Hotel renovation funding worksheet

How to use

Use this model to plan how PIP capex sits inside the hotel capital stack, closing-funded reserve, earnout structure, separate mezz tranche, or sponsor-funded, and to align brand-mandated PIP deadlines with the loan term and franchise-renewal cycle. Walks the reserve sizing, displacement-revenue impact, and a worked timeline from acquisition through PIP completion.

Section 1, PIP scope and reserve sizing

Brand-issued PIP letters quantify the renovation scope. Lender reserves are sized off the brand letter plus a contingency. Underestimating either the scope or the contingency creates mid-loan funding gaps that force expensive emergency capital.

• Pull brand-issued PIP letter pre-LOI; refresh at acquisition close.
• Reserve sizing = PIP scope × 110% to 115% (lender contingency).
• Per-key benchmarks: select-service $10K to $20K; full-service $25K to $60K; luxury $75K+.
• Soft costs (architect, permits, brand-design fees, owner's rep): typically 10% to 15% of hard costs; load into reserve.
• Brand-mandated PIP deadline drives the funding structure, short deadline favors closing-funded reserve; long deadline favors earnout.

Section 2. Cap-stack funding choice

PIP capex can sit in four positions inside the cap stack. The choice trades closing leverage, all-in cost of capital, and operational flexibility.

PIP funding structures inside the hotel cap stack

Section 3. Displacement revenue and stress sizing

PIPs displace revenue while rooms are out of service. Lenders apply a displacement haircut to in-place NOI during the PIP period and size to post-PIP stabilized NOI for take-out.

• Displacement = (rooms out of service ÷ total keys) × duration × in-place RevPAR.
• Typical phasing: 25% of keys out of service for 60 to 90 days per phase; 4 phases for full-property PIP.
• Lenders underwrite to in-place NOI minus displacement during construction and post-PIP stabilized NOI for take-out.
• PIP-period debt yield can dip 200 to 300 bps during the renovation; size to make sure even shocked DY clears the lender's stress floor.
• Negotiate interest reserve to cover any PIP-period DSCR shortfall, typically 6 to 12 months of debt service.

Section 4. Brand deadline and franchise-renewal alignment

Brand PIP deadlines and franchise-renewal cycles often misalign with the loan term. Misalignment creates mid-loan trigger events that force expensive choices.

• Pull franchise agreement; map renewal date and PIP-renewal trigger to the loan maturity grid.
• If franchise renewal falls inside the loan term, a renewal-PIP trigger inside the loan creates a forced second PIP fund.
• Negotiate franchise term extension at closing where possible, pay the franchise extension fee out of closing proceeds rather than mid-loan.
• If brand deadline falls outside loan term, lender may accept earnout structure tied to brand-deadline timing.
• Coordinate any rescue-PIP or change-of-flag PIP with the lender pre-decision, flag changes typically require lender consent.

Section 5. Worked timeline

A fully sequenced timeline from PIP-letter receipt through completion makes the funding structure visible and surfaces the trigger dates the loan must accommodate.

• Month 0: Acquisition close; PIP reserve funded; phase 1 design start.
• Months 1 to 3: Permits and brand-design approval; phase 1 mobilization.
• Months 4 to 9: Phase 1 (25% of keys); revenue displacement live.
• Months 10 to 18: Phases 2 and 3; debt yield rebuilds as completed phases re-open.
• Month 19 to 24: Phase 4 + final brand inspection; PIP sign-off; release of any earnout / mezz.
• Month 24 to 36: Stabilization; refi/take-out underwriting against post-PIP RevPAR ramp.