SREE Hotels plans to sit tight, wait for downturn
Parag Patel, chief financial officer & chief development officer of SREE Hotels, grew up in the hotel industry. His family had a four-room apartment on their property, and he lived there until he was around 10 years old. His first job was front desk clerk. “It was very active family involvement,” he says, “where we were running the front desk, my dad was the engineer and manager, and my uncle as well; all the renovations were done by these guys.”
It all began in 1980 with an independent property in Florence, SC. Brothers Ravi and Chandra Patel acquired University Inn and immediately affiliated with EconoLodge. On I-95, the gateway to Myrtle Beach and halfway between Miami and New York, it was successful enough that they built another hotel across the street. That was a Comfort Inn, and a few years later they built another, this time a Sleep Inn, all with Choice Hotels.
Then, in 1996 SREE Hotels got their first Marriott approval. “Once we got that we started growing and almost solely started developing Marriott hotels,” Parag Patel says. “That was really our growth platform―we were probably one of the first dozen or two dozen approved franchisees at the time, so we had pretty much a clean slate to start from to develop hotels.” They focused in and around Charlotte and the Carolinas, and today they have 19 Marriott properties. They also have a few Hiltons and Starwoods, but their growth has been “strictly due to Marriott.”
And now the next generation is on board. Vinay Patel is president and CEO, handling sales and marketing and operations. Parag Patel takes care of the financing and development side. “Our second generation jumped into the business in 2000,” Parag Patel says. “A few of us came in around that time. The senior partners were getting into their 60s and said, if the business were to continue, they needed some new blood or to try to sell everything and let everyone go on their merry way.”
At the time, Parag was working in banking and Vinay was in franchise sales within the hotel industry. “We both decided to come back,” Patel says, “and grow this company into something bigger and better.” And the senior members are still around. “They make investment decisions,” he says, “but they are not actively involved in operating hotels anymore.” He laughs. “They keep us in check and make sure we don’t do anything too crazy.”
The Embassy Suites in Charlotte, NC, boasts a large public space featuring a lounge area and bar. Image courtesy: SREE Hotels.
In spite of big plans for growing the company, the tragedy of the 9/11 attacks brought a different reality to the industry. “Growth prospects went out the window,” Patel says. “What we really ended up doing was learning how to operate, getting our hands dirty on the operations side of things, and running a lean, efficient operation during the downturn.” He sincerely believes that the company is better off for having gone through this learning experience. SREE Hotels did well in the years that followed, building and acquiring new properties.
What we really ended up doing was learning how to operate, getting our hands dirty on the operations side of things, and running a lean, efficient operation during the downturn.
“2007 was the best time, prior to today, in the hotel industry,” Patel says. They’d been actively growing and started construction on four hotels in 2007 and two in 2008. In 2008 and 2009 they opened six hotels, and then the crash happened again. “We felt like we weathered it very well,” he says. Having gone through this before, they knew how to work through their lender issues and market issues. Yes, it took a little longer, but eventually those hotels stabilized. “Now they are performing very well,” Patel says. “It was not as bad the second time around.”
SREE Hotels have experienced their best years ever in 2014, 2015, 2016, and now 2017, with each year being better than the one before. They added three hotels in the first quarter of this year. One was a new construction that opened in downtown Charlotte, North Carolina, a 195-room SpringHill Suites. “It was a very challenging project,” Patel says, “and we worked on it for three or four years.” The 16-story building sits on less than a third of an acre and is modeled after the Flatiron building in New York City. “It was a challenging site, and we were happy to get that done,” he says. “It was a big project for us, in our home market, and being able to do something downtown was something we’d been wanting to do for some time.”
Because of the success of an earlier adaptive reuse project, SREE Hotels also acquired a historic hotel in Cincinnati, originally built in 1875, with plans to convert it to an independent hotel affiliated with Curio by Hilton. And they broke ground in April on an oceanfront property in Myrtle Beach, a 191-room Residence Inn. “It’s the only select-service Marriott property along the coast from Charleston, South Carolina, to Wilmington, North Carolina,” Patel said. “It’s the first one of its kind, and it’s a market we’ve been looking at for some time, just waiting for the opportunity for some land in Myrtle Beach.”
Developers put the market in trouble themselves by overbuilding.
SREE Hotels is not looking for any other projects right now, due to increasing construction costs and tightening of financing restrictions. “Everything that’s for sale is really, really expensive,” Patel says, “so we’re just priced out. We can’t justify paying the prices that we’re seeing, so we’re going to sit on the sidelines for probably another year and a half, two years.” He believes the industry will continue to see some growth through 2018 before starting a decline in 2019. “We’ve gone through two major cycles and fared very, very well, not having to lose assets or having to make significant capital contributions to keep these things afloat.
The 256-room dual-branded Residence Inn and Courtyard by Marriott in Raleigh, NC. Image courtesy: SREE Hotels.
“You’re already seeing things start to stabilize,” he says. “We’re not seeing double-digit growth anymore, we’re seeing three, four, five percent growth. And next year you may see one, two, three, but growth is growth.” When the market does turn, if they sit tight and their timing is right, Patel expects they’ll able to acquire properties. “The last two downturns we were going in actively growing,” he says, “and had to insure that our properties made it through. At this point, we are going to sit and wait and see if we can take advantage of that this time. It’s something we’ve learned from the last two cycles.” While it’s certainly possible that something irresistible might present itself, for now “the plan is to sit tight, absorb everything that we’ve added, and focus on the one new construction that we have.”
Not that SREE Hotels is playing fast and loose in the market to begin with. “We have a very limited bucket of product that we want to go into,” Patel says. “If a Marriott or Hilton select service brand is not available, or it’s already on the market, we’ll probably pass on a deal.” They know their sweet spot, and there is no shortage of opportunity. If a Hilton Garden Inn, Hampton Inn, Homewood Suites, Courtyard, Residence Inn, or SpringHill Suites is available, and the market supports it, then they’re all in.
We can’t justify paying the prices that we’re seeing, so we’re going to sit on the sidelines for probably another year and a half, two years.
SREE Hotels particularly wants to do unique projects in good markets. “We want to add value,” Patel says, “not just build a hotel because we can. There has to be something unique about it, a new opportunity, something where we can add back and make it a more signature project.” That’s their focus going forward, to go into an area that might be a little more challenging and may keep the whole pool of developers out. “Developers put the market in trouble themselves by overbuilding,” Patel says. “Everybody has the confidence—they’re looking at the same numbers—that’s what got us in trouble with bubbles in the past. I think that’s what’s going to slow us down with future supply.” SREE Hotels remains focused on doing fewer projects, but more significant ones.
A new challenge for SREE Hotels becomes an award-winning project
Image courtesy: SREE Hotels.
“When the construction market was completely dried up, SREE Hotels looked at a whole new type of endeavor. We went into Cincinnati, Ohio, and acquired an historic office building that was going to be an adaptive reuse project, our first stab at it, but again it was something where we saw a need in the market that fits our profile, which is upper end select-service properties. We took it on as a new challenge; it was a tax credit, finance deal, city incentive money, they wanted to put an out of service building back into use. It used to be the Cincinnati Enquirer newspaper headquarters. We converted it to 249 rooms, dual branded: 144 Hampton Inn & Suites rooms and 105 Homewood Suites rooms. It’s one of our signature properties now. It’s performing very well, it’s beautiful, and the city is pleased to have it put back into useful operation. We restored all the historic aspects of the building that we were able to preserve. It was our first dual branded property, and it was our first adaptive reuse property. We actually won the 2015 Development Deal of the Year for Dual Branded Hotels with Hilton for that project.”
By Ashley Atkins