LOS ANGELES—For Interstate Hotels & Resorts, global growth has been the name of the game. When the opportunity came to sign long-term management contracts for four hotels in Sochi, Russia, site of the 2014 Winter Olympics, the company jumped at the chance.
Outside of corporate headquarters in Arlington, Virginia, Interstate also has an office in Moscow, which has led to strong relationships with Russian hotel investors. Ted Knighton, the company’s president and COO, returned from Sochi just in time to attend the Americas Lodging Investment Summit in Los Angeles last month. Knighton sat down with Hotel News Now to describe the Sochi landscape.
“I’ve been in the business a long time and I can honestly tell you that was one of the greatest operational challenges I have witnessed,” he said.
Interstate in mid-January opened the 428-room Sochi Marriott Krasnaya Polyana and just last week opened three additional independent hotels in Krasnaya Polyana, Sochi: the 204-room Gorki Plaza, the 194-room Gorki Grand and the 302-room Gorki Panorama. The Marriott and one of the independents sit at the base of a mountain in a $2-billion mixed-use development constructed specifically for the games. Two others are halfway up the mountain below the ski jump arena and luge area.
“They’re rushing to finish it,” Knighton said during ALIS. “It’s going to be scary but it’s going to be finished right on time, I’m confident.” All four hotels were open as of Thursday, Interstate said.
For Knighton and Interstate, Sochi was anything but ordinary.
“There were no employees and no place for employees to live. We have 780 employees opening up 1,135 rooms,” Knighton said, highlighting the operational challenges. “We have to shuttle all these employees from the housing we set up an hour to an hour-and-a-half away every day back and forth.
“And for the mountaintop resorts, the only way for guests to get up there, and our employees, is a 20-minute gondola ride,” he continued. “So, operationally, you can just see the challenges our teams have faced over there.”
Then what?
There has been much debate throughout the hotel industry on just what happens to hotel markets after large, one-time events, such as the Olympics. Once global events that create worldwide demand end, skeptics wonder whether the hotels can survive.
In Sochi, Knighton pointed to ongoing demand generators in 2014 that he said will continue to drive occupancy.
“It’s interesting. The project is owned by Sberbank,* which is the national bank with Russia,” he said. “Some of the shareholders are owners we do business with in Moscow.”
Knighton said Interstate’s “spectacular product” in Sochi will capitalize on the G20 Summit, scheduled for later in 2014, and a Formula 1 race.
“It will be a worldwide audience in Sochi,” he said. “There’s going to be enough to generate attention in that market, but it’s new.”
Knighton said domestic Russian travelers have made up the bulk of Sochi visitors thus far, but Interstate hopes to attract visitors from outside the country once the landscape is fully developed.
“But I’ll tell you the market is going to be Russia,” he said. “Many of the wealthy Russians, the leisure travelers, go outside the country now. But now we’re hoping they have this place to go and they’ll start visiting Sochi in both summer and winter.”
Knighton said because Sochi’s city center is at sea level, it has typically been viewed as a seaside area where people go to enjoy the summer.
The Olympic site is different, he said.
“Up in the mountains, all this was just built for skiing and, of course, the Olympic Games,” he said. “We’ll have to see how it works out, but there’s enough happening there that there will be a market.”
Next to Interstate’s Marriott is the Olympic media center, which Knighton described as a “very large convention center” that during the Olympics will be used exclusively for housing media.
“After that, it will become a convention center, so we expect to hold conferences there from regional cities in Russia and we think we’ll do decent business,” he said. “And the government is very committed to this, which will help us.”
Knighton said he is proud of the hotel staffs the company put together in the region.
“The hotels will be spectacular, an absolutely fantastic product and we’re excited to be there,” he said.
* Correction, 21 February 2014: an earlier version of this article misspelled the name of the Russian state lending bank.