Guiding Lines: Farewell to Ukraine

The Hotel Ukraine is one of Moscow’s landmark skyscrapers and at the same time one of the leading hotels in the capital. Stars such as Marcello Mastroianni, Robert De Niro, Michel Legrand and Patricia Kaas have stayed there.

Designed by Alexei Mordvinov and Vyacheslav Oltarzhevsky, Russia’s tallest hotel of 206 meters with a 73-meter spire – the highest of Moscow’s skyscrapers – was opened on May 24, 1957.

The 73,200-square-meter development has 929 rooms in which much of the furniture and veneer made of Karelian birch and other natural materials has been preserved. Some suites are adorned with original paintings by Vassily Polenov, Alexander Deineka, Dmitry Nalbandyan and other artists (with a total of more than 1,000 paintings).

The fate of the hotel was decided on August 23, 2005 when the Moscow government decreed on the sale of city hall’s stake in the Hotel Ukraine (Decree No.1620-P).

Investors were slow to respond to the offer, which was announced at the latest Exporeal show in Munich, in October of this year. Foreigners thought the starting price of $157 million was too high, but they were mistaken. On November 23 the hotel was sold for $274 million, i.e. almost double the price.

The price raised a few eyebrows among market players. “Should the announced price of $274 million be true and the money be transferred, that would be the highest amount ever paid for a hotel in Russia,” notes Gerald Gage, a partner at Ernst & Young.

The hotel management, too, believe the price is too high. “Considering that under the new owner the hotel is supposed to undergo major redevelopment and restoration, I think it has been sold a bit too expensively,” says Yelena Yeliseyeva, head of advertising at Ukraine.

But Gerald Gage says it will only be possible to judge whether the price was too high, or too low, when the terms of the deal are made public.

“The world’s best hotels in New York, Paris and London have been sold over the past few years at prices ranging from $700,000 to $1 million per room. Those properties belonged to leading international hotel brands and were remarkable for their professional management and ideal condition,” he notes.

“As regards the Ukraine, where the management fails to meet international standards and redevelopment will require considerable spending, a price of about $300,000 per room seems too high. A comparatively high price may also reflect certain unknown factors concerning the terms of sale. For example, the agreement could envisage the transfer of the title to the land or privileged development rights for new construction on the territory.”

Alexander Lesnik, general director at Hotel Consulting & Development Group, believes that the Ukraine was sold “too expensively”. Lesnik puts the extremely high price down to the buyer’s resolve to refurbish the hotel and achieve higher returns. If that plan fails, the project will take 20 years to pay back.

A plan to develop residential apartments on the hotel premises is seen as viable. “A multifunctional complex pays back much quicker than a hotel proper,” says Marina Usenko, senior vice-president at Jones Lang LaSalle Hotels.

Stanislav Ivashkevich, general director at the Progress Hotels and Restaurants management company, believes that the hotel is not as overpriced as it may at first seem.

“After spending $50-70 million on a general overhaul of the property and upgrading it to a 4-star hotel, and by organizing professional management and maintaining rates comparable to those in other Moscow hotels, the new owners will be able to sell it off at a profit within three years of redevelopment,” Ivashkevich explains.

City hall is quite satisfied with the outcome of the auction. By the end of this year Moscow’s projected revenues from the sale of municipally-owned shares are to reach 4.5 billion rubles, as laid down in the law adopted on June 30, 2005, No.24 “On introducing amendments to the law of the city of Moscow, of Dec. 15, 2004, No.85 ‘On the 2005 budget of Moscow’”.

Revenues from the sale of the Ukraine alone will exceed that figure 1.75 times. Moreover, revenues from the sale of the hotel have already exceeded the total amount of Moscow’s budget revenues from the sale of its stakes in joint stock companies in 2004 by 4.5 times.

Meanwhile, a Vedomosti source in GAO Moskva, the agency in charge of developing the tourist and entertainment infrastructure of Moscow, believes that the speed at which the hotel was sold off is a sign for other investors. If a hotel was sold at a price that high, it means there is someone who needs it.

In the near future city hall is to part with its shares in the hotels Baltschug (69%), Renaissance (51%) and Budapest (30%). This provides food for thought. The fate of all those hotels will largely depend on other shareholders and their willingness to come to terms with each other. The Ukraine’s case is easier, as the hotel will have a single owner.

The question is not even about who bought the hotel. The obscure company Biskvit is a stranger both to city hall and the hotel market. One could spend hours trying to find out which financial and industrial group is behind the firm that won the auction.

Rather, the public is far more concerned about the future of the hotel, once the new landlord takes over. One thing is for sure: the new owner will have to invest a round sum on reconstruction. To all appearances, it will proceed in the ‘on line’ regime, i.e. step by step or floor by floor.

“Today, the occupancy rate at the hotel stands at 100 percent,” says Yeliseyeva. “Travel agencies will not understand us if we close the hotel for reconstruction.”

The first portion of investment money for the new image of the hotel, amounting to $5 million, will be paid to Hotel Service Management (Switzerland) Limited, as a repayment of the Ukraine’s debt to that company for cleaning and renovation of the hotel’s facades several years ago. What comes next will depend on the professionalism of the new owner.

The afore-mentioned mayoral decree No. 1620-P obliges the new owner to redevelop the Ukraine into a four-star hotel in accordance with modern accommodation standards, while its historic appearance is to be preserved.

What will happen to the Ukraine if the new owner fails to complete the restoration work by 2008 is hard to say. Placed under government protection, the building is unlikely to follow the fate of the Moskva, already demolished, or the Rossia, earmarked for dismantling. The Ukraine is a historic and cultural monument.

As to the still life calendar, I am awfully sorry to have lost it. The advertising service at the Ukraine has run out of them already. All that is left is to hope that the new owner will preserve the hotel’s invaluable cultural heritage, as well as its interiors. The Ukraine has been and will remain a landmark hotel of the capital.