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. Last Updated: 07/27/2016

Spaniards to Add Posh to Red Square

VedomostiSpanish firms plan to spend $660 million turning this building at Red Square 5 into a luxury hotel and auction house complex.
The Kremlin on Wednesday tapped a Spanish consortium to transform the sprawling building at Red Square 5 into a retail, office and luxury complex, presidential property chief Vladimir Kozhin said.

Kozhin said 38 firms, including "all the big construction companies in Europe," bid in the tender to reconstruct the historic building, which was once seized by Leon Trotsky and his Revolutionary Military Council and recently housed Defense Ministry staff.

The winning consortium includes Spanish construction giant and project contractor Ferrovial, as well as Caja de Madrid, Spain's third-largest bank, said Jorje Segura Martin, general director of Segura Consulting Associated, the organizer of the bid.

Martin said the consortium had secured lines of credit totaling 600 million euros ($660 million) to overhaul the Sredniye Torgoviye Ryady property, which is opposite St. Basil's Cathedral and between trading house GUM and the Hotel Rossiya.

The plan is to double the building's existing 45,000 square meters by adding several underground levels, and to convert the aging structure into an elite compound containing a 300-room five-star deluxe hotel, a 400-room five-star hotel, an auction house and an exchange for trading precious stones. It will also have parking space for 600 vehicles.

The presidential property department, which was created 10 years ago to manage the vast amounts of property confiscated from the Soviet Communist Party, will retain control of 45,000 square meters after the building is gutted and rebuilt, while the Spaniards will own the additional space in the new complex.

Part of the investment contract calls for Segura Consulting to provide 2,500 apartments for military personnel in return for the Defense Ministry vacating the building, which Segura said would cost about $60 million. As a result, he said, the consortium isn't expecting to break even on its investment for 15 years.

"But this project is of great political significance and prestige," Segura said.

Yulia Nikulicheva, senior research analyst with Jones Lang LaSalle, said the long delay for expected returns on the consortium's money was surprising.

In Russia, most people want their projects to pay for themselves in five to eight years, or 10 years at the most, Nikulicheva said.

"This is a prime, prime location," she said. "To be able to put your name on a project like this is very important for such a company."

The building is part of the Kremlin and Red Square World Heritage Site recognized by UNESCO and was built in the 1890s by architect Roman Klein.

However, Alexander Gladyshev, general director of the state-owned enterprise that controls the building, said only the facade is protected by the heritage-site distinction and only permission from Russia's Culture Ministry is needed to redo the interior.

The property department has been trying for years to find a partner willing to put up the money to overhaul Red Square 5.

The apartments requirement for Defense Ministry personnel caused French construction firm Bouygues to abandon the project after winning a tender nearly two years ago, Kozhin said.