Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

City Takes Big Step to Refurbish Moskva Hotel

After searching unsuccessfully for more than a year for an investor to refurbish the downtown Moskva hotel, the city government has decided to convert it into an open joint-stock company.

Selling the hotel as a company rather than as a piece of property would certainly make it more marketable as it would give the investor more flexibility, real estate experts said.

"It is more simple to transfer a company than all the rights to land and property," said Gerald Gaige, head of real estate consulting for Arthur Andersen in Russia.

The decision to turn the Moskva hotel into a joint-stock company, made earlier this month, was reached because the yearlong hunt for a party to reconstruct the dilapidated hotel had borne no fruit, said Boris Yevseyev, Moskva's deputy general director for construction.

The reconstruction plan, which called for a total investment of $250 million over two years, envisaged the transformation of a 100,000-square-meter Soviet-style complex into a modern five-star hotel boasting 700 rooms, a conference hall seating 1,500 people and a winter garden complete with fountains, Yevseyev said.

"The existing plan for the building will allow us to create rooms of sufficient size for a five-star hotel," he said.

Yevseyev would not say how many rooms the Moskva currently has in use, saying some of them had been closed off for several months because of their dilapidated condition.

Currently a single room can be had for as little as 500 rubles, and most guests come from former Soviet republics.

So far no "serious investor with money" has been found to fund the reconstruction plan, Yevseyev said.

The hotel, which overlooks Manezh Square, Teatralnaya Ploshchad and the State Duma building, consists of two parts, one built in 1937 and the other in 1978.

The sale of the Moskva hotel will be an important step in the city's new ambitious strategy to turn its government-owned hotels into private businesses, said Boris Averyanov, deputy head of the City Hall office overseeing hotels.

"Hotels remain the only industry in the city that are both owned and managed by the state," he said.

Moscow's 179 hotels brought in 3 billion rubles last year f more than half of the revenues earned by all hotels across Russia. The city government wholly owns 18 of the city's hotels and holds stakes in 15 others.

Moscow's pilot hotel project is the Belgrad Hotel, which is scheduled to hit the auction block May 18. The starting price for the 100 percent stake is $17 million.

The Belgrad sale will likely be followed by the tenders for the Moskva, the Intourist hotel on Tverskaya Ulitsa, the Pekin hotel near Mayakovskaya metro station and the Ukraina hotel on Kutuzovsky Prospekt.

The city has so far had "only limited success" in its efforts to sell off hotels, Gaige of Arthur Andersen said.

But he added that placing a hotel like Moskva into a joint-stock company f rather than trying to sell it as property f could boost the city's chances of attracting investors by easing the administrative burden of the transfer process and creating greater flexibility for tax planning.

"The city is probably progressing along a strategy that could increase the marketability of its hotels," he said.

Until recently, the city government had been wary of offering large stakes in the hotels it owned to investors, one reason being its fear that many of its properties were undervalued. Likewise, international hotel chains preferred to operate in Moscow as managers, not owners, of hotels.

There is a total of 15 four- and five-star hotels in Moscow run as joint ventures between the city and foreign companies, but the portion of foreign investment in those hotels is still "quite insignificant," Averyanov said.

But now the time had come for a more full-fledged involvement on the part of foreign investors, Averyanov said.

"Investors should step in now [despite the economic slump] in order to be well prepared for the economic stabilization that is inevitable in two or three years," he said.

"The city's standpoint is that it needs attract full-fledged investment rather than only management for its hotels f the risks should be split in half," he said.