Mitch Patel on beer, wine and hotels

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CHATTANOOGA, Tennessee — Mitch Patel loves analogies. The founder and CEO of Vision Hospitality Group always loves to drop an analogy (or three) when he’s on stage at hospitality events.

So, we asked Patel about what his favorite analogies are right now, Vision’s growth plans for the near future and the immediate things he would change about the hospitality industry.

Complete video transcript

Rob Schneider: Hi, this is Rob Schneider, managing editor for Hotel Investment Today and this is On The Money. I’m joined by Mitch, Patel, founder and CEO of Vision Hospitality Group.

Vision has about 42 that it owns and operates around the U.S. They’re opening five this year and they’re breaking ground on 4 more with four renovations that are also getting completed this year.

Mitch, welcome…

Mitch Patel: Thank you for having me, Rob.

Schneider: Let’s get right into it. You love analogies, and I heard you say a great analogy on stage a couple of months ago that I hadn’t heard before. I loved it! Which is comparing your hotel assets to beer and wine. Can you explain that?

Patel: Sure, Rob. You know I love analogies as well. That’s why I often will reference them. So, you know, it just came to me when we were internally talking about our portfolio, and some hotels have a shorter shelf life, and some are legacy assets that are going to age well over time and thus, the beer and wine analogy. Beer could get stale, and you have to make some decisions about it. You can’t keep something like that forever and then other assets like wine can appreciate over a long period of time. So, it helped to clarify with our team what we need to do with our beer and wine.

Schneider: So, how’s the beer and wine mix for Vision right now?

Patel: That’s a great question. I would say that about 30% of our portfolio is probably wine, which I would say are legacy assets. Something that I would want to keep for a long, long time. It’s only going to appreciate well over time. Then, probably about 70% is something we need to look at the strategy seriously. Our strategy in the past has been holding on to those assets for a long period of time, and, as you know, that may not be the smartest strategy for those assets.

Schneider: What are you seeing this year in terms of ADR, RevPAR and occupancy? What are you projecting for the rest of the year?

Patel: We had a record year, Rob, in 2023, as we’ve got heavy leisure markets that we’re in. We had a record year in 2023 in the top line, and then 2024 was somewhat flat. Then we were expecting a little bit of a rebound in 2025 in many of the markets, as corporate travel is coming back in quite a few of those markets. But because of all the noise that’s going on out there in the macro world, we are up slightly in ADR, down slightly in occupancy and pretty much flat, or maybe slightly down this year, year to date, across our portfolio on the top line.

Schneider: Government cuts are in the news right now. Have you seen any slowdown in government activity in any of your hotels?

Patel: Absolutely. I mean, it’s hyper-localized, Rob. Government business is about 3 to 4% of the total travel pie and ours is about 4%. We’re down slightly about 3-3.5% of the total business mix on the government side, but it’s very localized. There are a few hotels where we had a tremendous amount of IRS training business. It was extended-stay business and quite a bit of room nights. Well, all of that disappeared and now we have to go replace it. So, it just depends on the markets and the specific hotels. But there is an impact with DOGE, for sure.

Schneider: Can you talk about Vision’s growth plan for this year and beyond? Where would you like to be, size wise, in the next few years?

Patel: We’ve never really had goals on the number of hotels that we would want to have in our portfolio. It was important to have quality on the things that you can control: market share, profitability, guest satisfaction, and be proud of the portfolio that you have, even if it’s 25 hotels instead of 100. So that was very important to the company and maintaining our culture, which is so important to us in the service business that we’re in. But you have to grow if you want to really grow your team as well and grow your infrastructure.

So we have 42 hotels today and we’ll have about 47 by the end of the year. With the development that we have, I would probably expect us to get to about 70 hotels in the next five years. I believe through strategic partnerships that we want to develop and so forth. There are some good opportunities to get to about that amount. But, right now, we own about 100% of our hotels. We are a true owner-operator. I’m the managing principal. I’m the majority owner of all these hotels.

So, going forward. I can’t own beer for 25 or 30 years and our strategy has been. You know what? Let’s own the wine and let’s be smart about recycling the beer. And let’s create a portfolio where maybe 50% of those 70 hotels that we own, and then the other 50% that we may have small ownership in or sliver interest in but still have a buy-in to that asset. It gives us an opportunity to grow our company on the management side as well.

Schneider: You just mentioned something that I’m going to follow up on another way. Companies are growing right now, especially in an asset-light way, through strategic partnerships. Can you talk about the importance of partnerships as a part of Vision’s growth plan.

Patel: Partnerships are nothing new to us. We have about, I would say, 8-10 partnerships of those 42 hotels where it’s a true joint venture partnership where these companies approached us about creating that project that they might have in mind in terms of development or operations., where can we add value to that partnership.

So, we’re just really growing those opportunities with existing partners that we have and then there are new strategic partners that we want to develop. We are good developers and we’re really good operators and so we have some great relationships with the big brand companies, with Marriott and Hilton and there’s tremendous value that we could add to someone’s development that they might have. That’s the kind of partnership that we’re looking for, really strategic, because we want to make sure our values are aligned. Life’s too short to be doing things that you don’t love.

Life’s too short to be doing business with people that you don’t want to do business with. We’re going to be very mindful of who we partner with, but I think it’d be important for our growth to leverage those strategic partners going forward.

Schneider: There’s been a lot of recession talk these days. I heard you say on stage that your colleagues in economy say they’ve been in a recession, maybe for the last year or so. Can you talk about the bifurcation of the hotel industry and what you’re seeing with your hotels right now?

Patel: Bifurcation is really impacting our industry. Lower household incomes have been in a recession for the last 3 years and inflation is impacting them. It's harder. Rent has doubled, credit card debt has grown and the interest rates that they’re paying on that credit card debt is significant. So, of course, that impacts consumer spending on the lower household incomes and that impacts those economy hotels a little bit more. Then you go up the food chain all the way to luxury. The top 1%, top 5% of the earners, their stock market portfolio has looked great. It’s grown. Their home values have grown. Their household balance sheets have looked good, and thus they don’t mind spending a thousand bucks a night. The rise of the $1,000 ADR hotels has grown significantly, and luxury hotels have done a phenomenal job of growing rate in Europe and United States. That's the bifurcation that I’m talking about.

I guess your next question is, how long do you think that’s going to last. Everything has an expiration on it, and I think that you’re seeing that the stock market has been impacted and then you have home values that are getting a little bit of pressure now. We’re going to see how all of this impacts consumer sentiment on those high household income families. We’re going to see how that impacts luxury. But I’m in the middle. Most of our hotels are right in the sweet spot in the middle, in the midscale, upper midscale, and even some upscale.

I have to add this, Rob, that we are in the experience economy, not just the hotel business. It just can’t be shelter: a bed and a shower and a roof. You’ve got to do more than that today and some of our hotels are very experiential. Some of our independent boutique hotels and I really believe that the rate ceiling at a lot of those hotels are significantly higher, and when the market compresses, we could get $1,000-plus ADR at those hotels. Whereas a select-service branded hotel, there’s going to be a ceiling. Because people are looking for more experiences than ever.

Schneider: Another issue I’ve heard you speak passionately about is the need for disruption in the construction industry. Can you talk about the importance of that in an environment where there’s not a lot of new construction? Is modular construction a potential solution for this?

Patel: I’m a big fan of modular construction. I mean, look, every industry has been disrupted, right? Our industry has been disrupted multiple times, and it will probably get disrupted again with AI and all the new technology that’s coming out. The construction industry is the same. I have a hotel under construction right behind me right now and I get to watch that hotel every day from my window, and it’s the same way that we’ve been building for 25-30 years. I’m going to take it further, for a hundred years. It’s the same way and a very archaic process, very manual, labor-intensive process. It needs to be disrupted.

There’s no question about it and I am so glad that we are moving forward. We have had many conversations with modular builders and manufacturers, and so forth and I think that we are on the cusp and I think that you’re going to start seeing more of that going forward. It makes all the sense in the world. With today’s interest rate environment, the sooner you can get to market and the sooner you could open a hotel, it’s better. If it takes you 18 months to build traditionally and you can get it done modularly in five months, that is massive. We are very interested in that space and hopefully, they will continue to improve that technology. We have to move forward in construction development, otherwise it cannot be sustainable.

Schneider: Sure. Finally, you never shy away from discussing how the hotel industry can improve. What innovations would you like to see happen?

Patel: Look, our owners' business model has been challenged for some time. This is before the pandemic. The pandemic gave us an opportunity to disrupt that business model in a positive way. So revenues may have grown in many markets and many companies’ portfolios, but expenses have grown at a greater rate. The cost of labor, cost of goods, insurance, and even the debt service has grown significantly. The owner’s business model is very challenging. What I just described cannot be sustainable. So how do we change it? We’re going to have to work with brand companies. We’re going to have to work with technology providers and really work together. We’re a fragmented industry. Let’s work together and figure out a solution to help our business model go forward.

A couple of ideas that I’m always stressing is we need payment upon booking with cancellation fees as an industry standard. We’re about the only industry where you could tie up our inventory for 364 days without recourse. We need to make that, and the key word here is industry standard.

Then the second item that I want to mention is our biggest challenge is housekeeping in our business and it’s not easy to find housekeepers and keep housekeepers. I really believe that this e-tipping platform on the app, not a third-party service. Most people do not carry cash with them anymore. Most people want to expense this on their business. Uber makes it easy, right? I mean, you have your Uber app open and you could tip and then it reminds you, a month later, if you’re on the app, that hey, you still want to tip Steve or Mary and then rate them? So why can’t we, in today’s world, create that technology on the Hilton app or the Bonvoy app and be able to provide that opportunity for a guest to tip our hardworking associates that clean these rooms? I think it would be a gamechanger and studies have already said that the take rate improved significantly and then their pay can improve significantly. There’s a host of others, but those are just two that I am trying to champion.

Schneider: That’s great stuff, Mitch. I want to thank you for joining us and giving us your insight today.

Patel: Absolutely thank you for having me, Rob.