an owner pushes every cap-ex decision to the back of the queue and lets deferred maintenance accumulate, the brand eventually shows up with a comprehensive PIP, the lender gets uncomfortable and the owner is suddenly trying to finance a major renovation in a high-rate environment with a degraded asset as collateral,” Haase continues.
That’s why he recommends treating capital reinvestment as a recurring discipline rather than a reactive obligation.
“You preserve your optionality on timing, on scope, on financing structure and, ultimately, on exit,” he adds.