Small Hotel Groups Like Vimal Patel's Face a Disaster "We're in Danger of Losing Everything"

Anthony Mcauly of Nola.com

USA, LaPlace, Louisiana. June 03, 2020

Vimal Patel spent three decades building a small family empire of hotels along Louisiana's highways and byways, but the coronavirus pandemic is threatening to tear the whole thing down.

From behind his desk in the LaPlace headquarters of Q Hotel Management, his family-owned hotel-development and management firm, Patel has been fighting to keep the businesses running while scrambling through a thicket of government programs. The 11 budget hotels he owns or operates in Louisiana and neighboring states have seen guest counts tumble and revenue plummet by nearly 90% since the coronavirus virtually halted travel across the U.S.

He used to fill hotels with small conferences and meetings, oil-industry workers, families on road trips and other people passing through. Now, much of that has disappeared.

"We're seeing occasional refinery workers and that can kind of guest, as well as some long-haul truck drivers," said Patel.

He's also under pressure from a specialized group of Wall Street lenders that industry groups say haven't been forgiving in demanding payment from Patel and other borrowers, even as local banks and other lenders have granted many clients reprieve.

Patel's plight is similar to that of many U.S. small businesses across the country as customers have all but disappeared because of state-mandated shut-downs and general fears about the virus' spread. Hotels have been among the worst hit, with the American Hotel & Lodging Association forecasting that occupancy rates this year will be worse than 1933, the height of the Great Depression.

His hotel franchises - which includes Holiday Inn Express branches in LaPlace and Donaldsonville, and Best Westerns in LaPlace and Houma - were ticking along nicely at the end of last year, with about $1.5 million in monthly revenue. He was also in the midst of building another hotel, a Springhill by Marriott in Slidell.

After the pandemic hit, the company's revenue dropped to $200,000 in April across all of the hotels.

"We have built this up from scratch for more than two decades, literally building each hotel from the ground up," said Patel. "Now we're in danger of losing everything we've worked so hard for."

An Indian national, Patel emigrated to Louisiana 30 years ago. His journey started in the tiny village of Nogama, in the state of Gujarat in western India. When he was 18, he traveled 3,600 miles from Nogama to Blantyre, the commercial capital of Malawi in southeastern Africa. There he spent three years working in his uncle's scented candle factory before embarking on an 8,700-mile trek to join his cousin in Boutte running a 12-room motel.

"I started out living with my cousin, working in a donut shop and at fast food restaurants," said Patel during an interview at Q Hotel Management's LaPlace headquarters, a small but well-appointed office with modernist "Q" ornaments adorning walls.

His business grew and he managed to survive the twin calamities of Hurricane Katrina and the BP oil spill.

But the coronavirus has hit hard. Like many of his business peers, he has turned to government programs for a lifeline but has been exasperated by the bureaucracy.

Patel said he applied early for the Small Business Administration's Economic Injury Disaster Loans as well as Paycheck Protection Program relief, both of which were designed to provide quick help for small businesses so they could keep staff on payroll and pay essential bills.

He said the PPP loans came in at about $40,000 per hotel, which together with the 10%-to-15% occupancy they've been seeing has allowed him to temporarily bring back about 100 of the 300 workers that he had furloughed.

Matt Langoehr was Patel's most recent general manager hire. He had come down from Milwaukee to start work in early March, travelling ahead of his wife who expects to start medical school in New Orleans in the fall. He was furloughed almost immediately, but when the call came to come back he jumped on it.

"As soon as they called me I was like, 'My car's packed, I'm on my way,'" said Langoehr as he stood in the empty lobby of the LaPlace Hampton Inn.

Still, the uncertainties persist for Patel and his ability to keep workers on. He said that he's received loans of just $150,000 per hotel from the SBA after requesting the initial maximum amount of $2 million, which was severely cut because of high demand nationally.

"That wouldn't even cover the mortgages for two months and would barely give us any breathing room," Patel said.

Another headache for Patel is rising franchise fees from the national hotel chains that have also mandated new cleaning regimes with specific vendors and chemicals, while offering no reduction in other costs, Patel said.

For Patel, matters have been made worse because two of his properties are financed by a type of borrowing that is often unforgiving in times of financial difficulty.

Q Hotel Management has $19 million in outstanding loans that were packaged as part of commercial-mortgage backed securities, a complicated mechanism where lenders bundle mortgages together and then sell them to investors.

About one-quarter of the hotels in the U.S. are financed by CMBS, while in Louisiana about four dozen hotels owe a total of $1.1 billion to CMBS lenders.

One of the conditions of Patel's loans is that he cannot borrow any additional money against the properties without seeking the permission of the firms in charge, called "servicers."

That has meant he has had to ask permission to apply for the SBA loans. One servicer, Prudential Asset Resources, didn't respond. He says that meant he missed deadlines that cost him a chance for some emergency funds for his Holiday Inn Express in LaPlace.

The other, LMF Commercial, said it would let him apply for the government loans for the TownePlace Suites in LaPlace, but would charge thousands of dollars in fees just to talk about the terms of doing so.

"We are at their mercy," said Patel. "They can keep racking up penalties and fees until you have no choice and have to walk away and leave the equity you've built up over years. Once owners default they can cherry pick what they want to foreclose on, pick them up for pennies on the dollar."

Neither Prudential or LMF responded to requests for comment.

Issues with CMBS servicers have impacted many commercial properties nationally, such as shopping malls and office blocks, as well as hotels.

William "Chip" Rogers, president and CEO of the American Hotel and Lodging Association, said they are lobbying for legislation that would offer both protection for hoteliers from what his group argues are predatory lending practices, as well as separate legislation to provide a new round of SBA lending that would be targeted at those most in need.

"The problem with CMBS lending is it's so difficult to find a solution," said Rogers. A poll of his members conducted in April found that 85% of those with traditional lenders had been offered leniency from their banks, whereas only 15% of CMBS borrowers had.

Patel, who is a member of the Asian American Hotel Owners Association, said the group recently met with Vice President Michael Pence in Florida to press the case for federal legislation aimed at CMBS practices as well as extending more SBA loans.

"If we could get measures to just stop the gouging and the exorbitant fees that would at least be something," Patel said of the CMBS lenders.

Patel, who is now 50, said he lives in a state of constant anxiety. The fear, he said, is that he and his wife Mina, who runs the group's finances, as well as his cousins and business partners Vedant, Jay and Kevin, could see their American dream evaporate.

"We have roots here, both my kids were born here, it's been a home for us," said Patel. "Now, with all this COVID-19 and the financial scenarios, there's a danger of me going back to working at McDonald's. But you have to do what you have to do to survive."


Image Credit - Max Bercherer
/ SLIDES
Tags: Louisiana Hotel, Hotel Operations, Coronavirus

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Stephanie Smith
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Cogwheel Marketing
T: 540-239-1052
E: stephanie@cogwheelmarketing.com
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