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. Last Updated: 07/27/2016

Hotel Chain Set for the Regions

For MTA Protea Hotel in Johannesburg. Protea will enter the Russian market in September.
Russian Hotels, a new company launched late last year, has announced ambitious plans for a chain of four-star hotels and office centers all over Russia and the CIS.

Investing between $200 million and $250 million in the project, Russian Hotels wants to create a portfolio of 20 to 30 new or renovated buildings over the next three to five years -- chiefly in the Russian regions and in CIS capitals such as Kiev, Tbililsi, Yerevan, Dushanbe and Baku.

Some of the project's financing will come from metals conglomerate Basic Element. David Giovanis, a director of Basic Element, said Russian Hotels was not a subsidiary of the company but was "close to BasEl."

"Land in Moscow is very expensive, and from a business standpoint, it makes sense to build upscale hotels on this land," said Stanislav Kapinos, general director at Russian Hotels. "But with all the projects already announced for Moscow, the market may soon be close to saturation."

Kapinos added that growing business tourism and strong economic growth in the Russian regions, coupled with "an almost complete lack of tourism infrastructure," makes them very attractive for hotel developments that "answer modern European criteria."

"We are aiming to occupy an unfilled niche, as there is unfulfilled demand for our services in the regions," he added.

Yelena Guryanova, spokeswoman for Russian Hotels, said the company is currently considering acquiring existing hotels in Irkutsk, Nizhny Novgorod and Krasnoyarsk, as well as investing in new projects in Krasnodar and Yekaterinburg, but stressed that negotiations were still at very early stages.

Earlier this month, Russian Hotels agreed to invest $10 million to $12 million in the construction of a 12,000-square-meter office center in central Tbilisi.

The company is also about to begin construction of a 12,000-square-meter, 150- to 200-room hotel in Novosibirsk. The project, estimated to cost between $10 million and $12 million, is scheduled for completion in 2007.

Guryanova said that Russian Hotels and Novosibirsk City Hall have agreed on the site of a future mid-range hotel on Ulitsa Chaplygina in the center of the city, but added that it was difficult to say when construction of the project might get underway, as the land has not been officially allocated and the architectural concept has yet to be decided.

South Africa's Protea Hotels chain will be operating the hotel once it is completed. Protea will enter the Russian market in September, when it is scheduled to open its first, 136-room hotel in Yekaterinburg, Sergei Ermilov, Protea's representative in Russia said.

The management contract with Russia Hotels is likely to signed at some point in the next two to three months, he added.

Stephane Meyrat, senior consultant at Hotel Consulting & Development Group, said that while in theory Russian regional cities look like desirable expansion destinations, in practice many of them do not generate enough demand to make an international-standard hotel profitable.

"Fine, you need hotels in many cities, but how do you get to them? Lack of tourism infrastructure is a double-edged sword," he said, adding that lack of frequent flights or good roads to many regional cities will translate into low occupancies and longer payback periods.

"The cities picked by Russian Hotels [for their regional development] make sense, but they need to assess the demand and the location of the proposed hotels to guarantee that the projects become economically feasible," he added.