BATTLE GROUND, Wash.—Alkesh Patel, a 44-year-old immigrant from India, borrowed about $5 million to open the Best Western Plus motel on Main Street in this city of 17,500 north of Portland, Ore.
Five years later, Mr. Patel still works the front desk with his wife, chats with the housekeeping staff and helps do laundry while making the morning rounds, much as family members have done at other motels nearby for two decades.
The Patels' Hotels
Darryl James for The Wall Street Shirish Patel helps Maribel Mendoza at the Hampton Inn he owns in Clackamas, Ore. He said he is in danger of losing two of his six hotels.
But Mr. Patel doesn't own the Best Western anymore. The bank that lent him the money failed in 2008, and his loan was sold to one of the many investment firms specializing in buying distressed assets from the Federal Deposit Insurance Corp. in the wake of the financial crisis. The new owners of the loan demanded $3 million in repayment. Mr. Patel didn't have it, so the owners foreclosed.
"We just needed six months or so to tide us over," said Mr. Patel.
Mr. Patel's comedown from property owner to hired help is part of a commercial real-estate slowdown that has swept through the roadside lodging business in the U.S. Many commercial real-estate properties declined in value during the financial crisis. But after a postcrisis rebound, concerns about the U.S. economy have cooled the market recently in many areas of the country.
About half of the nation's 50,000 motels are owned or controlled by immigrants who trace their origin to the state of Gujarat in western India, many with the last name Patel.
But hundreds of those hotel and motel owners now are fighting foreclosure, while others have lost their properties to lenders, said Hemant Patel, chairman of the Asian American Hotel Owners Association. The Atlanta trade group represents nearly 10,000 immigrants of Gujarati descent in the U.S. with lodging properties valued at an estimated $130 billion.
The group's president, Fred Schwartz, estimates some 10% of its membership may be in default on loans or in the process of loan restructurings. More than 200 motels in California run by the trade group's members are in default or foreclosure and more than 1,000 other properties across the U.S. might be in similar trouble, he said.
The problem isn't just overbuilding and an epidemic of empty rooms. Some borrowers missed loan payments, while others fell afoul of loan terms when business at their motels took a nose dive during the financial crisis.
Some lodging owners said they were snarled by lenders eager to purge their portfolios of commercial real-estate loans. And two small banks that specialized in loans to lodging owners with Gujarati ancestry failed, eliminating a financing source.
"We never missed a payment," said Bhaskar Zaver, an immigrant from Zambia of Gujarati ancestry who borrowed $2.7 million from BB&T Corp. to buy a Microtel Inn in Lawrenceville, Ga. The loan was due to be refinanced last year when BB&T, of Winston-Salem, N.C., sent a foreclosure notice, demanding that he pay off the loan, he said.
Revenue at the motel shrank to $400,000 last year from a peak of $1 million before the financial crisis, and its value has declined, but Mr. Zaver said he tapped his savings to avoid falling behind on the mortgage. He was about to refinance with a different bank when BB&T sold the loan for $800,000. The loan's buyer foreclosed on the property, and the Microtel has been empty since March. He said he has lost about $750,000.
"BB&T explores every possible solution and alternative to help clients resolve loans that are in default," said David White, a BB&T spokesman. He wouldn't comment on Mr. Zaver's loan, citing privacy rules.
For decades, people with the surname of Patel have been among America's most successful immigrant stories. After arriving in the U.S. in the 1970s from countries such as Uganda, Kenya and Zambia, and from India in subsequent years, these immigrants grabbed an opportunity from the U.S. government to get green cards in return for putting up as little as $40,000 to run a business that would generate jobs in depressed communities.
These immigrants, often college-educated Hindus, liked the motel industry partly because they could employ family members. Restaurants weren't popular choices for these businessmen because they were uncomfortable handling meat due to their Hindu beliefs.
Over time, Patels became entrepreneurs in small cities and towns across America. Families often own or operate several properties, leaning on economies of scale to squeeze profits from the low-margin motel business. But the current turmoil threatens to undo all that hard work, some motel owners said.
Banks are calling in some loans and are leery of financing construction of new motels because of economic uncertainty and concerns about the health of the commercial real-estate market.
Shirish Patel, an obstetrician and gynecologist in Clackamas, Ore., is in danger of losing two of the six motels he co-owns because the bank, Columbia State Bank of Tacoma, Wash., wants "me to buy the loan out for $1.5 million," he said. "None of the banks are willing to loan to the hospitality industry."
Dr. Patel, 52, said he "cannot afford to file for bankruptcy," adding that he already has sunk nearly $3 million into his motel properties. Columbia State Bank spokeswoman JoAnne Coy wouldn't comment on the lender's actions, though she said bank officials "recognize a lot of businesses are being challenged in today's economy."
Vijay Patel, a naturalized U.S. citizen born in Uganda, forfeited more than $150,000 in licensing fees on four properties after failing to find a bank willing to lend him money to build the motels.
Mr. Patel, 55, said he never missed a loan payment since getting into the business in 1994, and his motels in Oregon and Washington are profitable and employ 120 workers. "Everyone says these towns need jobs," he said. "I can provide lots of jobs."
At least Obama can guarantee $500 million in loans to something speculative and unproven in the long term like solar energy panels.