Nitin Bajaj:

Hey everyone, welcome to The Industry Show. I’m your host Nitin Bajaj and joining me today is Bhavin Patel. Bhavin, welcome on the show.

Bhavin Patel:

Thank you for having me Nitin, how are you?

Nitin Bajaj:

Been great and the pleasure is all mine. Welcome to the show and let’s start with who is Bhavin?

Bhavin Patel:

Yeah, I’m born in India and moved to the states when I was about nine and a half years old. Grew up in a small town in Ohio and still live in Ohio. That’s where we raise our family.

Nitin Bajaj:

That’s awesome and I know there’s many layers to you and in the past few years that I’ve got to know you, every single one of those layers is just awesome and I’d love to give a flavor and a flair for that to our audience. Go ahead.

Bhavin Patel:

Yeah, you know, from a professional level, we have two verticals. We are a small private equity firm that is focused on multi-family apartment buildings in Ohio primarily. We own and operate about 1,500 units in this market and then the second vertical is hospitality oriented. So, we have approximately 1,100 hotel keys throughout the Midwest, primarily select service brands. So, your Hyatt, Helton, Marriott, IHG brands and again, predominantly in Ohio but then we’re expanding to other markets such as New York and Maryland.

Nitin Bajaj:

And those are amazing, impressive numbers and the little I got to know you over the past few years, that humility, that immigrant story of starting from nothing and building everything brick by brick. You’re the classic success as things go. You told us about the size and scale of your operations. I’d love to hear a little more about why do this and why do this now? I mean, you could have, you know, as a, at least in some stereotypes, be that typical Indian, go in tech, do certain other things or become a doctor or an engineer. Why do this?

Bhavin Patel:

Yeah, that’s a very valid point. I think if you probably asked my father, he would have preferred medicine now, but I was too dumb to get into med school. And so that kind of led me to business. And again, I started at a young age, bought my first asset when I was 20 years old. And again, you know, there are certain things that happen to you and there are other things that you realize in the moment. And so something that happened to me was in 2008, the recession. And I was, you know, completing my fifth year of my undergrad. I was doing a double major at the time. I had two properties and my second property, I had just acquired in 2007 and the bank had called a loan. I had a very difficult time trying to understand macroeconomic conditions. And so I went back to grad school during that time and I was able to survive. You know, I think only time you lose is when you give up.

So I think if you keep trying, there’s always a way forward. And so I would have lots of conversations with a very dear friend of mine, Sagar Parikh. And Sagar had, like me, grown up in Northeast Ohio, went to Ohio State and then ended up on Wall Street. And so his philosophy was always very driven by asset allocation and diversification. While I was very much the entrepreneur that had all my eggs in one basket and thought about concentration, you know, is how something gets scaled, not by diversifying. And so we would have long conversations around, you know, what are the macroeconomic conditions from his perspective, which was 10,000 feet on Wall Street. And from my perspective, boots on the ground in Ohio. And so that led us at the time, this is 2012-ish now, when we really started having more conversations around what was the opportunity of today. And what we realized was multifamily housing in our market had had a very flat outlook for decades. So majority of the product was pre-1980 built. You know, between 2008 and 2018, virtually there was no rent appreciation in the market. And so, you know, we felt like it was a low basis product.

In real estate, you know, there’s a wonderful saying, you make your money on the buy. And if you buy right, almost all of the market conditions can be weathered, right? And so what we saw was, okay, if construction cost is $125,000 to $150,000 per apartment, can you do acquisitions for $30,000 to $50,000, right? And then we did a median household income calculation where we looked at $60,000, well at the time it was $52,000 being the median household income in the state of Ohio. What could somebody afford to pay, right? And so for us, it was, hey, what are the median rents of the asset you’re buying? What is the median income of that area? And then can you back into a 30% number? So to give you today’s numbers, $60,000 approximately is the median household income in the state of Ohio. Nationally, it’s 72,000. And so if you back into a number for the local market, it’s right around $1,500 a month, right? In the six counties in Northern Ohio around Cleveland, the average rents are 1,000. So we believe that through inflation, rents will be closer to $1,500 by the end of the decade than they are to 1,000. Vice versa, the average rents in the United States are closer to $2,000 when based on a $72,000 median income equation, they should be closer to $1,700. So we feel that that market will contract while our market still has room to grow. And fundamentally, I had a very strong belief in at the time, which was reshoring. And it was driven by the fact that around 2015, we as a country bought the last rail card of coal. And I had done a deep dive into understanding all the fundamentals of oil and gas production in the United States. I wanted to start an export business and that led me down a rabbit hole to really dig into it. And what we realized was quietly, the United States was starting to be the largest oil producing nation in the world. Along with that, coal was bought on a 10-year hedge and we bought the last rail card in 2015. So as 2025 approached, you would see a lot of reshoring when it came to polymer-based businesses because the primary components for all plastics are oil-based, petrochemical-based. And so as you do fracking, you just don’t get gas, you just don’t get oil, you get everything and you get natural gas liquids. And Ohio and Pennsylvania are pretty much primed for that exploration. And there’s a Marshallis and Utica shell play, I won’t bore you with it, but net-net is, it’s coming. And so we felt like, okay, if we could concentrate on real estate and build a foundation, then eventually we could transfer into small and medium enterprises and polymer-based businesses post-25. So very long-winded answer to a simple question.

Nitin Bajaj:

Questions are never simple. And I want to make a note here, I’m glad you thought you were not smart enough to be a doctor. Look what we would have missed out on. Now, as bullish as things are, there’s obviously always headwinds. And what I’m curious to hear is what’s that one big challenge you’re facing?

Bhavin Patel:

Yeah. Again, when you create something at scale, fundamentally you’re disrupting things. In our market, as we build a large-scale business, we have to get the people component right.

There’s no substitute for people component. And then how do you build that culture as a company? And so we spend a lot of our time in reflection of what is our culture? What do we want to do that not only adds value to our properties, but also adds value to the communities in which we operate? So we have a very focused approach between doing the right thing for the asset that we acquire, the community we’re operating, and also delivering a fair and balanced return to our investors.

Nitin Bajaj:

I love that thing. Yeah.

Bhavin Patel:

And it’s not easy to get all of that right in unison in a short amount of time.

Nitin Bajaj:

So true. And you guys have grown crazy. You could throw some numbers here, but in the last 13 years, the growth has been massive. And I know a lot of that has come just in the past few years.

Bhavin Patel:

Yeah. I think it took from 2005 to 2019 to get to about a 10 million AUM. And then from 2020, when we first started, we in three years bought about 1500 apartments. And in the last 11 months, we bought 1100 hotel rooms. And so it is definitely the bamboo tree analogy. You work at something for a long time, and then there is the reverse end where everything comes together.

Nitin Bajaj:

Yeah. Or in tech speak, as we say, the 10-year overnight success.

Bhavin Patel:

Yeah, it definitely is.

Nitin Bajaj:

Now, on the flip side of challenges come opportunities, what’s the most exciting one?

Bhavin Patel:

Yeah, that’s a great question. So I guess solving for culture and people is probably the most difficult thing to solve for. The most exciting opportunity we have as a firm is this wonderful time in history where technology, machine learning, IoT devices, connectivity are all coming together, providing very incredible, unique opportunities for us to optimize space. An example of which I can give you one for multifamily, one for hospitality. So something as simple on the multifamily side as a cloud-based property management system that connects with IoT devices throughout the internet. So for example, we run a software called Appfolio. We are integrated with Appfolio Plus now. So in 2024 and beyond, we will start implementing IoT devices such as door locks, smart thermostats. All of our appliances next year are going to be Wi-Fi enabled, curtains that can go up and down. So from a quality of life standpoint, from a safety security standpoint, it’s tremendous. No more losing keys, things like that for the tenant. Also on the operational side, we can have flow sensors on water lines so we can do predictive analytics on leaks. We can have vibration sensors on HVAC units that can monitor frequency changes based on if the motor is running right or not or if it was cleaned or not, if the filter was replaced or not. We can have smart outlets behind refrigerators that can understand how many kilowatt hours have been consumed or did the compressor die pre-warranty expiration. And actually have data. And all of these things on the multifamily side help us run a more efficient building, which is our ultimate goal. And so that drives NOI growth. And so that’s one side. On the hospitality side, the modern day traveler requires a frictionless experience. So what we have strived for, and it’s not just us, but Marriott, Hilton, IHE, they’re all doing it in unison. And that is, they’re investing tens of billions of dollars into a cloud-based property management system for the owners to operate. It’s an app-based system for the modern day traveler where you can open up your Marriott Bonvoy app, select your hotel city that you’re traveling in, pick your hotel room, just like you do your airline seat, walk straight to your room, have the temperature in the room set at 74 degrees. AI knows that that’s what you like. Your Netflix, Hulu, all connect to your television screen. If you need assistance, it’s quickly accessible via our call center and a quick video chat. A little robot can bring you a Heineken if that’s what you prefer. And there’s no human component. And that’s going to drive seamless experiences throughout the guest experience. And then also all those IoT devices also come to the back office. So if we have flow sensors on water lines, we can predict if there’s a leak, things like that. HVACs can be on and off based on occupancy. And it just goes on and on. And I think that’s what’s super exciting to me. I equate it to being in the early nineties and then Google coming on and being in the print industry, where everything was getting digitized. And all of a sudden, no matter how small you were, you could have the efficiency and the reach.

Nitin Bajaj:

So true. I’m excited as well. And the fun part and the most awesome part of this, this is all here. This is all doable now. It’s not something we’re projecting that’ll happen two, five, 10 years from now. It’s here in the now. That’s pretty amazing. And I’m glad you guys are starting to leverage all of these pieces. It adds to the solving for that triangle that you mentioned earlier. Now I’d love to, as we look forward, I like to take a look in the rear view mirror and talk about two instances that I’d like for you to share with us. One is something that you thought would be great, would work out. And it didn’t, it became a failure. It became a lesson, but on the flip side, something that blew your mind and expectations and became a success beyond even your imagination.

Bhavin Patel:

Yeah. So again, your intention matters, right? The two things that I’ve learned in the short time that I’ve been in business that, you know, business is a team sport. It’s not an individual sport. It takes a team to do it right. And I call it like a sealed team six concept. Everybody’s an operator, right? Everybody has a, every person on the team has a specific skillset that is not mirrored by somebody else. It can be enhanced, but not me.

And so that’s, that’s number one. I really believe in order to truly scale something, you’ve got to have the right team. Secondarily, like the failure questions, I failed a lot, you know, and you remember all of them because, you know, you don’t try less hard, even if you know that it’s not going to work out because, you know, you only lose when you quit, right? So you must try and try again. So my import export business was probably one of those, you know, endeavors. I started a business to import something called guar gum, G-U-A-R-G, from India to America. And the primary use for it since it’s discovering the forties by General Mills was as a food additive to give it thickness. So a pinch of it was good enough for a pound of ice cream to give it that viscosity, right? And in the fifties, they also started using it to engineer muds for vertical wells and fracking those wells. And then when in 2009, horizontal fracturing was kind of brought to the forefront, the demand supply equation completely went out of whack. And so 80% of the world’s supply at the time was in India. And you needed 10 metric tons per wellhead. The shelf life of the product was six months. And so it was something that was, you know, almost transitioned to a commodity. The price of it went from $2,000 a metric ton all the way up to 40 at its peak, a metric ton in a very short amount of time. And, you know, you can imagine thousands of wells were being drilled to manage your supply chains. It was a very important product. And I remember one statistic, Halliburton’s cost in the Marshallis, Utica region, which is where we are, had reached about $4 million per wellhead. And 30% of that was represented by guar gum. So, you know, massive amount of water, massive amount of propane, which is sand and then guar gum. Those are the primary components of fracking well. And so I developed an ERP platform. I went to India. I traveled all over the country meeting with old guar houses and set up supply chains so that we could track a container from, you know, the time it leaves India to the time it arrives at the EMP, exploration and production company’s doorstep.

And then we could start layering it. Right. And then we’d make our margin in the middle. Right. So really thought it would be successful. And every oil and gas company stopped fracking the exact same day in the United States. And that was the day the Keystone pipeline got canceled. Yeah. And so therefore, it was it was like one of those things that how do you react as an entrepreneur to that? Right. And, you know, the people that I was in contact with overseas were great. They were gracious. And they said, look, you know, we’ve made lots of money, you know, over the last few years. We understand this is not your fault. And they didn’t, you know, take me take me to the cleaners, as they say, but definitely a learning experience. What came out of it was a deeper understanding of why are we as a country fracking like this? What was the importance of the Keystone pipeline? How is energy production shifting from coal to natural gas?

And at the root of it, it is, you know, the most incredible, profound saying that I’ve heard is the last hundred years were the age of oil. The next hundred years are the age of electricity and natural gas is the bridge fuel. Right. And so understanding that macro thesis allowed at the time for us as a team to develop, you know, this real estate based thesis that helped us, you know, do the acquisitions that we have. Right. Because from a macro trend, we wanted inflation to come in 2025, where we got incredibly lucky. And again, COVID was a horrible thing. But what it did cause was our federal government to react and inject trillions of dollars into our economy, which caused instant inflation. And if you’re in the real estate business, you know, you’re getting rent inflation and also you’re getting value inflation. Right. And so, yeah, cost inflation is there. But because of this time in history, you can hedge it with technology. So if you’re willing to invest time and energy in technology, you can lower operating expenses over time.

Nitin Bajaj:

So it’s just fascinating. And I think, you know, you, you started by saying that it’s all about the intention. And as long as you keep that at the forefront and not allow these temporary setbacks to hold you, you can keep going and keep rolling and keep finding new avenues to for growth and success. So kudos and congratulations for you to have stayed the course and made it into what I would love to call an empire. And that’s still growing at a crazy next speed. Now, before we go into the next section, I want to pause here and ask you a question. Amongst all of these things, which I know you enjoy, what do you do for fun?

Bhavin Patel:

Yeah. You know, again, I jokingly say I’m living the dream. It’s like, you know, as a kid, this is what I wanted to do when I grew up. And so, you know, I truly am passionate and I enjoy my work. At the same time, you know, I have two little girls, an eight-year-old and a three-year-old. We do lots of hiking. We have wonderful metro parks where I live in Ohio. We live in this wonderful little community. And in the back, there’s a another community with like horse ranches and stuff that, you know, we often walk and, you know, a couple of horses back there and things like that. So that happens to occurs more often than not on the weekends. You know, having an eight-year-old and a three-year-old, they both love horses. And so that, and then, you know, if I have downtime, you know, spending time with my missus, you know, and having dinner or just a conversation.

Nitin Bajaj:

That’s awesome. I’m a little jealous about the horses, but I’m sure we’ll make up for that. Yeah. Now onto my favorite part of the show. I would love for you to share a few one-line life lessons with us.

Bhavin Patel:

One-line life lessons. Okay. Try and try again. Right. I think, I think that that’s an important one. Do unto others as you’d want them to do unto you. I think, you know, karma cyclical, right? I think you get what you put out, you know, and finally cost of the passage, I think is something that rings true for me. You know, my, my parents, dad was a teacher. Mom was an educated person, both come from a small village and they sacrificed a lot to get us here. So I think for us, my sister and I, it’s always important for us to remember what it took, right. To come to this country and the opportunity we have. So we work with a lot of gratitude for, you know, just, just the sheer opportunity that, you know, Ohio and this country provides us.

Nitin Bajaj:

Awesome. Well, thank you so much for sharing those one-line life lessons, but more importantly for sharing your journey and your story. I mean, I am truly, truly happy that, you know, success has followed you and you’ve made it happen despite all of the challenges you’ve faced over the past few years. And I love your spirit. I love the person you are and would love to bring you back on and share some more of these stories and successes.

Bhavin Patel:

No, thank you. You’re very kind. Appreciate you having me on and, you know, the friendship that we’ve created over the past few years, I’m sure it’s going to last a long time. We always find ourselves discussing multiple ranges of topics and trying to understand, you know, different broad viewpoints and things like that. And I also commend the work that you do, especially for the Indian community and bringing, you know, the cause of, you know, the transition from Indian to American, right. And how does that all play in the fabric of this nation? So I think it’s terrific and look forward to joining you again next year. We should make this an annual thing.

Nitin Bajaj:

I would love that. Thanks a lot. Great. Thank you.