Independent hotelier Harshal Patel has started construction on what may be downtown’s smallest hotel at what may be the tail end of the hotel boom.

“I’m the small guy on the block,” acknowledged Patel, 26, who grew up in a Rochester hotel-owning family. “The other projects are large national companies and brands. Financing took a chunk of the delay. Some banks don’t need another hotel loan.”

Patel and associates in 2014 paid $1 million for the abandoned Federal Plaza building on Fourth Street near Third Avenue, a building that once traded hands for $3 million before the Great Recession.

Patel, a University of Minnesota business school graduate who now lives in Minneapolis, has long harbored the desire to run a downtown hotel. He said the project was delayed by obstacles, including finding financing for a small project late in the downtown hotel surge.

“We do this because of our passion for the business and it’s a dream to build and operate a hotel in Minneapolis,” Patel said. “If were going into a top 25 market, this is our No. 1 choice. And this was a challenge.”

Patel has raised enough capital from an unspecified Minnesota community bank and otherwise to start gutting the five-story building in what should be a $6 million-plus project, including acquisition. More than $76,000 in construction permits are paid and Weis Builders arrived on site last week.

And Patel believes the 55-room boutique hotel, which is slated to open next spring, will offer something different to extended-stay and other guests at competitive rates.

“We’ll be smaller, independent and unique,” Patel said. “We’re central to Downtown East, the government buildings, the Mississippi River entertainment area and U.S. Bank Stadium.

“We’ll offer a good value … at $150 to $250 a night; maybe $400 for our biggest suite. We’ll work on an extended-stay rate and cater to guests here on long-term projects. Each room will have refrigerator, microwave and dishwasher. You can make your meals. We’ll also have a lounge and bar.”

Patel started working at his parents’ 1950s-vintage Rochester Courtesy Inn when he was a kid. Patel and Rochester-based developer Nick Pompeian demolished the property and in 2015 opened a four-story Fairfield Inn & Suites on the site near Rochester’s expanding Mayo Clinic.

Patel eyed vacant Federal Plaza for several years. But he needed family friends and hotel veterans Minesh Patel and Jayesh Patel to join with him.

Meanwhile, in the Twin Cities, six hotels that will add 1,000-plus rooms to the 40,000-room Twin Cities hospitality market are planned or under construction. Hospitality industry experts are bullish, as long as the seven-year economic recovery continues.

“I can’t really remember a time when we have seen this kind of hotel boom,” Steve Cramer, head of the Minneapolis Downtown Council, said recently.

Few hotels were built in the years preceding and during the Great Recession. And not much got going until lending loosened in 2010-11.

The Downtown Council’s “Downtown 2025 Plan” in 2011 called for 1,100 hotel rooms by 2025. That goal was met this year amid the building surge.

Ted Leines, founder of Leines Hotel Advisors, said recently that hotel developers have been inspired by the growth of offices, residential units, restaurants, and cultural and other amenities downtown that has made it a bigger destination for business and pleasure.

Most recently, Embassy Suites spent more than 18 months renovating the Plymouth Building at Hennepin Avenue and Sixth Street. The 290-room hotel is close to the city’s theater and nightclub scenes, Target Center and Target Field. On the other side of downtown, Carlson Rezidor Hotel Group opened a 164-room Radisson Red hotel recently near U.S. Bank Stadium and the twin Wells Fargo buildings.

In a recent report, the hotel arm of commercial real estate services firm CBRE forecast that Twin Cities occupancy rate will decline from 68.3 percent last year to 64 percent in 2020 because of all the new rooms.

Meanwhile Harshal Patel said the two-year delay doesn’t faze him. The economics and opportunity remain the same for his group.

His partners, Minesh Patel and Jayesh Patel, are not related but consider themselves cousins and part of a large group of owners of Indian descent in the hotel trade. Minesh Patel, who has an ownership interest in several hotels, is a University of Wisconsin-trained engineer.

Over the last year, the group also has acquired a Holiday Inn Express in Woodbury and a Holiday Inn in Bloomington.

Federal Plaza until 2010 housed a Montessori school on the main floor and offices on the top four floors. It’s dwarfed by the Hotel Minneapolis on the west and the parking ramp attached to the CenturyLink building on the east.

The previous owner’s redevelopment plans for Federal Plaza fell through during the Great Recession. Bell State Bank of North Dakota foreclosed in 2010 and it has been empty since. Several deals fell through, including for a high-end movie theater, collaborative office space and a strip club.

Patel said in a recent interview that several metro-area banks shied away from the project because of all the competition.

“We’re looking forward to being part of the downtown community,” Patel said last week. “It took longer than expected. Now it’s game time.”

 

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.