Business

St. Anthony: 24-year-old plans a hotel downtown

By Neal St. Anthony

September 14, 2014 at 11:06PM

Hotel developers Minesh Patel, left, and Harshal Patel have acquired the foreclosed Federal Plaza for $1 million and plan to convert it to a 40-plus room boutique hotel. Federal Plaza is a century-old building in downtown Minneapolis. (The Minnesota Star Tribune)

It's going to be fun to watch the little guy try to pull something off in a downtown hotel market dominated by big players.

Harshal Patel, a 24-year-old University of Minnesota graduate from Rochester, and his two partners, just paid $1 million to buy the long-foreclosed Federal Plaza, a small office building of 40,000 square feet on 4th Street and 2nd Avenue S.

"There are some huge projects underway downtown," said Patel, the son of Indian immigrants. "This will be a surreal experience for me. I never thought I could develop a hotel in one of the top 25 hotel markets in the United States."

Patel is young but not a novice.

He started working at his parents' 1950s-vintage Rochester Courtesy Inn when he was a kid. Patel and Rochester-based developer Nick Pompeian this summer demolished the property and are building a four-story Fairfield Inn Suites on the site near Rochester's expanding Mayo Clinic.

Patel has eyed the distressed Federal Plaza for a few years, but couldn't meet the bank's terms or come up with the cash until he persuaded family friends and hotel veterans Minesh Patel and Jayesh Patel to join him. Minesh Patel is another Rochester hotelier, and Jayesh Patel is active in the Buffalo, N.Y., hotel industry.

Harshal Patel's parents, who left Rochester several years ago, also operate hotels in Buffalo, which has a large Indian immigrant community. Harshal Patel isn't related to Minesh or Jayesh, but they are part of a growing "family" of Indians whose parents hail from the same area in the motherland.

The Buffalo News recently reported that Indian immigrants own a third of the hotel rooms in the Buffalo area. And over 30 years, immigrants from the same region of India have come to own an estimated 40 percent of America's budget hotels. Many of the Indian families are named Patel, but not all are related.

The Patel phenomenon

It's been dubbed the "Patel-motel" phenomenon. And we've got a bit of that going on in Minnesota.

In Minneapolis, Harshal Patel and Minesh "Mike" Patel are working on a several-million-dollar financing package to gut the building and open a 40-to-50 room hotel in 2015. They talked to me about it last week in the vacant lobby of the Federal Plaza.

"It will have a contemporary, modern feel," Harshal Patal said. "We're just beginning to work on this, even though I've watched this building for three years. Our rates will be competitive with other downtown hotels that range from $150-to-$400 per night, depending on the night.

"I just couldn't have done this without my family and the financial support of my partners."

Minesh Patel, who has ownership interest in two Rochester hotels, is a University of Wisconsin-trained engineer. He grew up in Fond du Lac, where his parents owned a motel.

"When Harshal first brought me by Federal Plaza in 2012, I saw a great location," Minesh Patel said. "And now there are developments just a few blocks to the east, including the Wells Fargo buildings, the Vikings stadium … and the rest of downtown. Harshal had the vision. At the end of the day everybody in the business wants to be downtown. It's the urban spotlight. But downtown's expensive. If it hadn't been for Harshal's vision and persistence, we wouldn't be here."

Building was tough sell

Federal Plaza, which until several years ago housed a Montessori school on the main floor and offices on the top four floors, once sold for $3 million. It is bordered by the larger Hotel Minneapolis on the west and the parking ramp attached to the CenturyLink building.

The previous owner's redevelopment plans for Federal Plaza went afoul during the Great Recession. Bell State Bank of North Dakota foreclosed in 2010 and hired the local office of Marcus & Millichap to market the century-old property. Listing agent Michael Ahles said there were 35 tours of the space over several years.

Several tentative deals fell through, including plans for a high-end movie theater, collaborative office space, self-storage and a strip club. Selling the building was complicated because of the foreclosure and the partly gutted interior. Several prospects couldn't raise financing.

"The new owner had the right vision to make this property a great addition to the central [business] area," Ahles said.

The Patel hotel project is the smallest among several announced downtown deals in recent months.

The historic Plymouth Building is slated to become a 260-room hotel operated by Hilton Worldwide. Local developer George Sherman plans a $100 million project on the Downtown East block that fronts Washington Avenue between Chicago and Park Avenues near the under-construction Vikings stadium. It will include 175 units of apartments, retail, parking and a hotel in the historic Thresher Square Building. And a Milwaukee hotel developer plans to convert a historic warehouse on Washington and 3rd Avenues N. into a 120-room hotel.

There is an estimated $3 billion in construction underway or planned in the downtown area.

Harshal Patel and his partners, with $1 million down, started meeting with financial advisers to structure their deal last week.

"Minesh and Jayesh are my mentors and they helped me spearhead this with capital and I have the support of my parents," Harshal Patel said last week. "Minneapolis is the big city I love. This is where I chose to go to college. I'm not a big player. I just want to do this little hotel here."

Nstanthony@startribune.com • 612-673-7144

Federal Plaza is a 40,000 square foot, century-old, five-story building at 219 S. Fourth St. that will be converted into a boutique hotel. (The Minnesota Star Tribune)