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. Last Updated: 07/27/2016

Sale of Hotel Sovietsky Put in Doubt

MTThe Hotel Sovietsky was bought by Shalva Chigirinsky for $63 million in a sale that may now be challenged in court.
A $63 million deal to buy the iconic Hotel Sovietsky may be in doubt after it emerged last week that the company currently running the hotel has a court order preventing the Moscow City Government from selling the property.

At an auction held by the city's Property Department last Tuesday, a company owned by billionaire developer Shalva Chigirinsky bid 400 million rubles ($15.5 million) over the starting price to beat a sole competitor and scoop the historic property.

At $4,000 per square meter the property, which includes the historic Yar restaurant, had been sold for a "record low price," a source close to the deal said.

But the auction is being challenged by Hotel Sovietsky, the company that has been managing the Leningradsky Prospekt hotel since the 1990s and has been involved in a long-running struggle with the Moscow city government over the firm's right to buy the property.

Six days prior to the auction, the company won an appeal from the Moscow District Arbitration Court to forbid sale of the property. The Hotel Sovietsky management firm is now trying to have the outcome of the auction overturned.

"We want to say that we consider the sale of the hotel to be illegal," the head of the hotel's legal department, Alexei Kulikov, said.

In a copy of the court order from June 13 obtained by The Moscow Times, Judge V. Petrova expressly forbids any attempt by the sales wing of the city's Property Department to hold the auction.

This is the third time that the company has been to court this year to try and stop any sale of the hotel, said Larissa Machugovskaya, Hotel Sovietsky company's deputy director.

Igor Tabakov / MT
An interior view of the Yar restaurant, which was also sold in the auction.
On May 11, the company received a court injunction blocking any potential purchasers from registering with the tax authorities, essentially invalidating any deal for the four-star hotel.

Asked for his reaction to the developments, Ilya Levitov, a spokesman for Chigirinsky, said the company had participated in the auction in good faith.

"This is not a question for us but for the people that held the auction," Levitov said. "If a court rules that the auction was illegal then we will see what happens."

Natalia Bykova, a spokeswoman for the city's property department, said that they had been presented with a copy of the court order on the day of the auction, but had never seen the original.

"Officially, we had to receive the original document and we have not seen this," Bykova said. "We cannot trust a copy."

As far as the property department is concerned, the hotel has now been sold, Bykova said.

"We held the auction and it went properly," she said.

Asked earlier about potential problems with the current tenants, Levitov had said that Chigirinsky's firm is looking to "seek reconciliation" with the hotel management.

Hotel Sovietsky company has a long-term rental agreement until 2018 on the hotel with the city property department and would have to sign a new agreement with any buyer.

Hotel director Valery Maximov was adamant that the 107-room hotel would operate as normal while the dispute rumbles on.

"This is a successful, stable and straightforward business," Maximov said.

Seen as a good example of a commercially viable business in a historical setting, the hotel, which has hosted famous figures from Rasputin and Anton Chekhov to Margaret Thatcher, Nikolai Ceausescu and Chuck Norris, underwent repairs several years ago.

If Chigirinsky does eventually gain control of the property, which is not included in the city's register of historic monuments, Ilya Levitov said that the hotel could undergo reconstruction.

Stanislav Ivashkevich, associate director for hotels at CB Richard Ellis Noble Gibbons, said that the hotel needed to be renovated and had the potential to become a "good four- or five-star hotel."

Ivashkevich also said that Chigirinsky had paid a fair price for the property. He added that the deal made sense for Chigirinsky as he is developing a 700-room hotel on a plot neighboring the Hotel Sovietsky.

"That would be a convenient hotel complex," Ivashkevich said.