A Perilous Precedent
‘A precedent embalms a principle’ – Benjamin Disraeli
In the coming week, my native city of St Petersburg will host an international economic forum, the main purpose of which will be the promotion of Russia as an attractive prospect for outside investment.
SPIEF will be held in the new convention centre ‘Expoforum’ whilst this year’s delegates will be feverishly looking to get reservations at the top hotels. GHE, Four Seasons and W are hosting some of the most important sessions. Once again, the most prominent venue will be the Four Seasons Lions Palace hotel, located in the renovated palace of Prince Lobanov-Rostovsky. Next week this extraordinary hotel will be the essential focal point for some of most recognized Forbes and Fortune faces of the forum.
When Lion Palace opened it was a landmark occasion in the business and cultural life of the city. The reconstruction and restoration of this iconic 19th Century architectural masterpiece was entirely privately funded by VIYM. On signing the lease the building was 80% depreciated. The project cost over $200 million and enlisted the finest architects, renovators and decorators taking a decade to complete. In terms of sheer scale, the ambitious renovation works are in the same league as those that revived the Constantine Palace, the Houses of the Synod and Senate, and the Bolshoi Theatre in Moscow. Considering that the ‘Lion Palace’ redevelopment was financed exclusively by private capital I would go as far as to say, that this project was truly unique.
Unlike the vast majority of renovated, historic mansions in the city, the ‘Lion Palace’, remains open to the public. The spectacular neoclassical architecture and majestic interiors have established the building as a must have ‘selfie’ opportunity.
Whilst today, we see and hear increased expectations of governmental participation, it is particularly pleasing to me that despite rumours and speculation, this project never received funding from the Russian state. Recent, funded smear campaign attempts about rent are wildly and transparently misleading. As this project was not funded by the state, there is no argument whatsoever to be made for the state to be a fair beneficiary of the rent/income from this investment. In fact, the rental terms recognise the fair value of this particular piece of real estate at the time the contract was signed: 80% depreciated, neglected and underfunded for decades with some of the listed interiors and exteriors damaged beyond repair.
It is particularly important that in today’s challenging macroeconomic climate that we recognise and celebrate the Lion Palace project as a landmark example of the merits of effective and economically justified cooperation between the Russian state agency, European investors, North-American management company and a Russian bank.
The opening of this new hotel has created hundreds of new highly-skilled jobs in the city, while contributing over 300 million roubles to the state coffers every year in tax and other mandatory payments. I can only imagine that our international guests and participants at next week’s SPIEF will be bemused and concerned by the groundless campaign which certain tabloids are attempting to smear the Lion Palace project. This is a clearly a self-defeating situation. The state is committing huge sums of money and effort to develop and promote a favourable investment climate and is diligently looking for investors to build hotels for the upcoming 2018 World Cup and beyond. At the same time there are those willing to pay for and promote smear campaigns that undermine this collective goal.
‘Tristar Investment Holdings’, the investment vehicle specifically created to spearhead the Lion Palace redevelopment project, is currently embroiled in complex and prolonged litigation with the general contractor ‘Intarsia’, that failed to deliver on its contract and delayed the project by at least 2 years resulting in significant losses for the project’s investors and debt providers. Instarsia’s owner Victor Smirnov has recently lost another widely reported court case against the MOD that sued him (guess what?) for delays to deliver and cost overruns. Moreover, there is an arrest warrant issued for him for commercial fraud and his business has been declared bankrupt.
Is it now time for bone fide investors, businesses, associations alongside municipal and federal authorities to stand up and clearly say enough is enough – we will not tolerate defamatory propaganda that undermines the investment climate and slows the progress of our great city? It seems only fitting to finish this blog with another famous quote of Disraeli that I find particularly useful in perilous times: ‘Never complain and never explain’.
I sincerely hope that our example of redeveloping the Lion Palace will lead more entrepreneurs to bring new life to the grand mansions on the embankments of Neva and Fontanka.