Ronald Lauder, a scion of the Estée Lauder cosmetics empire, is to forge a $2bn venture with the Moscow city government to manage and revamp the capital’s hotel business in time for Russia’s hosting of the Winter Olympics in 2014.
The deal, expected to be announced on Wednesday, will see Mr Lauder’s recently created Russia Real Estate Fund take a 51 per cent stake in the venture to manage the city government’s stakes in dozens of hotels across the city, including the Rossiya and Moskva hotels on Red Square, in return for investing 31.7bn roubles ($1.1bn) into the company. The Moscow city government is to take a 49 per cent stake.
As Russia and the US aim to “reset” political ties after years of chilly relations, Mr Lauder said he hoped the deal would pave the way for greater US direct investment in the country. “There have been times when it has been very difficult for US companies to do business in Russia. I want this project to be an example of what can be done,” Mr Lauder told the Financial Times.
The venture aims to bring in the best international management expertise to upgrade the city’s hotels in order to cope with an expected influx of tourists when Russia’s southern city of Sochi hosts the Winter Olympics in 2014. The venture will also seek to upgrade tourist infrastructure and transport across the city.
“At the moment the city is booked up even during a VTB [the trade bank] investment conference, let alone the Olympic games when huge flows of tourists are expected,” said a person familiar with the matter, referring to the state-controlled bank that faced problems when it hosted hundreds of foreign investors at a conference this autumn. “Lauder is being brought in to help a capital of the world look like a capital of the world.”
Moscow is well known for its glitzy luxurious hotels such as the Ritz Carlton on the city main thoroughfare Tverskaya, but suffers from a distinct lack of cheaper budget hotels in the two and three star range, while those that do exist are extremely down at heel. The venture is expected to manage the 13-hectare Rossiya hotel complex, the five star 1500-roomed Moskva, the Renaissance, and the Metropol, all in central Moscow, as well as lower grade institutions.
Mr Lauder, who stepped down from the board of Estée Lauder this summer and is a frequent visitor to Moscow, is understood to have been selected for the project because of his lack of affiliation to the hotel business – and is seek out the best management and infrastructure companies.
The Moscow city government could not be reached for comment late on Tuesday. Mr Lauder’s ultimate holding in the venture will be determined by the number of other investors – US, European and Russian – that could enter his real estate fund.