Editor’s Note: This cover story ran in Asian Hospitality, April 2017 (Vol. 2017, #147)
They both grew up in India and immigrated to the U.S. as young men. They eventually settled in cities 800 miles apart. They were among the pioneers – the first-generation hoteliers who invested all they had in an entrepreneurial vision to build a business and create wealth for themselves and others.
Along the way, they and their consociates changed a roadside commerce trend into a multi-billion-dollar industrial engine unmatched anywhere in the world.
Lest one think the first wave of Indian American hoteliers has expended the energy that swells the rising tide, Champak “Champ” Patel of Champion Hotels and Bharat Patel of Sun Development & Management Corp. testify against that notion. After 30 years in business, the men’s get up and go has not gotten up and gone. In fact, it’s stronger than ever.
To double that strength and gain more ground during the current upward momentum in the U.S. hotel industry, Champ and Bharat have teamed up. They are joint invested in 11 hotel projects – nearly 1,500 rooms – all to open in the next two years. They have more than $250 million leveraged in cities in Oklahoma, Indiana, Tennessee, Georgia and New Jersey.
Champ lives in Oklahoma City and Bharat in Indianapolis. They first met face to face in 2014 when Champ asked Bharat to manage a new hotel in Indianapolis. The men discovered their business missions dovetailed and could be harnessed to capitalize on the upturn in the U.S. hospitality industry.
Champ heads Champion Hotel Group, a group of about 20 investor partners that formed in the early 1980s. The group includes Champ’s two brothers, Vasant and Khandubhai. Each of its 160 hotels has five to six investors from the group. The ownership group fuels Champion Hotel Co., which includes construction, management and supply. Bharat formed Sun Development & Management in the early 1990s with his brothers and sister-in-law. Sun has developed more than 75 hotels and has about 25 existing hotels in its portfolio. The company has development, construction and management services for all major brands.
Not every hotel Champion Hotels is building these days involves Sun Development. Including Sun Development’s projects, Champion Hotels is building 25 hotels throughout the U.S. The company will never own more than 160 hotels, Champ said. Once the new hotels are open and stabilized, the company will divest its portfolio of 25 properties.
Every new project in Sun Development’s playbook includes Champion Hotels. “Together, we can do bigger and better hotel development,” said Bharat.
The rush to market is based on the men’s belief the industry will continue to perform well into 2019 before it stabilizes. “We are building very, very fast,” said Champ.
Champ brings his carefully honed relationships with lenders, and Bharat lends his creative development and deal-making prowess. He knows how to work with local municipalities to garner cost offsets through tax credits and other development incentives. “When you are playing the cycle game,” Bharat said, “you don’t want to start too late. You don’t want to start something in the downturn.”
Industry watchers such as CBRE Hotels’ Americas Research project revenue will continue to grow over the next two years as hotels increase rates, but occupancy has stabilized for now. During the Hunter Hotel Investment Conference in March, an online poll showed most attendees believe RevPAR growth will be zero or up to 3 percent. CBRE weighs in on the 3 percent expectation. STR, meanwhile, forecasts an annual growth of 2.7 percent.
During a panel discussion, Mark Woodworth, senior managing director, CBRE Hotels Americas Research, reminded the audience hotels are a street corner business and at this point in the cycle “it’s much more important to understand the fundamental dynamics of the local market.”
Beau Benton, president of LBA Hospitality in Dothan, Alabama, said the industry “can’t grow 6, 7 and 8 percent indefinitely. Things have to come back to the mean.”
The biggest challenge facing hoteliers today is the cost of land and construction coupled with sellers’ impatience, Benton said. “With this extended positive market that we have had, on the development side you are seeing a perfect storm with rising land prices. We want to do as much due diligence as possible to limit our risk. People want a high price for land but they don’t want to give us time to do due diligence.”
Rising construction costs and lack of sub-contractor availability also slows a project, said Farah Adams, senior vice president of hospitality at LBA. So many hotels are undergoing renovations, she said, it is increasingly more difficult to find the skilled workers to complete a job on schedule. “Over the past two to three years, that is what is driving the costs up,” Adams said.
Besides brand-mandated PIPS, an active transaction market has also fed the renovation trend. “The renovation piece is driven by the deal,” said John Edwards of Hotel Ventures Management Group in Atlanta. When a hotel is acquired, the lenders and brands require the completion of a PIP.
Also fueling the rush to market, said Mary Beth Cutshall, senior vice president and chief business development officer at HVMG, is the rise in interest rates. So far, the two recent hikes by the Federal Reserve have not seriously impacted the cost of borrowing but continuing increases will be felt in time.
Although it differs according to the market, construction costs have risen overall an average of 10 percent a year. The cost of labor nearly equals the hard costs in most projects. Cushman & Wakefield’s 2016 report on hotel construction costs showed average cost per key to build an upper midscale hotels is $150,000. Average cost per key for an upscale project is $232,000.
Upper midscale and upscale hotels are clogging the pipeline these days. STR’s February pipeline report showed 1,481 hotels (195,000 rooms) in construction, a nearly 30 percent increase over the previous February. Upscale and upper midscale limited-service hotels make up two-thirds of the construction pipeline, and it’s an increase of 24 percent in the past 12 months.
Bobby Bowers, senior vice president for operations at STR, said the industry is “just 8 percent below the all-time construction peak reached in 2007.”
Bharat said because of the plethora of limited-service hotels under construction, Sun Development is building only full-service hotels. But the full-service hotels of today are not like those of just a decade ago.
“A lot of full-service branded hotels built 25 to 30 years ago have down branded,” he said. “Over the past 20 years almost all hotels being built are limited service. This has created an opening for new full-service product, but the hotels are smaller.” He points to such brands as Embassy Suites by Hilton, Hilton Garden Inn, Cambria Suites by Choice Hotels and the new Tapestry collection by Hilton.
“Tapestry is full service in principal but only 20 percent of its revenue is from food and beverage.” That’s the new full-service model, he said. “It works because you don’t have to take a loss in F&B, but the F&B complements to produce a higher room rate.”
One of the best operating models in branded full-service hotels is Embassy Suites by Hilton, he said. Among the 11 hotels Sun Development and Champion Hotels are building together, two are Embassy Suites. Each company also has either existing Embassy Suites hotels and have more in their individual pipeline.
They are working together to position their hotels to capture significant market share and financially buoy their family businesses, which they plan to hand off to their children. “Our good name makes sure the businesses will survive,” Champ said.
Champ, 68, has two daughters and a son, Harshil, who is involved in the family business. His daughter Neeha is a pediatric occupational therapist in New York City. His other daughter Minal owns child care centers, but is selling those to invest in the hotel business.
Bharat, 57, has four sons. Suraj and Aakash are involved with the family business doing asset management and development. Vikas is a student at Indiana University. Viral, the oldest, is a doctor in New York City.
He said both he and Champ “started with one hotel and we did everything at that hotel. Our kids already have the seed money; they have the talent; and they have the education.
“We are focused on the next generation,” Bharat said. “What’s happening now is we are giving them a head start. You expect [your children] to be more successful than you are.”
Joint pipeline spans brands, cities
Champion Hotels and Sun Development & Management Corp. joined forces in 2015 to be able to build premium, upscale hotels and get them to market fast. Their pipeline includes a variety of brands in various cities.
In several cases, the hotel projects include conference centers, which Bharat Patel, CEO of Sun Development, said often includes tax abatements and other development incentives from the local municipalities.
In Noblesville, Indiana, the pair is building a 198-room Embassy Suites and a 20,000-square-foot conference center along Interstate 69. Part of the development’s cost is being offset by $6 million in city-sanctioned incentives and tax abatements. Noblesville is eager for the conference center to attract groups too small for the Indianapolis Convention Center. The hotel and conference center are next to a tech-business park and a retail center expanding with more stores and restaurants. Construction for the Noblesville Embassy Suites began in August. It is expected to open later this year.
A similar 175-room Embassy Suites Hotel and Conference Center construction project got underway last year in Plainfield, Indiana. The city will contribute $6 million in bond and tax incentives for the 20,000-square-foot conference center, which will include a restaurant. It is expected to open in early 2018.
The other hotels Sun Development and Champion Hotels are building include a dual-branded Homewood Suites and Hampton Inn in Indianapolis; a Marriott in downtown Cincinnati; a Cambria Suites in Indianapolis and West Orange, New Jersey; an Aloft in Secaucus, New Jersey; a Home2 Suites in Oklahoma City; a Canopy by Hilton in Oklahoma City; and two independent properties – one in downtown Indianapolis and the other in downtown Nashville – that will join Hilton’s new Tapestry Collection, a soft brand for upscale hotels.
They also recently acquired a former Wyndham hotel in Atlanta which was in receivership. The 250-room hotel, north of the Hartsfield-Jackson International Airport, is across from Pinewood Studios, the largest film studio outside of Hollywood. The hotel also has a large conference center. Sun Development will extensively renovate both the hotel and the center and convert the hotel into a full-service Hilton.
“We bought the properties because of Pinewood Studios,” Bharat said. The studio is being constructed by Randolph Williamson Development & Construction Co. in Atlanta, which also builds hotels. Vance White, vice president of Randolph Williamson, said in 2015 Marvel Studios, which films its “Avengers” movies there, took up 205,000 room nights.
Paths to Prosperity
Champ Patel and Bharat Patel both built something from nothing
Champ Patel grew up in a farming family in the village of Kanav, Surat, in Gujarat, India. He came to the U.S. in 1979 and bought the 32-room Dunes Motel in Blythe, California. In 1981, Champ moved his family to Weatherford, Oklahoma, where they purchased the Kendall House Motel, a 44-room property Champ converted to an EconoLodge, his first foray into franchising. Today, the company has more than 150 branded properties.
Champ’s son, Harshil, is the lead developer on the company’s Tru by Hilton, the new midscale brand. He joined the family business eight years ago. The Tru hotel will open next to the Will Rogers International Airport in Oklahoma City in late May. It will be the first Tru to open since Hilton launched the brand in January 2016.
Like Champ, Bharat Patel immigrated to the U.S. in the late 1970s. He was born in the village of Nagod. His planned career path was to be a medical doctor. He was 19 years old when he matriculated from college in India to the University of Southern Mississippi, Rutgers University and New Jersey Medical School, earning bachelor’s degrees in microbiology and biochemistry and his master’s degree in microbiology.
While going to school in Mississippi, Bharat lived in his uncle’s motel. After leaving medical school in 1988, Bharat explored career options and decided to try his hand at being a hotelier. In 1989, he married Anju Patel and acquired the Days Inn in Indianapolis.
He formed Sun Development & Management Corp. in 1992 and began building hotels near major highways and interstates. Almost from the beginning, Bharat would make deals with local governments and receive tax cuts or incentives in return for creating local jobs.
Helping Indian Americans enter and thrive in the hotel industry and create new avenues of wealth for themselves and their families is at the heart of Champ Patel’s business mission. Champion Hotels Group is privately held and Champ is reluctant to share any details about its business. In his eyes, what he has accomplished is not all that important. “What is important,” he said, “is being able to help people.
“If you treat your partners, employees and guests well, they will treat you well. All will prosper. God watches, and if you are humble and sincere, he will reward you. Every dollar we have made is because we helped someone, and God remembers what you do for others.”
Champ said he likes to help others get started in the hotel business because his fellow hoteliers were the ones who enabled him to get a foothold with his first hotels. He is among a partnership that acquired about 40 corporate-owned non-core hotels from La Quinta Inns & Suites in 2015 and 2016. The plan, he said, was to sell the properties to first-time hoteliers and give them the financial backing to get started.
“They are start-up businesses,” Bharat said, adding it’s good business to enter the industry with an economy property. “There will always been a buyer for an economy hotel because it serves as a start-up.”
Champ is highly regarded in the AAHOA camp for his generous giving to its political action committee fund. Year after year, he leads the members as the top-giver. In 2016 election cycle, he gave $20,501 to the fund. The association exceeded its PAC fund-raising goal of $1 million last year, more than doubling the amount it raised in 2015.
“Champ has become a role model to myself and the entire Indian American community,” said his partner and colleague Bharat.