'Indian Warren Buffett' On How Patels Came To Control 70% Of Motels In US

Renowned investor and author Mohnish Pabrai, often referred to as the “Indian Warren Buffett” recently shared his insights into the extraordinary success of the Patel community in the U.S. motel industry in an interview on MOI Global’s “meet the author” forum.

Drawing from historical context and his observations, Pabrai highlighted key factors that have propelled the Patels to dominate this sector.

Where It All Began: The Patel community’s journey began in the 1970s when they arrived in the U.S. as refugees after being expelled from East African countries like Uganda and initially entered the low-end motel market, Pabrai said.

He noted that the Patels have significantly increased their market share, owning over 70% of motels in the US, up from about 50% when he had written his book The Dhandho Investor over a decade ago.

“When I wrote the book, they had about, you know, kind of 40 to 50% market share… that number is probably approaching north of 70 or 75% today,” Pabrai stated.

Expansion Into High-End: Pabrai also emphasised how the Patels eventually moved up the market to expand their portfolios to include prestigious brands such as Marriott, Hyatt and Hilton, proving their ability to scale and compete across market segments.

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“They’ve gone into the Marriotts and the Hyatts and the Hiltons, and they’ve done a masterful job because in all the cases — whether it’s a motel or any of these other types of hotels — their competitive advantage has always been lowest cost operator,” Pabrai explained.

Competitive Edge: Pabrai sees this unwavering focus on cost management as a cornerstone of the Patels’ success. Meticulous cost control has been ingrained in their operational DNA, he argues, making it difficult for non-Patel competitors to match their efficiency.

“It’s very, very difficult for non-Patels to compete with Patels on cost. I think it’ll be, you know, it needs to be your DNA for several generations to operate like that,” he noted.

Conservative Start: Initially, the Patels adopted a conservative approach by purchasing small motels, which provided housing and employment for their families and also allowed them to leverage bank loans effectively. By underpricing their competitors, the Patels achieved higher occupancy rates while maintaining profitability.

“They could lever their investment too, you know, the bank would loan them maybe 70-80% of the purchase price… once a Patel took over ownership of a motel in a given area, they would quickly survey who their competitors were and what they were charging, and they would underprice versus all their non-patel competitors,” Pabrai said.

All In The Family: Pabrai said that as they expanded, the Patels trained family members to uphold their stringent cost management practices, ensuring that even when hiring non-family employees, their operations remained efficient. Pabrai highlighted their intense focus on every expense, which was a key to their success.

“They looked at every expense, kind of like, you know, zero-based budgeting, if you will, and they looked at every expense and say, okay, is this necessary? Can it be done a different way? Are we optimising kind of what’s going on here?” Pabrai underscored.

Supportive Banking Relationships: Over time, banks became increasingly comfortable lending to the Patel community due to their low default rates, Pabrai went on to say. This financial support further solidified their market position, enabling them to acquire more properties and expand their footprint.

“The banks over time became more comfortable lending to them because they just saw the historic default rates of this particular ethnic group of community was, you know, different from, you know, Joe public buying motels and such,” Pabrai observed.

Pabrai’s insights underscore the Patels’ unique combination of strategic risk management, frugality and operational efficiency. Their remarkable journey from refugees to industry leaders is a testament to their entrepreneurial spirit and meticulous business practices.

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