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. Last Updated: 07/27/2016

Best Western Signs On to $250M Hotel Plan

MTThe Best Western Neptune in St. Petersburg, which opened in 1994, is currently the chain's only Russian outlet.
U.S. hospitality giant Best Western International has signed a franchise agreement with a local firm that may potentially make Best Western the country's largest hotel chain.

The franchise agreement for Russia and the CIS was signed with the Bonita Group, a Russian company that has extensive construction experience in Kazakhstan, chiefly in infrastructure projects.

Bonita also operates a 14-room, five-star Albion residence hotel in Aktyubinsk, northern Kazakhstan, which was built in 1995.

"This is where our interest in the hospitality industry originated initially, and this is how our understanding of the business began to form," said Nikolai Shekhovtsov, president of the Bonita Group, referring to the Albion.

In 2003, Bonita and Best Western signed a letter of intent to build hotels in Russia. They are about to open their pilot project under the agreement, a 150-room property near Sheremetyevo Airport that Bonita is financing jointly with the Moscow city government. The hotel, which will also feature a 3,300-square-meter Class B office center, is scheduled for an October 2005 opening.

Shekhovtsov said the Sheremetyevo project was part of a larger plan, in which up to $250 million will be invested into building hotels in the next five years. Roughly 30 percent of this sum will come from the company. The remaining 70 percent will be bank financing.

"The idea of developing a Best Western hotel near Sheremetyevo is welcome because there are at the moment only two hotels located there," said Stephane Meyrat, senior consultant at the Hotel Consulting & Development Group.

"Because of its proximity to Sheremetyevo-2 and the absence of competition, Novotel Sheremetyevo enjoys the highest occupancy rate in the city -- between 90 and 100 percent year-round," he added, offering an example of the nature of the market near the airport.

In addition to the Sheremetyevo project, Bonita is negotiating the acquisition of roughly a dozen sites for Best Western hotel development -- two more in Moscow, two in Volgograd, two in St. Petersburg and the Leningrad region, and one each in Samara, Yekaterinburg, Vladimir and the Tver region.

There is currently only one Best Western in the country -- St. Petersburg's 154-room Neptune Best Western, opened in 1994. The 86-room Art Hotel near Moscow's Sokol metro station operated under the Best Western brand until last year, but is now nonbranded.

By comparison, there are 2,220 Best Westerns in the United States, 222 in France, 142 in Germany and 17 in Portugal.

Consisting of more than 4,100 independently owned and operated hotels with some 310,000 rooms in 79 countries, Best Western, originally launched as an informal referral system, is currently the world's largest hotel company operating under a single brand name.

Shekhovtsov said the company was interested both in building new hotels and in refurbishing existing Soviet-era properties. "In 20 years, we would like to have 50,000 hotel rooms," he added.

Best Westerns in Moscow and St. Petersburg will have rack rates of $100 to $120, while regional hotels will charge significantly less, $80 to $90 per night.

In order to spearhead its expansion, Bonita hired a "well-known German firm" to design a hotel prototype.

"Because of its design, it can be easily adjusted for different types of travelers," said Damir Kaftanarov, general director of City Hotel, a Bonita subsidiary overlooking the hotel business. "We can add a business center, a restaurant or a bowling club depending on whether a specific hotel is catering to businesspeople or to tourists."

Bonita's development activity will be concentrated on Russia, with Best Western hotels also built in Kazakhstan and Ukraine.

The Best Western projects are one of a series of ambitious midrange hotel expansion plans announced recently in Russia, with a severe nationwide lack of quality accommodation being a driving force behind them.

For example, late last year Russian Hotels, a company close to metals conglomerate Basic Element, announced plans to invest between $200 million and $250 million into a chain of 20 to 30 midrange hotels and office centers. They would be located chiefly in the Russian regions and CIS capitals, such as Kiev, Tbilisi, Georgia, and Yerevan, Armenia. The company is negotiating with South Africa's Protea Hotels to operate its project in Novosibirsk, scheduled for a 2007 opening.

Also in late 2004, U.S.-based Cendant Corporation, the world's largest lodging franchiser, signed a deal with Hermitage Hospitality to develop 45 midlevel Days Inn hotels in Russia and 14 former Soviet republics over the next five years.

"The Russian hotel market is such that it will welcome any foreign hotel brand, since the brand guarantees a certain quality of service," said Marina Usenko, vice president at Jones Lang LaSalle Hotels. "And the fact that such recognizable brands as Best Western are actively looking at the market is indicative of the market becoming more attractive."