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. Last Updated: 07/27/2016

Katerina Emerges as Russia's First Hotel Brand

For MTConstruction of the Katerina-Alpik complex at the Krasnaya Polyana ski resort. The first stage of the project will open this summer.
The emergence of a Russian hotel brand has been anticipated by market watchers over the last few years. With the completion of its hotel complex in greater Sochi, Katerina looks set to be the first hotel chain to claim this title and will boost the region's tourism industry in the process.

The Universal Management and Consulting Company, or UMACO, is planning a regional expansion of its Katerina hotels all over Russia and not just in Sochi. But Katerina-Alpik at the Krasnaya Polyana ski resort -- a favorite destination of President Vladimir Putin -- is the project closest to completion.

Described as an "apart-hotel" complex, the 15 million euro project consists of nine buildings in "Alpine" style with 93 apartments, ranging from 56 square meters to 265.5 square meters in size. In addition it will have swimming pools, saunas, a fitness center, a children's playground, a conference hall, a restaurant and underground parking.

The first stage of the 2-hectare development will be opened in June or July, while the entire complex should be completed by early 2005.

Apart-hotel is a scheme being pioneered by UMACO in Russia. Unlike time-share, when clients are owners for only a specific number of days per year, buyers of apartments in apart-hotels become the unconditional owners year-round. The owners can also sign an agreement with the managing company, allowing it to rent out their apartments in their absence.

The building was financed by a "group of private investors" and a "large Russian bank" that has a controlling stake in the project, said Roman Nakashidze, spokesman for UMACO.

UMACO has another Krasnaya Polyana development: the 25 million euro, 3.1-hectare Katerina-Residence apart-hotel, scheduled for a late 2005 opening. It will consist of three buildings with 174 apartments, five restaurants, swimming pools and saunas, a bowling alley, and stores.

The group also manages the Soviet-era Moskva and Chaika hotels in Sochi. The Chaika, located at the very center of Sochi, is to be converted into a modern business center with Class A office space and shopping.

UMACO's first hotel project -- the 30-room Katerina-City hotel in a 19th-century mansion in central Moscow -- opened in February 1998. In January 2000, an additional 89 rooms were added in the neighboring building. Reaching almost an 80 percent occupancy last year, Katerina-City is considered to be one of the few quality mid-range hotels currently operating in the city.

Overall, in terms of the cost of land in Russia, the greater Sochi area can be rivaled only by Moscow and St. Petersburg. In recent years, it has attracted significant investment from the country's largest companies. For example, Gazprom's Lazurnaya company manages two hotels in Sochi and the Peak Hotel at the Krasnaya Polyana resort.

"Demand for elite housing in Krasnaya Polyana is very strong and will continue to grow, because Russians also need some kind of Riviera like Portofino, Cannes, Nice and St. Tropez," said Stephane Meyrat, the senior consultant at the Moscow-based Hotel Consulting & Development group.

If in 1998-1999 the price of a Russian sotka, or 0.01 hectares of land, in Krasnaya Polyana was between $500 and $1,000, it can now reach as much as $14,000, said UMACO's Nakashidze. Apartment prices in the Katerina-Alpik start at 2,300 euros ($2,800) per square meter, he added.

But while it is generally agreed that Katerina's status as the first Russian hotel brand will be confirmed with the opening of its Krasnaya Polyana resorts, Meyrat warned that UMACO might face some difficulties. He said that the apart-hotel concept of entrusting a bought apartment to a management company might not catch on immediately, and could even create legal problems.

"I doubt that wealthy Russians would feel at ease in entrusting their apartments in their absence to a management company just to get more money from rental proceeds," he said.

Russian consumer behavior may not mirror that of Americans or the British, whose consumer rights are protected by more vigorous legislation, he said.

But Vladimir Yefimov, president of UMACO, said that 14 apartments in Katerina-Alpik have already been sold.

"As many as 10 of them have been bought for investment purposes to be rented out later," he added.

Other potential setbacks include the state of greater Sochi's infrastructure and its unattractiveness to foreign tourists and investors.

"One of the weaknesses of Sochi is that it is a purely Russian resort," said Alexis Delaroff, general manager of the Novotel Moscow Center Hotel.

Although not currently interested in Russia's resorts, international hotel chain Novotel is attracted by the potential business opportunities in the south of the country. It has said it will begin construction of a 150-room hotel in the Black Sea port of Novorossiisk later this year, where southern Russia's biggest oil terminal is located.

Numerous steps are being undertaken to tackle Sochi's negative image, including construction of a new international airport to be completed in 2005, and a new road connecting Krasnaya Polyana with the coast will be opened by the end of this year.