While many hoteliers understand the need for property improvement plans (PIPs) and incorporate them into their development plans, they might not realize that the proper timing of PIPs can drive lender appetite and deal structure. They can even impact whether a transaction crosses the finish line.
Heading into 2026, it’s critical that borrowers align with their lenders on PIP timing to avoid hitting roadblocks.
Where Owners and Lenders Diverge
While owners may look at PIPs as items on a distant ‘to-do’ list, lenders see them as scheduled, non-optional capital obligations—and the current environment is reinforcing that stance.
Brand cycles are compressing, and they’re just one of many systems tightening standards after years of deferred CapEx and other pandemic-era delays. Speaking of CapEx, costs are higher and expected to remain volatile. Ongoing inflation in construction and FF&E costs make these areas even more risky.
Owners think they’ll be able to negotiate the scope, refinance before the PIP hits, or be in a stronger cash position down the road. But lenders—already factoring in higher insurance, labor pressure, and rate uncertainty—aren’t underwriting on best-case scenarios. PIPs are contractual. If they’re not executed, the brand can pull the franchise, and the collateral value drops immediately. A large, unfunded PIP is simply not a variable they’ll take on faith.
This disconnect plays out differently depending on when the PIP falls relative to the loan term—and that timing shapes everything from leverage to reserve requirements to whether lenders engage at all.
How PIP Timing Shapes the Capital Stack
Here’s how each scenario typically unfolds:
PIP Inside 24 Months
A near-term PIP will be treated as part of the total project cost. Lenders will size leverage off an all-in basis that includes the full PIP scope, meaning borrowers need to come to closing with more equity than they might expect. Expect day-one reserves escrowed for the full renovation budget, with disbursement tied to construction milestones or brand sign-offs. Some lenders may require a completion guaranty from the sponsor, particularly if the PIP involves structural work or bran