Update, opinion on Russian fund’s investment strategy

Glorax Capital, one of Russia’s leading direct investment funds owned by Russian businessman Andrew Birzhin, has officially confirmed its recently announced plan to invest up to US$870 million to establish a global hotel owning and operating brand called Glorax.

The new chain will exceed 1,500 rooms, according to Glorax General Director Valentin Tsernush, and initially comprise 10 luxury properties in popular resort markets in Turkey, France, Maldives and Philippines.

Funds for the projects are expected to be partially provided by one of the leading Chinese investment funds and a Swiss bank, both of which remain unnamed.

“We hope for big international tourist flow, which is usually stable in case of high-end hotels in popular world resorts,” Tsernush added,

However, Russian hotel analysts have already expressed their skepticism surrounding the plan. According to Stanislav Ivashkevich, deputy director at CBRE Russia, the project may become unprofitable for investors due to current high level of competition in the global hotel market and the traditional riskiness of owning and operating assets in the luxury segment.

In addition, Ivashkevich said 5-star hotels in recent years have become marginally profitable in many regions of the world, including Turkey, where the well-known Mardan Palace, owned by Russian billionaire Telman Ismailov, has experienced serious losses each year.

Birzhin is not the only Russian investor who has announced intention to invest in hotel developments outside the country. For example, in September, Azimut Hotel Group, owned by Alexander Klyachin, acquired the luxury Augustine hotel in Prague, adding to existing Azimut hotels in Germany and Austria.

Yelena Baturina, one of Russia’s richest women, recently announced her plan to invest funds to develop hotels in the EU. She has stated plans to acquire hotels in Ireland, the UK, Northern Italy, Austria, Germany and the Baltic States. Her portfolio already includes the Morrison in Dublin, the Austrian Grand Tirolia Golf & Ski Resort, the Czech Quisisana Palace, as well as a hotel in Astana, Kazakhstan.

At the same time, Glorax Capital has been operating in the market since the beginning of 2014. Birzhin is a former co-owner of the Tekta company, one of Russia’s largest real estate developers (which portfolio includes more than 1 million sq. m. of housing, mainly in Mosow and the Moscow region). Earlier this year, Birzhin sold the 30% stake in the company to an unnamed party for approximately US$1 billion.

According to plans of Globax Capital, volume of accumulated funds during the next three years should reach US$3 billion. In addition to the development of the new hotel chain, the company’s sphere of interests include IT projects.

Contributed by Eugene Gerden, Moscow