Five years ago, on February 23, 2014, the closing ceremony of the Winter Olympics took place at the Fisht stadium in Sochi, the total cost of preparation for which exceeded 1 trillion rubles. The Russian authorities had special views on the capital of the Games of 2014: they hoped that the former All-Union health resort would turn into a modern resort, attractive for investments. But the reality turned out to be different: in the foreseeable future, not only those who built the sports infrastructure, but also hotel developers, whose costs, in theory, should pay off more quickly, will not be able to return investments. The reason is also in the dependence of the resort on the seasonal factor and the lack of growth in tourist traffic.
No one managed to earn
Neither the authorities, nor developers with experts, even five years after the Sochi Olympics, can come to a common denominator of the cost estimates for its preparation. According to the Accounts Chamber, the construction of Olympic facilities took 324.9 billion rubles. But in this amount, the auditors did not include the cost of transport infrastructure, including roads and high-speed rail links. One of the interlocutors of “Kommersant” from among the former officials who are familiar with the cost structure of preparations for the 2014 Winter Games, speaks about the amount of about 900 billion rubles. He insists that this figure was called at various meetings, including those held in the federal government after the end of the Games. “Some experts, attracted by officials, called the amount and 1.5 trillion rubles, which went to prepare for the Olympics, which is called, turnkey. This is not only money from budgets of different levels, but also funds from monopolies and private investors, ”said another former official who is familiar with the situation.
Another former Olympian, a former employee of the state corporation Olympstroy (supervised the construction of sports and infrastructure facilities in Sochi and was eliminated after the Games were completed), recalls: “The task was to show that holding the Winter Games in summer Sochi is not just an ambition, but also a business project. Therefore, there are such "floating" numbers in terms of investment. If it was necessary to show the effectiveness of investments of budget funds, then we appealed to the data of the Accounts Chamber, if they wanted to show the scale of the project, then a magic figure of 1.5 trillion rubles appeared. ” He explains the difference in ratings also by the fact that projects appeared in Sochi almost from scratch that were not originally on the Olympic list. “So, in Krasnaya Polyana, where a whole ski cluster was created in a short time, it was necessary to create a special fortification from landslides, which was not in the original version. This happened due to the fact that they did not study the soil thoroughly before the start of construction, ”the“ Kommersant ”source cites an example.
As a result, no one has yet managed to make money on the Sochi Olympics - neither the budget, nor state-owned companies, nor private investors. For example, according to the Accounts Chamber, the revenue of the Sochi 2014 Organizing Committee amounted to 85.4 billion rubles. And according to the statements of the International Olympic Committee (IOC), the operating profit from holding the Games in Sochi was 3.25 billion rubles.
One of the Kommersant interlocutors from among the auditors who advised Olympic investors said that many companies had a return on sales of 3.8%, while the return on investment at the height of the Games was only 1%. "Based on the last figure, it is obvious that now the return on investment capital is a fraction of a percent," the source noted, adding that this leads to a serious increase in payback periods.
The general director of the Rosa Khutor resort built for the Games (investor - Interros) Sergey Bachin has an explanation for this: “At the very beginning, when the preparations for the Olympiad had just begun, two components were mistakenly included in a single project - the costs on infrastructure and commercial facilities. " If both factors are taken into account, the payback of Rosa Khutor is more than 20 years, and if only the commercial part (hotels, restaurants, lifts, etc.), then this period would be reduced to 12–15 years, which is observed on similar resorts in Europe and the United States, said Mr. Bachin.
From private to VEB
Formally, most of the funds invested in Sochi are private. But in fact, many investments of investors were provided by credit lines of state structures.
In January 2014, the then head of VEB, Vladimir Dmitriev, stated that the total amount of funding allocated by the state corporation for the Olympic venues was 240 billion rubles. According to current estimates, VEB accounts for 15% of total investments in Olympic projects, says a Kommersant source close to the state corporation. The largest projects, including the ski resorts “Rosa Khutor”, “Krasnaya Polyana”, the entertainment center “Sochi Park”, accounted for about 190 billion rubles. VEB loans. It clarifies that its Olympic investments accounted for only about 10% of the total loan portfolio and reserves were created for these funds.
VEB credited the construction of 17 Olympic facilities, currently loans to 12 sites have been restructured, the Kommersant source notes. At the end of 2017, VEB made a proposal to extend the maturity of loans until 2051 and extend the cash sweep mechanism to pay interest (when all free cash flow goes towards early fulfillment of obligations) until 2031. The reason was the risk of default on loans from Rosa Khutor and Krasnaya Polyana (see “Kommersant” of December 7, 2017).
The interlocutor of “Kommersant” clarifies that for a number of projects for which a revision of the loan agreement was originally envisaged, no restructuring was needed. For example, the airport of Sochi refused from this, and the developer "Sochi Plaza" found a co-investor.
In preparation for the Games for VEB loans, the source said to “Kommersant”, up to 22% of the rooms of the total hotel fund currently existing in Sochi were built. According to estimates by Cushman & Wakefield, for the Olympics, 22 thousand numbers were put into operation out of 57 thousand then existing in the city. Currently, branded hotels in 5,000 of such rooms are operating in Sochi, 90% of them were opened in 2013–2014, said Tatyana Weller, head of the hotel business department at JLL.
Do not count on growth
After the Olympics, the main indicators of hotels showed mostly positive dynamics. During this period, the loading of hotels in the coastal cluster increased by 7 pp, of the mountain cluster - by 22 pp, recalls Mrs. Weller. But in 2018, the growth rate slowed down.
According to JLL calculations, four-five-star hotels by the sea increased loading by 1.2 pp to 53.3%, since the tariff increased on average by 13% to 12 thousand rubles. At similar sites in the mountains, the load increased from 56% to 60%, while the increase in the cost of accommodation was not so significant, reaching only 8%, up to 6 thousand rubles. “Obviously, the guests chose accommodation in the mountains even in the low season for Krasnaya Polyana due to more affordable prices,” explains Tatiana Weller.
Although in winter the hotel load in Krasnaya Polyana is at the level of 80–85%, the average annual rate is 55–60%, says the owner of Anterra (opened the Green Flow Hotel in the mountain cluster of Sochi in 2017) Alexander Tertychny. The loading of budget hotels of the “three stars” category throughout Sochi in 2018 subsided, decreasing from 65.5% to 63%. In JLL indicate that this happened against the backdrop of a 11 percent increase in the average cost of placement (up to 4.2 thousand rubles).
In Sochi, the influence of the seasonality factor on the hotel market is indeed great, agrees Tatyana Belova, head of the hospitality industry department of the CBRE strategic consulting department. And it affects the investment attractiveness of the resort. Moreover, the partner of the Estimation practice of NEO Center Arina Matveeva adds, seasonality has a strong influence on the planned profitability and payback of the ski resorts in Sochi. Against the background of these problems, only a smaller part of the Olympic projects will be able to repay the loans, the senior director of the hotel business and tourism department at Cushman & Wakefield, Irina Akutova, says pessimistically.
The city should not count on a significant increase in tourist traffic, experts warn. As Prime Minister Dmitry Medvedev said earlier, the domestic tourist flow in 2018 increased by 25%, but for Sochi, the dynamics turned out to be much more modest. According to local authorities, last year the resort was visited by 6.4 million people, which is only 1.6% higher than the same figure in 2017. Arina Makeeva explains: there is a markedly growing competition in the domestic tourism market, for Sochi, first of all, it is alternative ski resorts in the North Caucasus. “So, the Arkhyz VTRK in terms of the total length and complexity of the tracks is already an alternative to the Gazprom resort in Krasnaya Polyana,” the expert argues.
Sochi, after its renovation, was unable to attract buyers of high-budget resort real estate. Olga Shirokova, director of consulting and analytics at Knight Frank, says that for the last three years the number of transactions in this segment has continued to decline, now there are practically none. The volume of supply has also decreased: if before the Olympiad its volume was estimated at 150 thousand square meters. m, now we are talking only about 35 thousand square meters. m
No one managed to earn
Neither the authorities, nor developers with experts, even five years after the Sochi Olympics, can come to a common denominator of the cost estimates for its preparation. According to the Accounts Chamber, the construction of Olympic facilities took 324.9 billion rubles. But in this amount, the auditors did not include the cost of transport infrastructure, including roads and high-speed rail links. One of the interlocutors of “Kommersant” from among the former officials who are familiar with the cost structure of preparations for the 2014 Winter Games, speaks about the amount of about 900 billion rubles. He insists that this figure was called at various meetings, including those held in the federal government after the end of the Games. “Some experts, attracted by officials, called the amount and 1.5 trillion rubles, which went to prepare for the Olympics, which is called, turnkey. This is not only money from budgets of different levels, but also funds from monopolies and private investors, ”said another former official who is familiar with the situation.
Another former Olympian, a former employee of the state corporation Olympstroy (supervised the construction of sports and infrastructure facilities in Sochi and was eliminated after the Games were completed), recalls: “The task was to show that holding the Winter Games in summer Sochi is not just an ambition, but also a business project. Therefore, there are such "floating" numbers in terms of investment. If it was necessary to show the effectiveness of investments of budget funds, then we appealed to the data of the Accounts Chamber, if they wanted to show the scale of the project, then a magic figure of 1.5 trillion rubles appeared. ” He explains the difference in ratings also by the fact that projects appeared in Sochi almost from scratch that were not originally on the Olympic list. “So, in Krasnaya Polyana, where a whole ski cluster was created in a short time, it was necessary to create a special fortification from landslides, which was not in the original version. This happened due to the fact that they did not study the soil thoroughly before the start of construction, ”the“ Kommersant ”source cites an example.
As a result, no one has yet managed to make money on the Sochi Olympics - neither the budget, nor state-owned companies, nor private investors. For example, according to the Accounts Chamber, the revenue of the Sochi 2014 Organizing Committee amounted to 85.4 billion rubles. And according to the statements of the International Olympic Committee (IOC), the operating profit from holding the Games in Sochi was 3.25 billion rubles.
One of the Kommersant interlocutors from among the auditors who advised Olympic investors said that many companies had a return on sales of 3.8%, while the return on investment at the height of the Games was only 1%. "Based on the last figure, it is obvious that now the return on investment capital is a fraction of a percent," the source noted, adding that this leads to a serious increase in payback periods.
The general director of the Rosa Khutor resort built for the Games (investor - Interros) Sergey Bachin has an explanation for this: “At the very beginning, when the preparations for the Olympiad had just begun, two components were mistakenly included in a single project - the costs on infrastructure and commercial facilities. " If both factors are taken into account, the payback of Rosa Khutor is more than 20 years, and if only the commercial part (hotels, restaurants, lifts, etc.), then this period would be reduced to 12–15 years, which is observed on similar resorts in Europe and the United States, said Mr. Bachin.
From private to VEB
Formally, most of the funds invested in Sochi are private. But in fact, many investments of investors were provided by credit lines of state structures.
In January 2014, the then head of VEB, Vladimir Dmitriev, stated that the total amount of funding allocated by the state corporation for the Olympic venues was 240 billion rubles. According to current estimates, VEB accounts for 15% of total investments in Olympic projects, says a Kommersant source close to the state corporation. The largest projects, including the ski resorts “Rosa Khutor”, “Krasnaya Polyana”, the entertainment center “Sochi Park”, accounted for about 190 billion rubles. VEB loans. It clarifies that its Olympic investments accounted for only about 10% of the total loan portfolio and reserves were created for these funds.
VEB credited the construction of 17 Olympic facilities, currently loans to 12 sites have been restructured, the Kommersant source notes. At the end of 2017, VEB made a proposal to extend the maturity of loans until 2051 and extend the cash sweep mechanism to pay interest (when all free cash flow goes towards early fulfillment of obligations) until 2031. The reason was the risk of default on loans from Rosa Khutor and Krasnaya Polyana (see “Kommersant” of December 7, 2017).
The interlocutor of “Kommersant” clarifies that for a number of projects for which a revision of the loan agreement was originally envisaged, no restructuring was needed. For example, the airport of Sochi refused from this, and the developer "Sochi Plaza" found a co-investor.
In preparation for the Games for VEB loans, the source said to “Kommersant”, up to 22% of the rooms of the total hotel fund currently existing in Sochi were built. According to estimates by Cushman & Wakefield, for the Olympics, 22 thousand numbers were put into operation out of 57 thousand then existing in the city. Currently, branded hotels in 5,000 of such rooms are operating in Sochi, 90% of them were opened in 2013–2014, said Tatyana Weller, head of the hotel business department at JLL.
Do not count on growth
After the Olympics, the main indicators of hotels showed mostly positive dynamics. During this period, the loading of hotels in the coastal cluster increased by 7 pp, of the mountain cluster - by 22 pp, recalls Mrs. Weller. But in 2018, the growth rate slowed down.
According to JLL calculations, four-five-star hotels by the sea increased loading by 1.2 pp to 53.3%, since the tariff increased on average by 13% to 12 thousand rubles. At similar sites in the mountains, the load increased from 56% to 60%, while the increase in the cost of accommodation was not so significant, reaching only 8%, up to 6 thousand rubles. “Obviously, the guests chose accommodation in the mountains even in the low season for Krasnaya Polyana due to more affordable prices,” explains Tatiana Weller.
Although in winter the hotel load in Krasnaya Polyana is at the level of 80–85%, the average annual rate is 55–60%, says the owner of Anterra (opened the Green Flow Hotel in the mountain cluster of Sochi in 2017) Alexander Tertychny. The loading of budget hotels of the “three stars” category throughout Sochi in 2018 subsided, decreasing from 65.5% to 63%. In JLL indicate that this happened against the backdrop of a 11 percent increase in the average cost of placement (up to 4.2 thousand rubles).
In Sochi, the influence of the seasonality factor on the hotel market is indeed great, agrees Tatyana Belova, head of the hospitality industry department of the CBRE strategic consulting department. And it affects the investment attractiveness of the resort. Moreover, the partner of the Estimation practice of NEO Center Arina Matveeva adds, seasonality has a strong influence on the planned profitability and payback of the ski resorts in Sochi. Against the background of these problems, only a smaller part of the Olympic projects will be able to repay the loans, the senior director of the hotel business and tourism department at Cushman & Wakefield, Irina Akutova, says pessimistically.
The city should not count on a significant increase in tourist traffic, experts warn. As Prime Minister Dmitry Medvedev said earlier, the domestic tourist flow in 2018 increased by 25%, but for Sochi, the dynamics turned out to be much more modest. According to local authorities, last year the resort was visited by 6.4 million people, which is only 1.6% higher than the same figure in 2017. Arina Makeeva explains: there is a markedly growing competition in the domestic tourism market, for Sochi, first of all, it is alternative ski resorts in the North Caucasus. “So, the Arkhyz VTRK in terms of the total length and complexity of the tracks is already an alternative to the Gazprom resort in Krasnaya Polyana,” the expert argues.
Sochi, after its renovation, was unable to attract buyers of high-budget resort real estate. Olga Shirokova, director of consulting and analytics at Knight Frank, says that for the last three years the number of transactions in this segment has continued to decline, now there are practically none. The volume of supply has also decreased: if before the Olympiad its volume was estimated at 150 thousand square meters. m, now we are talking only about 35 thousand square meters. m
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