Upscale hotels drive big business for Twin Cities South Asians

Harshal Patel grew up in the hotel business — literally.

His parents' hotels doubled as home, a common family cost-saving practice. As a grade-schooler, Patel emptied the waste baskets in rooms and helped his mother lay top sheets evenly on beds. As a teenager, he vacuumed rooms and checked in guests at the front counter.

Patel, now 26, is far from the front counter these days. He's one of the developers behind an $8-million project that will turn the century-old Federal Plaza office building in downtown Minneapolis into a boutique hotel. He said it's a dream realized and a breakthrough for South Asian hoteliers.

"It will be the only Indian-owned hotel in downtown Minneapolis," he said. "In a top-25 market, I think it's a big step."

Patel also recently acquired a Holiday Inn Express in Woodbury and a Holiday Inn in Bloomington.

His first hotel project was rebuilding his parents' independent hotel in Rochester, transitioning it into a Fairfield Inn & Suites when he was 24.

Patel is part of a new generation of South Asian Indian hotel owners pushing into the major leagues of Twin Cities hospitality. As kids, they grew up working in their parents' modest motels. As young adults, they're moving up-market, expanding into prime locations and multimillion-dollar, national franchises.

"We're building on what our parents have done, but we're also doing our own thing by taking the business to the next level," he said.

Jon Ruzicka, a broker with Marcus and Millichap National Hospitality Group, used to sell properties to South Asian hoteliers for $1 million to $3 million but the past 5 years, those investors have become younger and their purchases higher.

"It's almost like there's a new wave coming and the younger hoteliers are the ones driving the development and acquisitions," he said.

For example, 28-year-old Jay Bhakta of Eagan is one of the developers of the $13-million Hilton Home 2 Suites in Eagan. The 119-room hotel is slated to open in 2018.

Ruzicka added that these hoteliers, who are in their late 20s and early 30s "are going to be the investors for the next 20 years."

Children not interested in budget lodging

South Asian immigrants aren't new to the lodging industry. In fact, in the past 50 years, a small population of Indian-Americans has acquired a large share of the nation's hospitality business.

In Minnesota, they've come to dominate the independent and lower-end of the business, said Dipan Patel (no relation to Harshal Patel), a longtime Indian-American hotelier.

He started out almost 20 years ago with modest motels in Austin and Albert Lea. But Dipan Patel said children of longtime hoteliers aren't interested in budget lodging.

"We are heavily involved in the hospitality industry and have overtaken the economy and midscale brands," he said. "But the second generation of Asian American hotel owners is making the leap to upscale brands which are predominantly owned by other communities."

Nationally, Indian-Americans account for less than 1 percent of the population.

But Chip Rogers, CEO of the Asian American Hotel Owners Association, said members of his group own almost half of the hotels in the country.

Indian immigrants got into the business in the late 1960s. They spoke no English and had no money but rose to the top of a multibillion dollar industry with unwavering family support and with grit, Rogers said.

The group's industry dominance is mind-boggling, but Rogers said the foundation for their success is a network of families, who pool financial resources to support each other.

"There's no real special secret to it; it is the family structure combined with the ability to work hard, get an education and take risks that have really built this," Rogers said. "We have a lot of people who asked us how did this happen and it's the American Dream. Today's embodiment of the American Dream."

Many of the families have origins in the Gujarat state of India, and even share the same family name, Patel.

Harshal Patel's partners, for example, are Minesh Patel and Jayesh Patel.

'Family has come a long way'

As a 6-year-old, Bhakta stocked the bathrooms of his parents' Columbia Heights motel with little bars of soap.

"We don't live on site anymore but until I was 10 years old, I lived in different motels throughout the metro as my parents grew their business," he said.

As a student at the U, Bhakta started JR Hospitality with his cousin Roshan. They bought a Holiday Inn Express in Coon Rapids in 2008. Bhakta was only 19, Roshan, 25. In 2014, the acquisition of a Quality Inn and Suites near Mall of America increased their holdings to four.

This past, summer they partnered with an Iowa-based, Indian-American company for their biggest project to date.

"Our parents bought our first hotel roughly 30 years ago for $200,000," he said. "And now we have the opportunity to be involved in a new-construction Hilton-branded hotel for roughly $13 million, so definitely the family has come a long way."

The family remains the foundation even as a new generation takes the reins. Harshal Patel and his partners secured traditional financing for the Federal Plaza Hotel, but credit their traditional support system for making their dream of a downtown hotel a reality.

"I don't think we would've been as successful on a greater scale, across the country without our family and I don't think any deal is any different," said Harshal Patel, who lives in Minneapolis and graduated from the U of M's Carlson School of Management. "Even this particular deal we probably wouldn't have been able to do without some of our family members that came through for us."

Patel and Jay Bhakta say they are negotiating more acquisitions.

Jon Ruzicka said Indian hoteliers will continue expanding into larger and more prominent hotels.

"It's not just going to be through existing acquisitions, we're going to see a lot more developers of Indian descent getting into new development which will open the doors to some these markets that have proven more difficult to enter in the past."