My wife Carolyn and I just got back from a short vacation in the Caribbean where we stayed at two of our favorite hotels, one an urban boutique and the other a beachfront megaresort. Both were clean, the service was excellent and the f&b superior. But both hotels desperately need significant renovations if they hope to remain competitive in the tough Caribbean resort marketplace. Carpets are worn, furniture is aging, public spaces are blah. The signs of decay are unmistakable.

My guess is that in both cases, ownership understands the problem, but doesn't think it has the funds needed to bring the properties up to the standards on which they painstakingly built their four-star reputations. Sadly, I'm sure this same scenario is playing out all across the industry: Stressed-out owners believe they don't have the money to complete even cursory refurbishments. Many hotels are having difficulty generating enough cash to cover the basics, like payroll, marketing costs, taxes, franchise and management fees and, of course, debt service. It's tempting, and in some case well justified, to tap into the four to six percent of revenues most hotels set aside for CapEx to keep creditors at bay.

What's foolhardy is for owners to use upkeep and renovation funds to make up for shortfalls in their profits or to prop-up share prices or keep investors happy. Failure to execute a much-needed renovation can quickly erode a hotel's occupancy, pricing power, market share and ultimately, value. Whether you're an owner who plans to flip your asset every five years or one who has a long-term investment vision, you can't let your property lose value. You chose hotels as an investment vehicle because the big money is made on the creation of real estate value, not day-to-day operating profits.

Despite the temptation to hold off on a renovation, the advantages of a rehab, even when it causes short-term financial pain, should be obvious. Both Smith Travel Research and PKF say the industry will begin its turnaround sometime in the middle of next year. And with new hotel construction in a steep decline, a lot fewer new properties will be opening through 2012 and maybe beyond. In short, properties that begin to renovate now—even if the projects are protracted and done in stages as funding becomes available—will be in positions of strength when people start traveling again. Don't put it off; now is the time to act.