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. Last Updated: 07/27/2016

Ukraina Sold to Obscure Firm for $274M

Itar-TassA representative of Biskvit, the winning firm, bidding at Wednesday's auction.
The Ukraina Hotel, a Stalin-era landmark on the city's skyline, fetched $274 million from an obscure bidder at auction on Wednesday, beating expectations and underscoring Moscow's image as one of the most attractive -- and opaque -- hotel markets in the world.

A little-known company, OOO Biskvit, now has until Dec. 10 to pay the 7.881 billion rubles to acquire the 1,000-room hotel following a 10-minute bidding battle at City Hall's auction house. The final price was 80 percent above the starting price of 4.361 billion rubles ($151 million).

God Nisanov, general director of Biskvit, denied that the company was a front for a secret bidder, Interfax reported. "No one stands behind it," he said.

Interfax, however, suggested that the owners of the Grand shopping center on Leningradskoye Shosse were behind the winning bid.

After the auction, Deputy Mayor Iosif Ordzhonikidze told reporters that Biskvit -- Russian for sponge cake -- did not run any hotels in the capital, though he had no other information about the company.

A July article in Pravda's online edition mentioned a "young, talented" businessman named God Nisanov from Azerbaijan. The paper reported that Nisanov had come to Moscow in the late 1990s, where he finished building Europe's largest car dealership in 2004 and was now constructing a major mall.

City Hall did not supply a list of bidders, and during the auction they were referred to by an allocated number. Reporters were allowed to follow the auction only by closed-circuit television from a separate room.

Interfax reported that entities representing Vladimir Yevtushenkov's conglomerate Sistema and Mikhail Gutseriyev's oil company Russneft took part in the auction.

Ligastroiproyekt, the developer of the Moskva Hotel, made the penultimate bid, the news agency said.

First Deputy Mayor Yury Roslyak said the auction exceeded his expectations of $250 million. He said that both the name of the hotel and its 1955 facade would be preserved.

Roslyak dodged a question as to whether the company would be obliged to follow the city's earlier plan to turn the Ukraina into a four-star hotel -- a plan for which City Hall failed to find an investor.

Stephane Meyrat, associate director for hotels at Colliers International, said a bid proposal he worked on anticipated the hotel would sell for close to its starting price of $150 million. Even at that level, he said it would have been difficult to make a return on the investment.

Igor Tabakov / MT

A view of the Ukraina Hotel, one of Moscow's seven Stalin-era skyscrapers.

Meyrat said it was "very likely" that a Western operator would be hired to run the hotel after the buyer had gambled by paying so much for the property.

"You are reducing your risk by taking on a qualified operator," he said.

The high price will force the Ukraina to introduce a much more aggressive pricing policy, Meyrat said, depriving the downtown area of one more affordable hotel. Other affordable, centrally located Soviet-era hotels like the Moskva and the Rossiya are also being redeveloped as luxury properties.

Meyrat estimated the cost of renovation at up to $70 million.

Scott Antel, head of the hotel and leisure practice at law firm DLA Piper Rudnick Gray Cary, said that the investment per room could end up being more than double the average for a five-star property built from scratch.

Antel said the Ukraina would have to charge extremely high rates -- upward of $400 per night -- if it hoped to make the money back in 10 to 12 years, a relatively long time frame in the hotel business.

Antel said, however, that the new owner could still see a return on its investment. "Luxury sells in this market, and at the high end there don't seem to be any limits," he said.

Marina Usenko, vice president of Jones Lang LaSalle Hotels, said that the high bidding price could have a positive effect the city's hotel market.

"It reinforces Moscow as one of the most interesting markets in the world," she said.

Staff Writer Anastasiya Lebedev contributed to this report.