Moscow to Bankroll Hotel on Rossiya Site

Hard up for investors, the Moscow city government has decided to take matters into its own hands and finance the first phase of construction of a more than $1 billion development on the site of the former monolithic Rossiya Hotel.

The project fell back into City Hall's hands after developer Shalva Chigirinsky lost the rights to the high-profile site on Red Square in a protracted court battle.

Vladimir Resin, head of Moscow's construction planning committee, said Friday that the city wanted the Zaryadye project -- designed by British architect Norman Foster and including several luxury hotels, parking garages, entertainment and shopping venues -- up and running by 2012-2013, a committee spokesman confirmed Monday.

City coffers will foot the bill for the first stage of development -- substructures and the foundation -- but Moscow plans to hold tenders for participation in the following construction phases. Resin did not reveal how much the first stage of construction would cost, the spokesman said.

"The government is trying to the give the signal to investors that they are committed to having this project built, even during an economic downturn," said Maria Uspenko, an associate director and hotel consultant at Jones Lang LaSalle.

"They didn't want to let the project just sleep," she said.

The project, in fact, has lain dormant since the peak of the liquidity crisis in Russia last fall, when Chigirinsky's ST Development lost the 13-hectare lot.

In 2004, ST Development won a tender for a contract that included the demolition of Hotel Rossiya, development of the Zaryadye complex and the transfer of a 51 percent stake in the property from City Hall to the company.

But in March 2008, two years after the 3,000-room, 1960s gargantuan hotel was demolished, a Moscow arbitration appeals court declared the contractual agreements between the developer and City Hall invalid. That decision, upheld in an upper court in October, followed claims of foul play from other bidders in the original tender. Both Austrian developer Strabag and Monab, the real estate division of Evrofinance Mosnarbank, had well outbid ST Development, offering to invest $2 billion and $1.45 billion in the development project.

ST Development won with a bid of $830 million.

About the same time, Chigirinsky, facing a lack of funding, also had to shelve his ambitious plan to build a 612-meter skyscraper in Moscow's new business district, Moskva-City.

To attract new investors to Moscow's hotel construction sector, the city created the Hotel Company in March. The holding unites Moscow's stakes in 20 hotels, and when the real estate market begins to recover, City Hall will be seeking an investor to acquire 51 percent of the company, which includes 100 percent of Hotel Rossiya.