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 brand-mandated timelines.
PIP at 24–36 Months
This is the gray zone where deals often stall. Borrowers frequently assume they’ll fund the PIP through accumulated cash flow or a future refinance—but lenders will heavily stress-test that assumption. In this scenario, expect tighter cash flow covenants, elevated FF&E reserve requirements (often 5–6 percent vs. the standard 4 percent), and detailed sponsor liquidity tests. Lenders may also require a funded reserve account or letter of credit sized to a percentage of the projected PIP cost. If the sponsor’s track record on CapEx execution is thin, leverage gets sized lower, or the deal doesn’t move forward.
Refinance with PIP Just Beyond Loan Maturity
Even when the PIP sits outside the loan term, lenders price the risk into their exit assumptions. Expect slight cuts to projected exit proceeds, stressed cash flow modeling that accounts for renovation disruption, and potentially reduced leverage to create a cushion. Lenders may also require extension options to be funded upfront or built in defeasance flexibility, recognizing that a looming PIP could complicate the borrower’s refinance timeline.
Franchise Expiration Within Loan Term
This is the most sensitive scenario because lenders are underwriting brand risk directly. They’ll assume a major PIP, repositioning, or full conversion is coming and will scrutinize the borrower’s balance sheet, global liquidity, and execution capability to determine whether the flag will be maintained. Capital stack implications are significant: lenders may require a funded reserve account specifically for rebranding contingencies, demand personal guaranties or additional collateral, or simply reduce proceeds to the point where the deal no longer works. If the path to flag retention is unclear, most lenders will pass.
How Owners Can Improve Financing Outcomes
Sponsors who address PIP timing proactively get faster responses, more bids, and better leverage.
First, treat any upcoming PIP as a core part of the business plan, not an afterthought. Provide a detailed funding plan, specifying which funds will come from the loan, equity, and reserves, and align timing with the loan structure rather than assume future flexibility. It might also be worth obtaining an early PIP assessment, such as a brand letter or third-party walk.
Beyond the funding plan itself, FF&E reserves deserve special attention—they’re often a sticking point for lenders. Borrowers who can demonstrate a real, cumulative FF&E reserve balance with documentation remove a significant lender objection. For mid-market owners, a properly funded FF&E reserve often does more to build lender confidence than any narrative.
Finally, partner with an operator who is well-versed in PIPs, conversions, or turnarounds. Their credibility becomes the borrower’s credibility—and in some cases, it can open doors to capital structures that wouldn’t otherwise be on the table.
The Bottom Line
In this environment, lenders want clarity, capital, and a credible timeline. Borrowers who acknowledge the timing challenge, maintain real reserves, and build a capital plan around PIP execution will find a deeper lender universe and better terms. Borrowers who don’t will keep hearing the same feedback: ‘We like the deal, but we can’t get comfortable with the PIP.’