The city’s accommodations may be ill-equipped for the expected flood of guests during the anniversary celebrations – but one hotel sector is hoping to make a killing.

St. Petersburg’s hotels are having a hard time coping with the flood of visitors coming for the city’s 300th anniversary celebrations in May, but a new business is emerging to counter the problem: mini-hotels. In short, mini-hotels are apartments set up and designed to be rented out to tourists.

The city is expecting 12,000-14,000 official guests alone, for whom 14,412 rooms in the city’s top hotels have already been reserved.

"Our hotel is completely booked up from May 23 to June 1," said Yana Lazikina, PR manager at the Grand Hotel Evropa. "Official guests of the president and the city’s governor will be staying at our hotel over this period. We’re getting a lot of requests for rooms during these dates, but we’re forced to refuse, even if they’re our regular customers."

On top of the thousands of individual tourists who plan to come to the St. Petersburg celebrations, more than 500 delegations and tour groups are expected, as well. Rooms are not only booked out at the top-class hotels, but the city’s three- to four-star hotels are also full.

According to Interconsult, a hotel-consulting group, the city faces a shortage of 5,000 rooms in the lower-end category of hotels.

In 2001, St. Petersburg Gov. Vladimir Yakovlev offered 130 pieces of real estate to investors on favorable terms if they promised to build or convert buildings into hotels.

Only 30 of the projects made it through the investment-tenders, and only about 15 projects are likely to be ready in time for the tourist boom.

Yury Lukmanov, a local official for the central district, told The Russia Journal that work was nearing completion at two sites that would probably be ready for the anniversary. He noted that "another 15 projects are at various stages of approval," but failed to provide any more details.

Analysts say that investors have shown little interest in the hotel business because they stand to make bigger profits by investing in the rapidly growing office sector. Moreover, the list of approval required for building a hotel and the red tape that managers usually encounter is seen as a high-risk venture.

The shortage of hotels has led to the emergence of a new business – short-term rental of furnished apartments. Many these mini-hotels are expected to be available for the celebrations.

A one-room apartment costs roughly $30-$50 per day, and the cost of a fully furnished two-bedroom apartment can exceed $200 per day.

Apartment owners are bypassing the bureaucratic hassles by not applying for licenses. The apartment owners do not pay taxes. Moreover, they pay for utilities at the discounted rate for private households.

[A]s well as the official guests, more than 500 various delegations and tour groups are expected in St. Petersburg during the celebrations. Alexei Begunov, director of the company Bekar, said that this sector was growing faster than the traditional hotel sector, and that his agency had had several clients turn to them to help move people out of a building in order to free it up for furnished apartment mini-hotels. Alternately, they have asked Begunov to find them a building that can easily be renovated.

Bigger investors have also begun to move into the sector, buying up several apartments or a whole section of a building. These companies are beginning to provide serviced apartments with chambermaid services.

Many of the bed-and-breakfast places that have sprung up are in former communal apartments. These include B&B Nevsky Prosp., Vesta and St. Isaac’s Square Holiday Apartments. Begunov said it usually takes around six months to turn an empty communal apartment into a five- to 10-room mini-hotel, and it costs from $80,000-$200,000.

He estimates that a small apartment in the historic center of St. Petersburg will pay for itself in three to five years, even quicker this year given the anniversary. After the initial years, owners of mini-hotels are expected to turn an annual profit of 30-40 percent. Various estimates put the number of rooms in these private apartments at 1,000-1,500.

There are, however, no consumer protections. For example, there are no money-back guarantees available to customers. The security in private apartments sometimes leaves much to be desired and most apartment blocks have old, smelly lobbies without elevators.

Private entrepreneurs are stepping in where the government has failed in providing rooms to tourists coming for the city’s grand 300th anniversary celebrations. But it might be too little and too risky a venture for those visiting Russia for the first time.