New Firm Plans Chain Of 4-Star Hotels, Offices in Russia

Feb 16, 05 | 8:39 am

Russian Hotels, a new company launched late last year, has announced ambitious plans for a chain of four-star hotels and office centers all over Russia and the CIS.

Investing between $200 million and $250 million in the project, Russian Hotels wants to create a portfolio of 20 to 30 new or renovated buildings over the next three to five years - chiefly in the Russian regions and CIS capitals like Kiev, Tbililsi, Yerevan, Dushanbe and Baku.

Some of the project's financing will come from metals conglomerate Basic Element, which is said to be close to the new venture. Basic Element would not comment on its relationship to Russia Hotels, nor the extent of its investment in the portfolio.

"Land in Moscow is very expensive and from a business standpoint it makes sense to build up-scale hotels on this land," said Stanislav Kapinos, general director at Russian Hotels. "But with all the projects already announced for Moscow, the market may soon be close to saturation."

Kapinos added that growing business tourism and strong economic growth in the Russian regions, coupled with "an almost complete lack of tourism infrastructure," makes them very attractive for hotel developments that "answer modern European criteria."

"We are aiming to occupy an unfilled niche, as there is unfulfilled demand for our services in the regions," he added.

Yelena Guryanova, spokeswoman for Russian Hotels, said the company is currently thinking about acquiring existing hotels in Irkutsk, Nizhny Novgorod and Krasnoyarsk, as well as investing in new projects in Krasnodar and Yekaterinburg, but stressed that negotiations were still at very early stages.

Earlier this month, Russian Hotels agreed to invest $10 million to $12 million in the construction of a 12,000-square-meter office center in central Tbilisi.

The company is also about to begin construction of a 12,000-square-meter, 150- to 200-room hotel in Novosibirsk. The project, estimated to cost between $10 million and $12 million, is scheduled for a 2007 completion.

Guryanova said that Russian Hotels and Novosibirsk City Hall have agreed on the site of a future mid-range hotel on Ulitsa Chaplygina in the center of the city, but added that it was difficult to say when construction may start as the land has not been officially allocated and the architectural concept has yet to be decided.

South Africa's Protea Hotels chain will be operating the hotel once it is completed. Protea will enter the Russian market in September, when it is scheduled to open its first, 136-room hotel in Yekaterinburg, Sergei Ermilov, Protea's representative in Russia said.

The management contract with Russia Hotels is likely to signed in the next two to three months, he added.

Stephane Meyrat, senior consultant at Hotel Consulting & Development Group, said that while in theory Russian regional cities look like desirable expansion destinations, in practice many of them do not generate enough demand to make an international-standard hotel profitable.

"Fine, you need hotels in many cities, but how do you get to them? Lack of tourism infrastructure is a double-edged sword," he said, adding that lack of frequent flights or good roads to many regional cities will translate into low occupancies and longer payback periods.

"The cities picked by Russian Hotels [for their regional development] make sense, but they need to assess the demand and the location of the proposed hotels to guarantee that the projects become economically feasible," he added.