Renovation Mathematics: Funding the PIP
A $15,000 per key soft goods renovation requires a specific ADR lift to justify the investment. Calculate it here.
Property Improvement Plans (PIPs) and cyclical renovations are massive capital undertakings that ownership groups evaluate strictly through the lens of Return on Investment (ROI). A $2 million soft goods renovation is not funded simply to make the hotel look nicer; it is funded on the premise that the improved product will command a higher Average Daily Rate (ADR).
Calculating Required Yield
If an owner invests $15,000 per key into a renovation and expects a 5-year payback period, the hotel must generate an additional $3,000 in net revenue per key, per year. This required yield must be translated into a daily ADR lift target for the Revenue Management team.
Occupancy Considerations
The required ADR lift is highly dependent on occupancy. A hotel running at 85% occupancy can achieve the ROI target with a smaller rate increase than a hotel running at 60%, simply because the premium is applied to more sold rooms.
Renovation ROI Modeling
Use our Required ADR Lift Calculator to determine exactly how much you need to push rate to justify a CapEx project. Input the cost per key, target payback period, and average occupancy to generate the required daily ADR premium.