When Moscow’s new Ritz-Carlton Hotel opened in July, it brought the city a heady new level of luxury and sophistication. Its Michelin-rated restaurant quickly became a favorite spot for Kremlin bigwigs and business oligarchs to down late-night shots of vodka.
Few doubt the Ritz will fare better than the hotel it replaced. That hotel, the hulking steel and concrete Intourist, was built 37 years ago during the Soviet era. At the time, it was a symbol of foreign luxury and one of the few places in the city that accepted foreign currency. Even though it was centrally located close to Red Square, analysts said Intourist didn’t fare well in the new Russia.
These days, Moscow’s hotel sector is hot: After London and Paris, hotel rooms in Moscow, which average $352 a night, are the third-priciest in Europe, according to a report by Jones Lang LaSalle.
The city will have 70,000 beds online by 2010, yet observers said the market remains undersupplied in every price category. Given these circumstances, one might think development of new hotels would soar, but supply is being restrained.
One factor suppressing new building is the ever-increasing cost of land, which pushes up project costs. Second, Moscow’s commercial market is so tight that many developers prefer to build office towers. Finally, analysts said that getting permits to build hotels requires local contacts.
Thus, despite its cachet and glamour, hotel analysts said the Ritz’s most important asset is that its ownership has solid Russian ties.
While the hotel’s parent company is based near Washington, D.C., Moscow’s Ritz-Carlton is actually owned by Capital Partners, a firm from Kazakhstan that is co-owned by Burak Oymen, from Turkey, and Serzhan Zhumashov, from Kazakhstan, foreign businessmen with strong local connections.
“The Ritz-Carlton Hotel Company came here as managers — that’s what almost everyone does, as to invest in Russian real estate might be very confusing for foreign businessmen,” said Alexander Lesnik, director of the Moscow-based Hotel Consulting and Development Group, a trade association. “Foreign investors want to buy land here (to build hotels), but the market as a whole is still non-transparent.”
“Non-transparent” may be an understatement, some hospitality industry analysts said. They indicate that to launch a new hotel, up to 300 separate permits, from separate bureaucracies, may be needed. To help developers get hotels built, the Moscow city government recently launched a Hotel Development Project. Observers said so far, it hasn’t been working well.
“One of the biggest problems that a foreign investor might face is a difficulty to find here a good, reliable partner. Many investors are being put off by Russian politics and the economy,” said Marina Usenko, senior vice president of Jones Lang LaSalle Hotels in Moscow. “As for American companies wishing to [directly] invest in the hospitality market in Russia, I find it difficult to name even one.”