Katerina-City, one of two hotels managed by UMACO, is an example of succesful business which will hopefully encourage other Russian companies. Yulia Vasilyeva, Katerina-City's General manager told The Russia Journal about experience of the first Russian hotel chain and market prospectives.

First of all, the market has seen a rise. Second, the owners of commercial real estate who are specializing in hotels are coming to understand that professionalism is essential for effective management of their property. Many of them come not to prefer Western managing companies, which charge quite much for their services, but the Russian ones. UMACO, for example, has a vast experience in running projects in the sphere of commercial real estate, which allows the company to compete with Western management companies. As things stand today, UMACO is managing two hotels of the Katerina chain: the Katerina-City and Katerina Iris Congress Hotel. In the near future, the chain will be joined by a hotel located on the Black Sea coast.

First of all, the market is still rather modest in size, though it is growing at a noticeable pace in Moscow and other large cities of Russia. Operational loading of hotels tends to increase which is caused by the growing interest in Russia on the part of Western businessmen and the efforts of the hotel managers who are trying to boost the quality and variety of service. Another trend concerns the ethnic lineup of hotel customers – the percentage of Russian citizens is increaseing. Finally, investors are getting increasingly interested in the industry.

It is hardly possible to consider the hotel sector separately from the general situation with investment climate in Russia. There are many factors that discourage Western investors from putting money into the construction of new hotels and development of existing ones in Russia, first and foremost the issue of owner's rights and the right to own the plot of land. As before, investors, both foreign and domestic, suffer from overbureaucratization. We have calculated that, in Moscow, for example, one needs to obtain 367 different licenses and permissions to start building a hotel.

Apart from "Katerina-City" which began to operate on the full scale as of January 2000, not a single three-star hotel was commissioned in Moscow in the last 10 years. The few hotels which currently operate in Moscow and can be classified as three-star are technologically degraded, to say the least. We have experience, and we have the right to state that it is precisely the segment of three- to four-star hotels that is the most promising one at this point. Average occupancy of Katerina City is above 70 percent, while the average figure for Moscow hotels is not more than 59 percent. This indicates that hotels of this class are attractive for mass consumers. Also, our experience indicates that medium-end hotels may be fairly efficient from the economic viewpoint, i.e., profit making.

UMACO experts have calculated that an average suite in a three- to -four-star hotels costs $60,000 to build. Therefore, it will pay back in four to five years, which must be quite attractive for investors.

Performance indicators of "Katerina" in the first quarter of 2002:

Occupancy: 74 percent
Revenue: $1,092,766
Katerina average rate: $137.9
Business tourists (arriving via travel agencies): 10 percent of the total

Plans for the future: To establish a commercially-effective national hotel chain with international-class service and common brand – Katerina.