Sanjay Patel is an American success story. He came to the United States from India in 1986, and purchased his first hotel five years later. Patel’s Indianapolis-based company, Midwest Hospitality Group Inc., now owns nearly a dozen hotels in Indiana and Illinois.
But lately, Patel has been more than a little banged up. This month, Midwest Hospitality affiliates that own a Comfort Inn in Avon and a Comfort Suites in Fishers filed for bankruptcy protection. Four other company hotels—Fairfield Inns in Noblesville and Seymour, a Quality Inn on South Harding Street in Indianapolis, and a Holiday Inn in the Chicago suburb of Aurora—slid into bankruptcy court more than a year ago.
While Patel and his attorney could not be reached, hotel experts say the troubles reflect hard times in the lodging industry—especially for properties in the suburbs.
Downtown hotel markets in the Midwest didn’t fall as far as those in the suburbs during the deep recession and are coming back more quickly, in part because of a rebound in the convention market, said Mark Eble, a hotel consultant and Midwest regional vice president for PKF Consulting.
The suburban weakness led to deep discounting on room rates—a pattern that will be difficult to reverse without a strong uptick in demand, Eble said.
“The question for many owners is, will the recovery be fast enough and soon enough for them to be able to dig themselves out of the hole they find themselves in?” he said.
Evidence of the carnage abounds throughout the Indianapolis area. Over the past two years, some of the largest locally based hotel companies have lost suburban Indianapolis properties to lenders or sold them under distress, including Schahet Hotels, Dora Brothers Hospitality Corp. and General Hotels Corp.
It’s not yet clear whether Patel will be able to keep his hotel empire intact. This month, a federal bankruptcy judge approved a reorganization plan for the Seymour Fairfield Inn that will pay the local bank that financed the 2-year-old hotel in full but will provide other creditors only part of what they’re owed.
A judge has combined the cases for the Noblesville Fairfield Inn, the Harding Street Quality Inn and the Illinois Holiday Inn. Patel is in the process of trying to win support from creditors to reorganize those debts.
The two cases filed this month are just getting under way. The secured lender on both hotels is German American Capital Corp. of Cincinnati, which is owed more than $4 million.
In a filing in one of the earlier cases, an attorney representing Midwest Hospitality affiliates described Patel as a successful operator whose portfolio fell victim to forces outside his control.
Even though the hotels regularly won “awards from franchisors for operations excellence, the travel and recreation markets they serve were decimated in the Great Recession, and all of the properties have failed to perform financially as a result,” the filing said.
The good news for Patel and other operators is the crash has shut down financing markets, bringing new suburban hotel construction to a halt.
Still, even without having to contend with a glut of new rooms, the hotel market has a long way to come back. PKF Consulting projects the Indianapolis hotel market will record revenue per available room of $45.25 in 2011—well below the record $52.86 hit in 2007. Eble doesn’t expect a return to 2007 levels until 2014.
“It was a bit of a perfect storm, with lots of new supply opening just as demand tanked in ’08 and ’09,” Eble said.
Two IPOs down, three to go?
It’s already been a good year for Hoosier initial public offerings, thanks to West Lafayette-based Endocyte Inc.’s February stock sale and Indianapolis-based Angie’s List Inc.’s offering Nov. 16.
But if all the Indiana companies signaling their interest in IPOs move forward, things are just getting started. Indianapolis-based Allison Transmission Inc. on Nov. 4 filed papers with the Securities and Exchange Commission indicating it is pressing on with plans for an IPO, despite lackluster economic conditions.
Bloomberg News reported this fall that Indianapolis-based ExactTarget Inc. also is readying for an IPO and has hired JPMorgan Chase & Co. and Deutsche Bank AG to serve as underwriters.
Also in the wings is Pendleton-based Remy International Inc., a maker of automotive electrical components. It filed papers in March initiating the IPO process but hasn’t taken steps since August to move forward.
“We will continue to evaluate the market’s receptiveness to an IPO,” Chief Financial Officer Fred Knechtel said in a Nov. 10 e-mail.•