Magazine article American Banker

Indian-American Banks Bet on What They Know: Hotels

Magazine article American Banker

Indian-American Banks Bet on What They Know: Hotels

Article excerpt

Byline: John Reosti

Chan Patel and Nitin Shah believe strongly in a tried-and-true banking maxim: lend to those you know and trust.

While the adage amounts to simple common sense for community bankers, it has special meaning for Patel, chief executive of the $715 million-asset State Bank of Texas in Dallas, and Shah, chief executive of the $77 million-asset Embassy National Bank in Lawrenceville, Ga. For those bankers, their communities are defined by hotels rather than geography.

Only a handful of U.S. banks are owned by Indian-Americans, though they are believed to own close to half of the nation's hotels and motels - more than 20,000 properties valued at $130 billion last year, according to the Association of Asian American Hotel Owners.

So it comes as little surprise that Indian-American banks choose to focus on the hospitality industry.

"We're known now as a hotel bank," Patel said, noting that his bank originates hotel loans in 26 states.

Regulators once criticized State Bank's hotel heavy business model, putting limits on how much of the portfolio it could dedicate to such loans. But they changed their minds after realizing that the bank's hotel book significantly outperformed its non-hotel loans.

"Now they respect our bank," Patel said.

State Bank is a survivor in an area that suffered during the financial crisis. At least three Indian-American banks, which tend to have high concentrations in commercial real estate failed. State Bank bought two of the failed institutions: National Republic Bank of Chicago and Millennium State Bank of Texas in Dallas.

About 60% of State Bank's $509 million in loans involve hotels. At Embassy, hotel loans make up about a 205 of its $59 million in total loans. Both companies lend to hoteliers beyond just the Indian-American community.

Conditions have improved considerably in the hospitality industry. State Bank earned $20 million through the first half of this year, while Embassy reported $426,000 in profit.

The future, however, is a bit cloudy as valuations rise, creating concerns of a bubble in the long term.

"The hotels in the portfolio were financed during the crisis and they are doing well," Shah said. "The long-term trend is not so good. Valuations are going through the roof. We're watching deal prices carefully; looking at the long-term picture to ensure valuations are not out of line."

Patel echoed Shah's concerns.

"Values are high," Patel said. "Hotel loans are long-term loans. You have to worry because valuations will go down in a recession and push the deals underwater. …

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