Over 20 percent of Holiday Inn franchisees are leaving the franchise system, after the franchisor has mandated costly upgrades to all hotels. Reporter Kris Hudson of the WSJ ($$) reports that a three-year overhaul will be completed this month at a total cost of $1 billion to its franchise owners, or $250,000 by each hotel owner for new signs, bedding, fixtures, flat panel televisions, and more.

A long-ignored problem is being addressed behind the scenes: The 58-year-old chain is weeding out hundreds of older, outdated hotels that it believes soured frequent travelers on the brand. All told, Holiday Inn has jettisoned 700 hotels from its system since 2005, including 200 that have left this year as the chain's overhaul concludes. Many owners weren't allowed to renew their franchises after failing to renovate and modernize. Others were dismissed for not undertaking the global upgrade... Meanwhile, Holiday Inn has added 1,100 other hotels to its system since 2005, most of them newly built, more than replacing those it cut loose. The turnover has reduced the average age of Holiday Inn's hotels to 15 years this year from 26 in 2005.

Coming up with the upgrade money has been no easy feat for franchisees in this tough credit crunch of the Great Recession. Hotel owner Doug Schubert explains to the WSJ ($$) the dilemma he faced.

He had exhausted the hotel's $500,000 reserve account for renovations to cover his operating costs during the recession. Though he met with several banks about borrowing the $1.6 million, he balked at the lenders' requirement that he personally guarantee most of the loan. So he listed the hotel for sale, asking $7 million last year and recently reducing the price to $5.5 million when he couldn't get offers he liked. In the meantime, Mr. Schubert has opted to switch to Choice's Clarion brand, which required only $300,000 in renovations and let him leave his lobby and restaurant relatively untouched.