Brands still collect the same royalty percentage whether a renovation pays for itself or not. That asymmetry, not the PIP itself, is what owners are now pushing back on.
A property improvement plan lands in an owner’s inbox before a franchise renewal, a change of ownership, or a failed brand inspection โ and for most of the industry’s history it has been treated as a maintenance event, not a financial one. That description no longer holds. Across 2025 and into 2026, as pandemic-era renovation deferrals expire and brand royalty structures keep collecting the same percentage of revenue regardless of what a given renovation returns, the PIP has become the mechanism through which franchisors move capital risk onto the balance sheet of whoever owns the real estate. For a GM negotiating a renewal, a DOSM watching RevPAR through a disruptive renovation, or a revenue manager modeling next year’s flow-through, where that risk transfer actually happens โ and where brands still share in it โ matters more than the punch list itself.
Table of Contents
1. The punch list that doubles as a risk contract
A PIP is the brand’s written scope of required upgrades, issued at predictable trigger points: a change of ownership, a franchise renewal, a brand conversion, a failed quality-assurance inspection, or a scheduled refresh cycle that most brands run on a seven-to-ten-year rhythm. The scope, the approved vendor list, and the completion deadline are set by the franchisor. Refusal isn’t really an option in a commercial sense โ it risks the flag. Holiday Inn’s own franchise disclosure document makes the mechanics explicit: before a conversion, change of ownership, or re-licensing can proceed, the brand inspects the property and issues a written PIP report, for which it charges the owner a nonrefundable inspection fee before construction can even begin.
The commercial consequence is that the obligation to fund the PIP sits entirely on the owner’s books, regardless of who or what triggered it. It is compulsory capital spending with a hard deadline, enforced by the threat of termination rather than by ordinary capital-budgeting discipline โ which means it competes for cash with everything else on the property’s balance sheet at a time not of the owner’s choosing. The franchisor’s fee income is not adjusted for whether that specific capital produces an adequate return on that specific asset.
What’s worth watching is how underwriters now size this exposure. Acquisition advisors increasingly frame PIP cost as a share of purchase price rather than a flat estimate โ one hotel-acquisition advisory playbook puts the range at 15 to 30 percent of purchase price for a typical deal. That figure comes from a transaction-advisory firm rather than a standardized industry survey, and no named research body currently publishes an equivalent benchmark, so it should be read as a practitioner estimate rather than a settled statistic. Still, framing PIP exposure as a percentage of deal value, rather than a dollar figure, is itself a sign of how central the obligation has become to underwriting.
2. A fee structure that doesn’t move when the capex bill does
Franchisor economics are built to be indifferent to any single property’s renovation cycle. Marriott’s most recent annual report discloses royalty fees that generally run four to seven percent of room revenue, plus up to four percent of food-and-beverage revenue for certain brands, under agreements that typically run ten to twenty-five years. That percentage doesn’t step down because a property is mid-PIP, and it doesn’t step up because the brand contributed nothing toward the renovation. The other major public franchisors run comparable asset-light, fee-driven models: revenue is a function of system size and RevPAR, not of individual owners’ returns on brand-mandated capital.
The commercial effect shows up clearly in a year when room-level performance barely moved. Marriott closed 2025 with net rooms growth above 4.3 percent against worldwide RevPAR growth of only 2 percent; Hilton closed the year with net unit growth of 6.7 percent against currency-neutral RevPAR growth of just 0.4 percent. In both cases, fee income in 2025 was carried far more by adding rooms to the system than by improving the performance of the rooms already in it. Marriott’s guidance for 2026 also points to roughly 35 percent growth in the co-branded credit-card fees it recognizes within franchise fee revenue โ another line that grows independently of whether any individual owner’s PIP capital paid off. The owner’s side of the ledger is fixed-cost forward: comply or lose the flag. The brand’s side keeps growing on a different, decoupled base.
What to watch is whether ongoing franchisee advocacy โ AAHOA’s “12 Points of Fair Franchising,” most recently updated to address change-of-control protections โ extends toward tying franchisor capital contribution more directly to PIP scope, rather than leaving it to ad hoc, deal-by-deal negotiation as it stands today.
3. The forbearance clock just ran out
Many brands granted PIP forbearance during 2020โ2022, when collapsed RevPAR made new capital mandates commercially indefensible. By late 2025, that grace period was closing. At an industry panel that October, Choice Hotels’ chief development officer described owners as needing PIPs that had been deferred through the pandemic, while Hilton’s chief development officer noted brands were growing less patient on the timeline. Both described an operating environment where insurance, property taxes, utilities, and labor costs remain the primary source of owner pain โ independent of, and on top of, the capital bill now coming due.
That timing convergence is the commercial consequence worth naming directly. AHLA’s 2026 State of the Industry report put 2025 gross operating profit per available room at roughly 90 percent of 2019 levels, with rising operating expenses cited as the main drag even as guest spending rose. That is the margin base against which owners must now fund PIP scopes that, in many cases, have compounded across a deferred multi-year cycle and been layered with newer technology and sustainability requirements. For a leveraged owner, that’s pressure on free cash flow and on debt-service coverage arriving at the same moment brands have stopped extending deadlines.
Worth watching is which segment absorbs this first. Both the panel commentary and the broader deferred-maintenance pattern point toward economy and midscale assets โ where deferral accumulated most and where owners have the least pricing power to offset the RevPAR dip that comes with the renovation disruption itself.
4. What brands actually put in
The genuine complication in this thesis is that brands do put capital behind some renovation and conversion activity โ just not in the form of PIP cost-sharing. IHG’s own investor materials disclose the mechanism directly: key money is an incentive payment made to secure or retain a hotel in the system, which can function as a partial offset to an owner’s own capital spend. In a February 2026 investor call, IHG disclosed roughly $208 million in combined key money and maintenance capital expenditure for 2025, alongside $185 million in net capital expenditure, and acknowledged that the rising scale of key money outflows had become a live question among its own investors and analysts.
That is a real, quantifiable instance of brand-side capital exposure tied to renovation and conversion activity, and it complicates any flat claim that franchisors never fund the capital side of the relationship. But the mechanism is structurally different from shared PIP cost. Key money is typically a competitive choice the brand makes to win or retain a specific signing, not a contractual obligation triggered by every PIP โ and it tends to come wrapped in materially longer contract terms. Franchise-side commentary aimed at owners describes key money deals extending twenty to thirty years against a ten-to-fifteen-year standard term, often with clawback provisions if the owner exits early. Capital does flow from brand to owner in real transactions. It flows on terms that lengthen the owner’s exposure to the brand relationship, rather than simply socializing the renovation bill.
Worth watching is whether key money volume keeps rising as a share of brand-side capex โ IHG’s own figures suggest it did across 2024 and 2025 โ since that would indicate brands are competing harder on capital contribution generally, a different dynamic from PIP compliance but one that shapes how much leverage an owner has when the PIP notice itself arrives.
5. The same word, different enforcement
PIP enforcement is not uniform, across brands or within one brand’s own regional structure. Contractors who manage PIP execution across multiple flags describe more flexibility in how compliance is demonstrated under Hilton, where inspection intensity varies by regional franchise-performance team, against a more standardized, milestone-based inspection process under Marriott. That variance matters commercially: it means the same missed deadline can carry different consequences depending on which brand, and which regional team, is enforcing it.
A November 2025 case makes the point starkly. In a Chapter 11 proceeding, a federal bankruptcy court in the Southern District of Ohio allowed a Hampton Inn franchisee to assume its Hilton franchise agreement despite having missed both the original and an extended PIP completion deadline, rejecting Hilton’s argument that the missed deadlines constituted an incurable default that should bar assumption of the agreement. Hilton had continued working with the franchisee for years before the bankruptcy filing rather than issuing termination.
The consequence for owners is that the risk-transfer pattern described in this piece, while structurally true across the industry, doesn’t land identically on every property. Some owners retain real negotiating room โ through brand posture, regional enforcement variance, or now bankruptcy-court precedent โ that others, under stricter enforcement or outside bankruptcy protection, do not. Worth watching is whether more owners under capital stress test this route as deferred PIPs come due into a higher-cost environment; the Ohio case suggests bankruptcy court is becoming an active venue for resolving PIP-triggered disputes, not simply a last resort.
6. Where the model travels next
The franchise-versus-management-contract split varies sharply by region, and that split determines whether the PIP dynamic described here even applies in its US form. Under a management contract, capital obligations still ultimately fall to the owner, but the decision path differs from a PIP notice: routine capital improvements are typically funded through an FF&E reserve, while discretionary, return-driven capital improvements require the owner’s own approval โ giving the owner more control over timing and scope than a brand-issued PIP typically allows.
Franchise Model Prevalence by Region, Existing Branded Hotel Stock
| Region | Share operating under franchise agreements |
| United States | 70% |
| Europe | 40% |
| Africa | 25% |
| Middle East | 11% (84% under management contracts; 5% leased) |
HVS, “Weighing Up the Options: Franchise, Management Agreement, or Third-Party Operator?” โ figures represent HVS’s characterization of existing branded hotel stock by operating model, by region; the Middle East figures are drawn from an HVS survey of operators in that market.
A global operator comparing a US-franchised asset with a Gulf-region managed asset isn’t comparing the same risk profile. The franchised owner is a price-taker on brand-mandated scope and timeline; the managed-property owner retains approval rights over discretionary spend, even though both ultimately fund the work. For international portfolios, PIP-style risk transfer is currently a sharper exposure in the US and, increasingly, Europe than in markets still dominated by management contracts.
What’s worth watching is whether Europe and the Middle East continue trending toward franchise as a share of new signings, as HVS’s research indicates is already underway in the Middle East. If that continues, owners in those markets move from a management contract’s negotiated-capex model toward the franchise model’s PIP-notice model โ extending the dynamic described in this piece to geographies where it has not, until recently, applied.
Data Source
- Marriott International, Inc., Form 10-K, fiscal year 2025 โ Marriott’s annual SEC filing disclosing royalty fee ranges (four to seven percent of room revenue), franchise agreement terms, and system-wide property counts as of year-end 2025.
- Marriott International, “Reports Fourth Quarter and Full Year 2025 Results,” February 10, 2026 โ Full-year 2025 net rooms growth, RevPAR growth, and 2026 guidance including co-branded credit card fee growth.
- Hilton Worldwide Holdings, “Q4 2025 Earnings Release,” February 11, 2026 โ Full-year 2025 net unit growth, RevPAR, and Adjusted EBITDA.
- 2023 Holiday Inn Franchise Disclosure Document โ Official FDD text describing the mandatory PIP inspection and report process, including the nonrefundable inspection fee, required before conversion or re-licensing.
- 2023 US Hampton Franchise Disclosure Document, Hilton Franchise Holding LLC and 2024 US Spark by Hilton FDD โ Official Hilton-hosted FDDs used to confirm franchisor-mandated systems and disclosure structure.
- AHLA, “2026 State of the Industry” report, released January 27, 2026 โ Industry-wide 2025 performance data, including gross operating profit per available room relative to 2019 levels.
- IHG PLC, “Checks In Onโฆ Capital Expenditure,” investor transcript, February 2026 โ Official IHG investor communication disclosing 2025 net capex and combined key money/maintenance capex figures, and management’s characterization of key money as a live topic among investors.
- HVS, “Weighing Up the Options: Franchise, Management Agreement, or Third-Party Operator?” โ HVS research on regional prevalence of franchise versus management-contract models, including a Middle East operator survey.
- Buchalter, “In re Welcome Group 2, LLC: Bankruptcy Court Permits Hotel Franchisee To Assume Hilton Agreement Despite Missed PIP Deadlines,” November 19, 2025 โ Legal analysis of the U.S. Bankruptcy Court for the Southern District of Ohio’s opinion in a Chapter 11 case involving a missed Hilton PIP deadline.
- HOTELSMag.com, “Government policies have affected hotel brands, but it’s the owners who are really feeling the squeeze,” October 2025 โ On-record comments from Hilton, Choice, Hyatt, IHG, and Wyndham development executives on PIP forbearance and owner cost pressure.
- ctacquisitions.com, “How to Buy a Hotel: 2026 Hospitality Acquisition Playbook” โ Acquisition-advisory estimate of PIP cost as a share of purchase price; presented in this piece as a practitioner estimate rather than a standardized industry survey figure.
- AAHOA, “12 Points of Fair Franchising” โ Ongoing franchisee-advocacy positions on franchise relationship terms, including change-of-control protections.
