Turning Sochi Into a Playground for the Wealthy

Sochi 2014 Organizing Committee
Sochi could well be turned into a luxury resort catering to the superrich after the last fireworks fade at the 2014 Winter Olympics.

With billions of dollars earmarked for hotels, stadiums and infrastructure upgrades, the Black Sea getaway spot is set to become one of the country's most modern cities with top-notch tourism and sporting facilities in the next five years.

While the construction, which has already begun in earnest, promises to allow Sochi to dazzle under the spotlight of the Olympics, the reality check for the local economy will lie beyond 2014, when the fun and fanfare end.

Sochi 2014 Organizing Committee
An artist's conception of the inside and outside of the Olympic stadium, which will start to go up sometime next year.
Some investors and the Krasnodar regional administration, whose territory includes Sochi, are betting that Sochi could become a major draw for the world's rich and famous.

"Let's for once have expensive hotels, an expensive resort and an expensive sea," said Sergei Nikitin, general director for Penny Lane Sochi, a real estate agency. "It would be a boost for the country, for the region, for taxes and for our image."

The idea of turning the Soviet-era resort into Russia's answer to the French Riviera has been raised numerous times over the years. Hopes grew after Vladimir Putin started vacationing and hosting international leaders there during his presidency. But now, with a $13 billion Olympic investment program, including a pledge of $7.7 billion from the government, the money appears to be in place to finally turn the Riviera dream into reality.

Sochi 2014 Organizing Committee
Proposed lodging in the mountainous Krasnaya Polyana area near Sochi.
The Olympic construction program calls for the construction of more than 250 facilities, including up to 25 five-star hotels and 15 stadiums located in two clusters -- one along the coast, the other in nearby mountains.

The coastal cluster will evolve around a grand Olympic Park, which will include the Olympic stadium, an Olympic Village, the main media center and Russian International Olympic University.

The mountain cluster is being created at Krasnaya Polyana and will comprise biathlon and ski complexes, a bobsleigh track and a mountain Olympic Village.

All the facilities in the mountain cluster are to be financed by private investors.

Since winning the right to host the Olympics last July, Sochi has seen a windfall of $800 million in private investment, according to the Chamber of Commerce and Industry for the Krasnodar region.

The response from private investors been so encouraging that the Sochi 2014 Organizing Committee believes that the government will end up investing less than the pledged $7.7 billion, the committee said in an e-mailed statement.

Viktor Klyushkin / Itar-Tass
A scale model of a marina and hotel complex called Khomar that the Yugakademtsentr company is proposing to build off the Sochi coast in the Black Sea.
The committee, saddled with planning and implementing most of the projects, said Sochi would assume a life of its own after 2014.

"We aim to create one of the world's leading year-round tourist resorts," the statement said. "This will fundamentally change the economy of the region and the lives of the people there, who are currently tied to seasonal work."

In addition, the committee will set up a $35 million legacy fund to finance the maintenance and operation of the Olympic park and all Olympic venues long after the games are over, Dmitry Chernyshenko, president and CEO of the Sochi 2014 Organizing Committee, said in the statement.

Some of the most ambitious projects now on the drawing board are to be transformed into national training centers to cater to top Russian athletes. This includes the Russian National Ski Jumping Center, which is to be converted into a training center for athletes and youth.

Currently, Russia's national ski jumping competition takes place in Germany because of a lack of facilities.

Likewise, national training centers would be made out of the planned Alpika Service Mountain Resort (freestyle skiing), the Roza Khutor Alpine Resort (alpine skiing and snowboard) and the Russian National Sliding Center (bobsleigh, luge and skeleton).

In keeping with the spirit of the times, the mammoth main media center will be converted into a world-class exhibition and shopping center. This will include a 40,000-square-meter multipurpose exhibition hall and a 30,000-square-meter shopping and entertainment mall.

"Russia desperately needs this infrastructure, having lost all world-class facilities in the mountains after the collapse of the Soviet Union," the organizing committee said.

The luxury hotels planned for Sochi -- which will add 4,000 rooms to the city -- will be far from enough to house the inflow of tourists who visit each year, regardless of the Olympics, said Alexander Udalov, president of UMACO, a consultancy firm for Sochi 2014.

The Krasnodar region attracts more than 10 million tourists a year, 40 percent of whom go to the Sochi area, Udalov said. "The huge number of first-class hotels planned for the Olympic Games will still not meet the demand of so many tourists," he said.

Many of the vacationers who now go to Sochi, however, could ill afford to stay in five-star hotels, which are few and far between in the region.

Revamped infrastructure, including better highways and a new airport, would improve the investment climate and attract more private investors, Udalov said.

Nikitin, the real estate agency director, said the lack of high-end hotels offers opportunities to private investors.

"There are practically no four- or five-star hotels in Sochi at the moment," Nikitin said. "The landscape here is littered with sanatoriums such as the Moskva and Intourist hotels that have existed since Soviet times."

These old-fashioned hotels, most over 20 years old, have failed to meet the needs of modern tourists, Nikitin said.

Elizaveta Shaforostova, a development consultant at Cushman & Wakefield Stiles & Riabokobylko, said Sochi had a long way to go to compensate for the dearth of decent accommodation, but more crucial is a lack of segmentation in the hospitality industry, which could create a self-defeating chasm between the superrich and average citizens after 2014.

"The emphasis must be on diversification," Shaforostova said. "Investors aspiring to join the hospitality rush in Sochi will need to engage in a balancing act of building high-end hotels and affordable accommodation for ordinary Russians."

Shaforostova, who leads a team of consultants in Sochi, predicted that the more the market matures with improved infrastructure and facilities, the more segmented it would become.

Sochi, like Moscow, could benefit from being both superexpensive and elitist after 2014, Nikitin said. Satellite settlements around Moscow are profiting from the capital being both rich and expensive, he said.

The Krasnodar administration appears to have envisioned such a development and has set out to build other sea resorts for middle-class and low-income vacations should Sochi become an unaffordable destination after the Olympics. It is developing the 800-hectare Blagoveshchenskaya resort, which could handle 400,000 people, and Agria, which could accommodate 18,000 people on 160 hectares. It is also turning Vysoky Bereg into a seaside resort for family vacations and sports activities.

For now, Sochi resembles a huge construction site, rendering roads impassable and the city center overcrowded.

Despite the recent launch of private air-taxi services to the city and airlines shifting base to Sochi in anticipation of the Olympics, air tickets to Sochi are among the most expensive in the country, Shaforostova said. There is no greater threat to Sochi's ambition of becoming an year-round tourist resort than the exorbitant prices of air tickets from places like Moscow, she said.

The Sochi 2014 Organizing Committee attributed the problems to temporary glitches and said its development program would move off the drawing board sometime next year, when construction is to start on all Olympic venues.

"All will be ready for a full program of test events by the end of 2012," it said.