Money Growing: A Little Bit of Hospitality

Hotel projects in St. Petersburg obtain preference from the city administration. A builder can count on receiving a land plot under special-purpose designation and on favourable terms. Payment to the budget to be able to develop the plot, as a rule, is 20 to 50 per cent of the market value of the land plot. It is tempting for developers following the principle of "emir and a donkey," formulated by Khodzhi Nasreddin. And it happens that after the state commissioned premises has been completed its functional purpose changes. For example, Lider Group has decided not to include a hotel within the structure of the Lider shopping and office complex on Ploshchad Konstitutsy. Rumba shopping center on Prospekt Stachek by Petromobil-Stroi instead of including a 3* hotel with 110 rooms as planned, offices have appeared. The proprietor has weighed the risks of possessing an average class hotel located in a semi industrial area, and by choosing in favour of a class B business center measuring 5,000 sq.m has rented out the area quickly mostly between several large tenants.

Trial investments

Until the start of this year in St. Petersburg the only multifunctional complex with a high-grade hotel was the Neptune International Business Center, located on the periphery of the historical center at 93a Naberezhnaya Obvodnovo Kanala. Rubin, an affiliated structure of the Rubin Central Design Office of Marine Technology, started to develop the land plot adjoining the Central Clinical Hospital, even before Gorbachev’s perestroika. In 1991 a business center functioned here. In the same building a hotel was placed. In due course the office and hotel blocks were extended, and a fitness center was added to the complex. By 2000 Neptune International Business Center had turned into a completely ‘mixed’ complex. On the area measuring about 24,500 sq.m the investor has combined 6,000 sq.m of class B offices and a hotel with 150 rooms (3* and 4*), which operates under the international Best Western International chain, a health spa complex with a 25-meter pool, bowling, tennis and squash courts (in total about 5,000 sq.m), a restaurant and several bars. And in 2006 on a neighbouring land plot (on the corner of Ulitsa Zvenigorodskaya and Ulitsa Marata), the first phase of Planeta Neptun shopping center with an oceanarium (approximately 28,000 sq.m) opened. Rubin plans to continue construction of the shopping and entertainment component. Rubin’s partner and main investor (its share in the project is 75 per cent) is Adamant holding. Neptune-2 (with an approximate area of 70,000 sq.m) will have a bowling alley with 30 lanes, a multi-storey car park for 1,000 cars and a multiplex with 7-8 screens.

In January 2008 within the structure of the U Rostralnykh Kolonn elite residential complex the 5* SPA hotel Holiday Club Sankt-Petersburg, with 278 rooms and 26 timeshare apartments, has been included. The 7-storey hotel constructed from zero is on Birzhevaya Liniya, near the route to Vasilevsky island. Its proprietor is investment company London Regional Properties which at the beginning of 2006 bought this premises from the developer, St. Petersburg holding Etalon-LenSpetsSMU. The value of the deal was not disclosed. Investments in the creation of the hotel are estimated at 60 million euros. The rights to their management belong to Finland’s SOK Holding. The hotel complex includes a health center with swimming pools, numerous saunas, a fitness club, etc. It is partially located in the reconstructed wine warehouses of the Yeliseyev merchants constructed in the middle of the 19th century.

The multifunctional U Rostralnykh Kolonn complex is on a territory measuring 2.39 hectares, bordered by Volkhovsky and Birezhsky pereulok. The project combines reconstruction and new construction, and is being designed by Evgeny Gerasimov's architectural workshop. The residential and commercial areas, including an underground car park, are located on a total of 44,000 sq.m. A hotel with a spa occupies 27,000 sq.m. In addition to elite apartments there are class A and B offices for rent. They occupy a 4-storey building on Birezhsky pereulok (2,000 sq.m) and the four lower levels in one of the residential buildings (another 1,100 sq.m).

"In the city center, where developers develop land plots measuring several hectares, as a rule, they combine residential, office, hotel and entertainment functions. Large projects develop in 90 per cent of cases as multipurpose premises because of the limitations of the market, which would not be able to absorb the volume of construction at such a speed if it represented simply one function. Investors often allocate 40-50 per cent of a multifunctional complex for the predominant component and largest profitability. Frequently this role is played by residential real estate, and less often by offices,” says Irina Solonova, director of GVA Sawyer in St. Petersburg.

"Hotels within the structure of a multifunctional complex, on the one hand, allows the developer to diversify the risks, and on the other, thanks to more profitable functions allows it to receive rather high profit from the project as a whole," adds Nikolai Kazansky, director of the investment and consulting department at Colliers International Saint-Petersburg.

Pathos center

Mixed projects under design and construction, where hotels are stipulated, are extremely varied. In the center of St. Petersburg there are some interesting projects in which the main accent is on the hotel component.

At the beginning of 2009, according to plans, work will come to an end at 55-59 Nevsky prospekt. The Neva Plaza project involves the expansion of the functioning 5* Corinthia Nevsky Palace into the neighbouring buildings, and will have 282 rooms. The investor and owner of the hotel complex is International Hotel Investment PLC, which was created in 2000 by the Maltese group of companies Corintia for the development of high quality commercial real estate premises in Europe.

On the place of the disassembled emergency constructions adjoining the Corinthia Nevsky Palace, there will be two 8-storey buildings measuring a total of 25,628 sq.m with recreated historical facades. In one of them there will be 104 rooms of representative class, a conference center with a capacity of 1,000 visitors, a banquet hall and a deluxe boutique zone (1,470 sq.m). In the other building on two levels there will be a gallery with 20 elite shops (1,900 sq.m), and on five levels there will be a class A business center (7,730 sq.m). The shopping and office complex will be connected to a multilevel garage with 185 spaces. The architectural design of the multifunctional complex has been developed by international company Aukett Fitzroy Robinson with participation of the Zemtsov, Kondiain & Partners workshop. The general contractor is Enka. The cost of the reconstruction was preliminary estimated at 75 million euros. The final figure will most likely be higher.

"The main goal of a multifunctional complex for a developer, like any other project, is to achieve the shortest recoupment period as possible plus perform some kind of social function for the city. At 55-59 Nevsky prospekt, we will have the largest, 5* hotel in the city hotel, and the other components will become additional generators of demand," believes Andrei Rozov, head of the St. Petersburg representative office of Jones Lang LaSalle (the adviser on the project).

In 2008, Taleon should complete the multifunctional complex on the corner of Nevsky prospekt and Bolshaya Morskaya Ulitsa. Talion already owns the Talion club at 59 Nabereznaya Pekoi Moiki, which includes a 5* hotel with 29 rooms (Taleon Imperial Hotel), a casino with several halls, restaurants, a fitness center, etc. Existing commercial areas currently measure 10,500 sq.m but are supposed to increase to approximately 14,000 sq.m as a result of connecting the complex to the two neighbouring buildings. The investor intends to expand the hotel to 61 rooms, to create a modern conference center with a capacity of 500 people and a boutique gallery, and establish a 25-meter swimming pool on the roof of the 6-storey building 25-meter pool under a glass roof, etc. The approximate sum of investments is $90 million.

St. Petersburg holding Adamant has decided to transform the Moskva hotel on Ploshchad Alexandra Nevskogo into a multifunctional complex. In 2005 Tsentr Investirovaniya, an affiliate of Adamant obtained almost 75 per cent of the assets that belonged to the city. In the court yard of the existing hotel, an additional floor has been added and the hotel now has 825 rooms, and another building measuring 25,000 sq.m is under construction. Besides additional rooms, approximately 8,000 will be allocated for shops, 12,000 sq.m for offices, and space also for a fitness center. Investments in the project are estimated at $40 million. In May 2008 some of the retail areas were already operating. Shortly after a supermarket of the Finnish chain Prisma rented 2,500 sq.m in the Moskva multifunctional complex.

High quality hotels are also planned within the structure of complex, extremely expensive and high status projects in the center of St. Petersburg like Naberezhnoi Evropy or Novoi Gollandy. In the first case it is a question of developing the former territory of the State Institute of Applied Chemistry at 14 prospekt Dobrolyubova (the land plot is 10 hectares and is located on the Petrogradsky side, close to the route to Vasilevsky island). Experts estimate the cost of investments, including transferring the institute and recultivating polluted land, at more than $2 billion. VTB Peterburg City is acting as the investor. VTB Kapital, an affiliated structure of Vneshtorgbank is managing the project. Within the limits of the plan 440,000 sq.m will be constructed on with various purpose. Elite residential real estate will make up roughly 150,000 sq.m, offices 55,000 sq.m, a hotel complex will make up 32,500 sq.m, shops 30,500 sq.m, and a car park 120,000 sq.m. "The best specific site will be allocated for a very high level hotel which will allow to create the brand for the complex. Everyone knows that for the developer habitation is capable of providing the maximum income first of all, followed by offices and hotels and then retail premises. Such a combination of functions is not only profitable, but also does not create superfluous passability, which is important if it is a question of an exclusive premises," comments VTB Kapital. Construction, which has been divided into several phases, is expected to be completed in 2015.

Hospitable suburbs

"A new trend for the St. Petersburg market of hotel services has been the construction of high class quality hotels outside the center,” says Roman Urevich, head of the market research department at Praktis CB. “And such projects within the structure of multipurpose complexes are being realized."

"As independent profitable premises hotels can be constructed in the historical part of the city, near transport links or in recreational zones. If it is a question of construction on the periphery of the historical center or in semi-industrial areas, it is more reasonable to choose in favour of multifunctional complexes," agrees Oleg Gromkov, a senior adviser at Knight Frank St. Petersburg.

A characteristic project of this type is the Clover Plaza project on Ushakovskoi naberezhnaya by Clover Group. The 7.8 hectare site became the property of Leningradsky Severny factory in 2003. According to the concept of British architects from Chapman Taylor by 2011 a complex should be constructed here measuring a total of more than 300,000 sq.m and costing about $0.5 billion. Within its structure will be a class A business center (72,000 sq.m), a shopping and entertainment complex (30,000 sq.m), a residential component (90,000 sq.m), a 4* hotel with 150-180 rooms which will operate under the Holiday Inn brand, an apartment-hotel with 120 rooms, and a multi-storey car park with 2,500 car parking places. According to preliminary figures, approximately 20,000 people will live and work in this territory. In order for the various components of the project not to come into conflict, the investor has allocated three main zones: residential, administrative and shopping and entertainment. There will b separate parking for each and even a bridge across Chyornaya River has been stipulated.

"Adamant, which mostly specializes in the creation of shopping and entertainment complexes, in the last year has begun to construct a multifunctional complex on the crossroads of Pulkovskoye shosse and Danubsky prospekt, on the way out of the city. Initially a shopping center was planned for the 6-hectare site, allocated by the city under investment conditions, however the concept changed after along Pulkovskoye shosse - on the former grounds of the Leto cooperative society - a number of hypermarkets and shopping centers were built. As a result the investor has moved the emphasis to a business center and hotel. Adamant-park multifunctional complex should be ready in 2009. It will consist of several buildings (up to 14 floors), with underground parking for about 600 cars (on an adjoining territory there will be space for a minimum of 400 cars). The complex will have a total area of approximately 127,500 sq.m and was designed by the permanent partner of the holding - architectural studio ADM, Fraifeld, Sedakov. Adamant expects to spend about $200 million on creating it.

The office zone which will have the characteristics of class A premises, will occupy 50,000-60,000 sq.m. A 4* hotel is expected to have 360 rooms. A preliminary agreement on the management of the hotel under the Sheraton brand has been concluded with Starwood. Approximately 5,000 sq.m have been allocated for a fitness center, and the same again for restaurants and a boutique zone. On the top floors of the office buildings there will be specific apartments.

The holding is not against selling the hotel within the structure of Adamant-Park. "Hotels are not our profile business" says vice president of Adamant Alexei Gnesin.

In autumn 2007 near Pulkovo-2 international airport, the construction of multipurpose complex Airportcity St. Petersburg began. On a 6.2-hectare site there will be four class A office buildings (in total more than 90,000 sq.m), a 4* Crown Plaza hotel with 300 rooms, a fitness center, restaurants, a multi-storey car park for 1,000 cars and more. The project will cost about $210 million and is intended to be realized in two phases. The constructer is Avielen AG and the main investor and developer is Austrian holding Warimpex Group.

In the northern suburbs of St. Petersburg, on Prospekt Engelsa, Solomon is developing the site of the former Iskra weaving mill, which it bought in 1997. Now the Grand Canyon complex consists of new (75,000sq.m) and reconstructed buildings connected by transitions and built in one style. Within the ‘mixed’ concept are hypermarkets and numerous shops, a multiplex cinema, Lider entertainment center, Lider Sports fitness club, and also a business center.

On adjoining territory from Suzdalsky prospekt the developer will build a 100,000 sq.m multifunctional complex. It will have 15,000 sq.m of office space, an underground car park for 1,500 cars, a congress-hotel and a large sports center.

In the Bugry settlement, near the ring road, a hotel will be of the Nevsky Kolizei multifunctional complex, which will measure a total of 400,000 sq.m and will be built by Italian company Margheri Group. The ‘mixed’ complex will be located on the former state farm land bought by the investor. At the end of 2007, work on the first phase, measuring about 100,000 sq,m begun. More than 20,000 sq.m here has been allocated for an indoor water center with sandy beaches and its own "sea".

An outlet format shopping complex, with restaurants and cafes will occupy 50,000 sq.m. A further 20,000 sq.m will be occupied by a hotel with 110 rooms and there will also be a business center (3,500 sq.m).