August 25, 2022

Hotel-focused private equity fund hatching here

Stan Bullard for Crain's Cleveland Busines.

Checking into the hotel business with a new private equity fund are (from left) Amit Patel and Bhavin Patel.

Amit Patel and Bhavin Patel, who are not related, have formed a private equity fund called Spark | GHC with the goal of building a hotel company with select-service properties in Greater Cleveland and the Midwest.


Although the $100 million fund, which they are raising, is a new undertaking, it builds on backgrounds of them both and their companies.


Amit Patel is president of Spark Hotels of Solon, which carries on his family's legacy of hotel ownership and operations, including the Towneplace Suites in Solon which he developed. Amit Patel runs Spark Hotels with chief operating officer Bhavesh Lad.


Bhavin Patel is a principal in Green Harvest Capital, a private equity fund he co-founded in 2018 with Michael Smith, his Bath Township neighbor, which has amassed a substantial multifamily portfolio. Rather than be more specific, the Patels said their concerns control 1,300 keys to rooms (or units) and have a staff of 300 people.


Bhavin Patel also jokes that he and Amit Patel should get T-shirts produced with the phrase, "Folding towels since 9," because both grew up in the business. In Bhavin Patel's case, his family members bought a hotel in Tallmadge when they emigrated to the U.S. (He was 9 at the time.) Amit was born in the U.S. and grew up in Cleveland with a similar family-focused small-business ethic in hotels.


The two would not say how much they have raised in the fund that they launched since its inception Aug. 17. The plan is to buy select service hotels built since 1998, primarily under the Marriott, Hilton and IHG flags. Their focus is Northeast Ohio and the Midwest, at least initially.


Accredited investors are being asked to invest in a fund with a five-year initial life. They would not specify the promised return. However, typical of realty investments, the return will be in the double-digit range. Separately from the fund they plan to pursue ground-up development. Those won't be in the fund because they don't fit the financial models they will use for fund acquisitions.


"We want to build this here because Northeast Ohio is home for us," Bhavin Patel said.


For his part, Amit Patel said many hotels in their target age-range are reaching the point they need reinvestment to refresh them, and the two men plan to install a focus on digital operations they believe is not common in that class of hotels.


"It's a physical world combined with digitization," Bhavin Patel said, "similar to the way major brands are reacting to the Airbnb model. You check in on your phone and management knows you are there."


They also envision using technology that will allow guest to select specific rooms from available inventory the way air travelers pick seats on jets.


"We also have experience hiring staffs with a customer service focus," Amit Patel said.


They share the belief that opportunities beckon because of the aging of baby-boomer era hotel owners.


The pandemic roiled the hotel business, but they believe it is restructuring based on consumer travel and resurgent business travel.


"There was a distressed hotel crisis that never happened," Bhavin Patel said.


Chuck Schulman, president of Carlyle Management Co. of Beachwood, has been an informal adviser to Green Harvest Capital and knows both Patels.


"They are a good fit," Schulman said. "They have synergy. They both have been successful early on with different kinds of properties. They have also worked at doing things that are more creative than the simple real estate deal."


Eric Belfrage, a Columbus-based expert in hotel sales and consulting for CBRE Group Inc., agrees with the estimation of the Patels that opportunities are arising from aging ownership groups.


"There is probably not a lot of product available, but the transition from baby boom owners has been underway sometime," Belfrage said in a phone interview. "The challenge is rising interest rates, but many investors like hotels as an inflation hedge. Hotels can change their rates daily."


Belfrage said hotel renovation requirements of major brands also make the hotel marketplace more liquid than other types of real estate. "When those come up, the owners have to put in the money, refinance the property for funds, and some choose to sell instead of reinvest," he said.


Jim Doyle, executive vice president of the Bellwether mortgage brokerage and investment firm, said lenders are doing hotel deals. Because lenders have less appetite for hotel deals than multifamily or industrial, they seek 60% leverage, or 40% cash investment from the client, and interest rates in the range of a high 5% or 6%.


Bhavin Patel said the rise in interest rates is not off-putting.


"Think of the history," he said. "Many investments have been made in this space at 8% (interest rates.) So, 5% to 8% in the long view looks like a great interest rate."

Reprinted with permission from Crain's Cleveland Business. © 2022 Crain Communications Inc. All rights reserved.
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