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. Last Updated: 07/27/2016

City Hall Set to Triple Hotel Capacity

For MTThe Golden Ring stand at MIPIM. The plan includes the construction of several hotels.
CANNES, France -- By 2010, Moscow City Hall is planning to triple hotel capacity in the city in order to meet the estimated goal of 5 million visitors annually, Deputy Mayor Iosif Ordzhonikidze said at the International Exhibition of Property Market Professionals, or MIPIM, earlier this month.

These ambitious plans are part of the city's mammoth task of creating the so-called Golden Ring of Moscow -- a "tourist and recreation zone" surrounding the Kremlin.

The Golden Ring involves the creation of several pedestrian zones, reconstruction of numerous historic buildings and construction of underground parking facilities, as well as building several hotels.

"This is the most comprehensive construction project that has ever been developed in Moscow," Ordzhonikidze said, noting that of the 78 projects presented over the last decade by City Hall at Cannes' MIPIM, all of them had been realized.

Altogether there are some 200 different projects that form the Golden Ring. The largest and most ambitious one is the Golden Island project -- the complete redevelopment of a 40-hectare plot of land on the island opposite the Kremlin.

The reconstruction of some 1.1 million square meters' worth of properties situated on the island will require some $1.7 billion, said Yury Gusev, president of KRT group, the developer of the project.

"This is one of the most large-scale and investor-friendly projects ever developed in Moscow," he said.

Indeed, the Golden Island, located between the Bolshoi Kamenny and Moskvoretsky bridges and the recently erected Peter the Great monument, envisages construction of elite housing, class A offices, hotels, shopping centers, restaurants and a 34,000-square-meter, two-level parking lot for 1,000 cars located under the Vodootvodny channel.

The projects are meant to make Moscow more attractive to tourists. Last year 2.5 million foreign visitors came to Moscow, and the city wants to double this figure by 2010. And by 2015 Moscow is aiming to receive 10 million tourists annually, Ordzhonikidze said.

But, experts say, the goal of attracting 5 million tourists by 2010, developed by the city's committee of tourism in 2000, is unrealistic and based on inflated figures.

"The number of visitors in 2010 stems from the optimistic forecast of tourism development. It was determined on the basis that Moscow would host a large world event such as the Olympiad, soccer's World Cup or other world championships," said Stephane Meyrat, senior consultant with the Hotel Consulting & Development group.

In order to meet their tourism goals, the city is planning to radically increase hotel capacity on the "build them and they'll come" assumption. In addition to some 64,000 beds currently available in Moscow, City Hall is going to add roughly 130,000 new ones in the next few years.

"By 2010 we must have 200,000 beds in the city," Ordzhonikidze said.

"It is a good goal if you see a potential of growth in tourism. But without the relaxation of visa restrictions, such an influx is unlikely, and you'll mostly see group travelers in the city," said Robert Stoddard, hotel development director at Colliers International.

Andrei Krivoshein, president of GAO Moskva, the city-owned company that manages Moscow's stakes in several Soviet-era hotels, says that the goal of tripling hotel capacity in the city will require "as much as 500 hectares of free land."

Yet it remains unclear how the city is planning to go about its ambitious plans, as City Hall is not planning to invest in the construction of new hotels and will not provide any guarantees to outside investors.

"The municipal government has in mind to give land parcels belonging to the city to develop hotels. The plots of land remain property of the city and are leased for a long period of time to an outside investor or developer," Hotel Consulting & Development's Meyrat said.

"The government will just allocate plots of land and take money for processing the paperwork such as building permits," he added.

Meyrat said 18 plots in the city center and an additional 169 all around Moscow were set aside for future hotel construction. However, not many of them are attractive for hotel development.

"Only a dozen or so of those sites are appropriate for hotel development," Colliers International's Stoddard said.

"Designating specific sites by the city is almost like the planned economy. Investors need more liberty in deciding where to build hotels," he added.

But it is also the attractiveness of other real estate sectors that has so far been slowing the development of hotels.

"Of course, hotel construction could never catch up with construction of elite housing," Ordzhonikidze admitted.

Still, the city has said it will allocate small -- just 0.4 hectare -- plots of land in the center for hotel construction, while continuing to encourage reconstruction and expansion of large Soviet-era hotels such as the Moskva.

The 84,000-square-meter Moskva Hotel, which closed down in 2003, will more than double its floor space -- to 200,000 square meters -- after its "reconstruction," or rather its complete demolition and a rebuilding of its replica.

The Kievskaya Hotel, which is currently 8,000 square meters, will become 30,000 square meters after its redesign. Similarly, the 337-room Minsk Hotel on Tverskaya Ulitsa is going to increase its capacity after the Soviet building is reconstructed. Work is expected to begin on the Minsk in April.

New floors will be added to large hotel complexes built in the 1950s and 1960s, for example the Altai Hotel, Ordzhonikidze said.