RUNNING A MINI-EMPIRE OF HOTELS WASN'T anywhere on Hasu Shah’s list of aspirations. Growing up in Mumbai, he studied to become a chemical engineer. However, during his stint at the police narcotics laboratory in New Jersey, Shah realized that he couldn't grow rich as a forensic expert. In his eagerness to make more money and return to India, Shah entered the real estate business. He would buy homes, fix them up and rent them out. Around the same time, he came to hear about the successful Indians in the hotel business. Shah knew that with his knowledge of the real estate business, he could do well in hospitality business as well.

Today, as the Chairman and CEO of Hersha Hospitality Trust (NYSE: HT), Shah is the operational boss of 28 hotels across the East Coast. His company in fact ranks among the largest Indian-owned companies in the hospitality industry. Shah's initial investment in the hospitality business began in the early '80s was a $32,000 down payment for an 11-unit hotel in Middletown, Penn. “We earned 50 per cent returns in the first year,” Shah recalls. There was no looking back after his first success. He continued buying hotels and expanding his empire. Today there are altogether 3200 beds across the 28 hotels that include Hampton Inn (Hilton), Holiday Inn, Double Tree Club Hotel, Comfort Inn and Sleep Inn.

Shah is quick to make a point, “Number of hotels or number of beds is not important. In the hotel business, RevPar (revenue per available room) is the benchmark that is used.” If the room cost is $200 and its occupancy is 80 per cent then the revpar of the room is $160. A hotel in New York City or San Francisco will have higher revpar than in a smaller town. Shah’s company registered revenue of $11.2 million for the first nine months of 2002. The company’s revpar increased from $44.29 in 2001 to $50.66 in 2002.

Not bad for a person who started the business from scratch. Likewise, the rise of Indians in the hospitality business is remarkable. The resurgence of Indians, especially the Patels owning motel business, started in the ‘70s when the notorious Idi Amin expelled a large group of Gujarati Indians from Uganda and many of them arrived in the United States. Knowing only business skills, they started with roadside motels, which grew over a period of time. Today, one-third of motels in the U.S, are owned by Indians. And 70 per cent of Indian hotel owners own another franchise.

Indians in the U.S today own about 40 per cent of economy hotel chains such as Daisy Inn, Econo Lodge, Comfort Inn, and Knights Inn. Quite a few Indians have taken up franchises of upscale hotel chains such as Ritz Carlton, Hyatt, Marriott, Hilton and Holiday Inn (Six Continental Hotels). In fact there is a growing trend among Indian motel owners to get into the franchisee business.

No surprise, more than 50 per cent of the franchisee-hotels built in last three years were built by Indians. A franchise from one of the major names fetches higher revpar. If there is a Holiday Inn and a similar-level independent hotel next to each other, the revpar of the Holiday Inn will be much higher than the independent hotel.

Despite all the achievements of Indian in the hotel business, there is no Indian who owns an entire chain of hotels. Many of the franchise operators have shied away for want of deeper pockets. Apart from customer service, quality maintenance and operational costs, a huge amount is required for brand building. One needs to have substantial number of hotels to be known across the U.S. “300 is the magic number,” says Shah. His “magic number” is 10 times bigger than the number of hotels he owns today. In other words, if Shah has to reach there, his company should grow aggressively.

And Shah is exactly doing that. He may be 60, but his appetite for expansion is still unsated. As he talks to us, four more hotels are under construction at Manhattan, a place known for its most expensive real estate in the world. Scaling up obviously calls for investments. Hersha Group's investment for the four hotels is in excess of $120 million. Shah's expansion plans do not stop there. His company is in the process of obtaining institutional money at a lower interest rate, which will come as equity money. Once the deal is closed (which should happen in two weeks as we go to press), the Hersha Group will be flush with the dollars needed to fuel its growth. “Our goal is to double the assets within a year,” says Shah.

An ambitious goal indeed, but Shah remains focused. All his hotels are located in the Atlanta, Boston and Washington D.C areas. “We do not want to spread across the U.S. By being closer to each other, we can manage them all better,” explains Shah.

Entry into the hotel franchise business is determined by the investments that one can make, which again depends on the area. If one were to build a mid-scale hotel (say, Holiday Inn) in Manhattan, each room cost would be $300,000. However, building a hotel in the Mid West could cost just over $50,000 per room.

As the Hersha Group expands, Shah has to make sure that all of its employees are geared towards a common goal: better customer service, which is the most important aspect of the hospitality industry. “We have spent considerable time in training our 1000+ employees and at the same time making sure that our management philosophy is ingrained in all our managers,” says Shah.

Running a franchise isn't easy. It has to be operated under the regulations of the franchisor. “Over the years, Indians have improved on customer service. That is the only way they are able to hold and maintain the franchise,” notes Shah. Some of the Indians faced hard times before, especially when they moved from running a road-side motel to a franchisee.

Indians have established their forte in managing economy scale hotel chains. Today they are moving towards obtaining franchises from upscale hotel chains such as Hilton and Marriott hotels. However, it will take another five years for Indians to own names such as the Sheraton. But once someone gets there, another chapter will be written in the success story of Indians in the hospitality business.