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. Last Updated: 07/27/2016

Metalloinvest Buys Into Hotels

VedomostiMetalloinvest paid $6.6 million for stakes in the Tourist Hotel and the Yuzhnaya Hotel.
The Moscow-based Metalloinvest-Market group has acquired stakes in two hotels in St. Petersburg for $6.6 million as part of its plans to open economy-class hotels in both cities.

The group's subsidiary, Hotel Business City, bought 60 percent of the Yuzhnaya Hotel for 70 million rubles ($2.4 million) and 75 percent of the Tourist Hotel for 122 million rubles at an auction held last week by the St. Petersburg city government, with a starting price of 53 million rubles for each one.

The St. Petersburg administration made the decision to sell its stakes in 11 city hotels for an estimated 4 billion rubles ($137 million) earlier this year.

Metalloinvest-Market general director Konstantin Vachevskikh, co-founder of Hotel Business City, said he was planning to renovate the Yuzhnaya and the Tourist using the company's funds and bank loans, but did not elaborate.

Vachevskikh said Hotel Business City was created three years ago specifically to invest in hotel development in St. Petersburg. In addition to buying stakes in Yuzhnaya and the Tourist, the company is planning to build a 40-room hotel on Vladimirsky Prospekt as well as convert a building on Ulitsa Professora Ivashentseva into a hotel.

The 130-room Yuzhnaya Hotel, located in a pre-Revolutionary building, and the 113-room Tourist Hotel, which opened in 1958, are both economy-class hotels.

"Reconstruction of the Yuzhnaya and the Tourist will take at least $6 million to $8 million for each of them, since it will require room re-planning, including installing a toilet in every room, and replacing the existing engineering network," said Roman Lvov, regional manager for Russia at developer Caspian.

This investment is roughly the same as it would cost to build new economy hotels from scratch, he added.

Vachevskikh said that the Yuzhnaya and the Tourist will keep their Soviet-era names, while the yet-to-be-built hotels will form a chain, the name of which has not yet been chosen.

Hotel Business City also has two pending projects in Moscow -- a 300-room, two-star hotel on Ferganskaya Ulitsa and a 400-room hotel and multiplex on Lyublinskaya Ulitsa. Dates have not been set for either project.

Sergei Kovalyov, managing director of the InterKonsalt consulting company, estimated that each Moscow project would cost $15 million to $20 million to build.

But market experts are skeptical of the company's plans and note that Metalloinvest-Market has yet to prove it is a serious investor.

"They have several plots in Moscow, but it looks like they are at a very early stage," said Alexander Lesnik, general director of the Hotel Consulting & Development Group.

However, he added that the idea of building hotels in Moscow and St. Petersburg is promising.

"Tours that include Moscow and St. Petersburg are the most in demand. Therefore, a hotel chain with unified standards, represented in both cities, could sell quite well," he said.

Metalloinvest-Market specializes in rolled-steel supplies. It has no relation to Metalloinvest Holding, a producer of iron oxide, which owns the Minsk and Tsentralnaya hotels in central Moscow.