Why Italys Domina Hotel Group is hot on Russia

3 Oct '08
Italian chain Domina Hotel Group (DHG) intends to invest in Russia $217.3m by 2010 and $724.2m within five years. Overall, DHGs co-owner Ernesto Preatoni has plans to inject around $3bn into Russias real estate including construction of four or five shopping malls and several residential complexes in Russian cities.

DHGs plans for Russia

DHG runs 36 hotels in 13 countries of Europe and the Middle East. According to Vladimir Maslov, whose firm, Albergo, is searching sites for hotels, DHG is to commission five three- to four-star hotels with 1,000 rooms in total by 2010. Hotels will be set up in Kaliningrad (170 rooms),
Lipetzk (180 rooms), Novosibirsk (225 rooms), Tomsk (100 rooms) and Tyumen (171 rooms).
Six months ago Domina Hotel Groups VP Fran?ois Droulers said that in the near five years the company intended to construct 20 hotels for 3,500 rooms in Russia. Investment is set to be around $725m and most hotels will be located in West Siberia, Mr. Maslov explained.

More than just hotels

At the same time another developing firm managed by Mr. Preatoni, Pro Kapital (an investor in real estate in the Baltic countries since 1998) is to build in Russia four to five shopping malls and several residential complexes. All in all, this Italian businessman looks set to invest $3bn in Russias real estate, RealEstate.ru portal reports.

Cooking from scratch

The Italian hotel operator will build its business from scratch, sources in the company say, erecting its own hotels instead of managing existing ones. Some analysts believe this strategy will help DHG catch up with its competitors that stepped into the Russian market a few years earlier, i.e. practically all global hotel operators.

Purchase or lease of ready-made hotels is a common practice. DHG follows this pattern in other countries where it operates, and so do its rivals in Russia like Rezidor SAS, Marriott and Hilton. However, analysts report that now the situation in the construction market is more volatile which is making developers are more wary about building new properties.

Kommersant has written that one of the issues worrying local developers is that construction loans are getting more expensive. But DHG hotels are self-financed, which should make them less expensive to build than projects using todays higher interest loans.

According to Knight Frank, major Russian cities outside of Moscow and St. Petersburg currently face deficit of hotels: Kaliningrad has 4.73 rooms per 1,000 people; Ekaterinburg and Novosibirsk have 3.76 and 0.86 respectively. In large European cities the rate is 10-15 rooms.

But the market is heating up, with many international chains looking to expand in Russia. The Nizhny Novgorod region, for example, has more than a dozen new three to five star hotels in the planning stages and Novosibirsk is also experiencing a hotel boom. Even in smaller cities, like Voronezh and Rostov, global players are setting up shop.

Its not all bread and roses. Some developers, faced with escalating interest rates, are giving up and selling their holdings for less than what they paid for them. For DHG, with its stable financial situation, its an opportunity to find quality sites at bargain prices to realize their dreams.

For reference:

Domina Hotel Group is an international chain of Domina hotels run by A. S. Pro Kapital Grupp. It was founded in 2000. It is continuing to expand its chain in Europe and Africa and in 2007 it entered the Indian market. 2007 revenue came in at $93.7m.

Pro Kapital Grupp is a corporation which has operated in real estate development and management since 1995. Registered in Milan, it includes, apart from Domina Hotel, Pro Kapital, Domina Vacanze S.p.A, Domina Travel, Domina Time Share and Domina Business. The group owns 40 hotels (4,500 rooms) in 15 cities of Europe and Africa. Pro Kapital Grupps assets are worth a total of $1.4bn, according to the companys own estimates.

Svetlana Zabalueva, Senior Journalist
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