In 2019, Kartsev Consulting Company Valrus LLC conducted forensic examinations to challenge the cadastral value of the Korston hotel complex.
The Korston Club Hotel Moscow, which was previously the Orlyonok Hotel, was built in 1976 on the eve of the 1980 Moscow Olympics. At one time it was one of the best three-star hotels in the capital city. In 1992, the Orlenok Hotel was reorganized into a joint-stock company, and in 2002, the Korston Group of companies was established on the basis of JSC. The Korston Group has renovated the hotel, modernizing it and certifying it at the 4-star level hotel.
At the end of 2018, the management of Yandex announced the purchase of the hotel territory for the construction of its new office. Currently, Yandex has developed and approved an urban development concept and is working on the design of the headquarters. The total area of the new construction is expected to be around 170,000 square meters.
In the first half of 2019, in the framework of administrative case №3a-568/2019 expert P.V. Kartsev determined the market value of the hotel complex as of 01.01.2016. In the second half of 2019, it was necessary to determine the market value of not only the hotel, but also the land on which it is located, as of 01.01.2018. The specific indicator of the cadastral value of the capital construction object as of the date of determining the value was 106 thousand rubles per square meter, and the land plot was 58 thousand rubles per square meter.
The complexity of this examination was that the building and land under study were not only within the framework of two different administrative cases (№3a-3636/2019 and No.3a-3815/2019), but they were also considered by different judges of the Moscow City Court. Despite the presence of petitions from the parties to appoint other experts, the court preferred to appoint forensic examinations to Valrus Ltd. experts, who have repeatedly proved and confirmed their professionalism in considering cases on the largest and non-trivial real estate and business valuation.
When valuating the Korston Hotel complex, we relied on the best Russian and international practices, took into account not only Russian valuation standards, but also International Valuation Standards, methodological recommendations for valuating hotels developed by RICS. The specifics of valuating high-quality hotels is that they belong to the class of investment properties, the valuation of which is carried out mainly only by a profitable approach. At the same time, hotels differ from other commercial real estate objects in that their valuation is carried out not by capitalizing income from renting premises, but by capitalizing operating income from activities that are carried out at the facility, namely: renting out rooms, providing catering services, providing services for conferences, banquets and other events, the functioning of the SPA-complex, gym, etc. The valuation of the hotel is closer to the valuation of the business. In international standards, such a class of objects is called objects with "trading potential".
During the examination, we conducted a personal inspection of the facility twice, studied not only the title, technical and permits documents available in the case file, but also requested through the court the data necessary for a full and comprehensive valuation of the operating performance of the hotel and the business center, which is part of the building.
As a result of research conducted on the hotel market in Russia and the city of Moscow, as well as studying the indicators of the hotel's operating activities for the period 2014-2017, the cost of the Korston hotel, as of 01.01.2018, was determined in the amount of about 3.5 billion rubles, including buildings and premises estimated at 2.75 billion rubles, and the land plot is 750 million rubles. The allocation of value between capital construction projects and the land plot is carried out by the distribution method.
The market value was determined by the court of first instance based on the results of an expert examination conducted by Valrus. The Court of Appeal (the First Court of Appeal of General Jurisdiction) upheld the decisions of the Moscow City Court. Reducing the cadastral value of real estate has allowed Yandex to save more than 32 million rubles per year.
The well-known name of the company-owner of the object, as well as public information about the earlier acquisition transaction of the object, could not but attract the attention of the press and to the court challenging the cadastral value. This was written in CNews, RBC и Pravo.ru.
Undoubtedly, as valuers, we also had a question about the significant difference between the price of the transaction for the acquisition of the Korston complex by Yandex for 10 billion rubles with a market valuation of 3-4 billion rubles. We took the most careful approach to data analysis, checking them for compliance with market indicators, and analyzed transactions in the hotel market for a period of more than 10 years. By all parameters, the valuation was carried out with a result of 3-4 billion rubles, what is not an underestimate, but it is an objective valuation based rather on a moderately optimistic scenario. The difference in numbers can be explained by two reasons:
1) The valuation within the framework of challenging the cadastral value is based on consideration of the current type of use of the land and buildings. At the date of the valuation, there were no town planning approvals and regulations, except for the continuation of the current use of the facility as a hotel. At the same time, Yandex could purchase an object, having agreements with the authorities on approving a specific project for it at this site. Thus, firstly, the price of these agreements could be included in the transaction price, and secondly, the transaction price in this case will not reflect the market value, but the investment value for a particular buyer.
The company went through all the stages of obtaining approvals phenomenally quickly. The decision on the preparation of changes to the Rules of land use and development was made on 03/27/2020, public hearings were held on 05/22/2020, changes to the Rules of land use and development were already approved in June (Decree of the Government of Moscow №814-PP dated 06/17/2020), and at the end of June (06/26/2020) a development plan for a plot of land was issued, allowing the start of design and further construction. Taking into account the consideration at the Urban Planning and Land Commission, the full cycle of approving the placement of the object is only 4 months!!!
2) The transaction amount could include some other parameters that were not disclosed, and which, in principle, may not be relevant to the real estate object in question and even the construction of a new headquarters. The purchase was carried out not directly from the owners of the hotel, but through VTB Bank, through a specially created company. At the same time, VTB Bank owns a "golden" share of Yandex, represents several seats on the Board of Directors, and can carry out other projects with the company, the payment for which occurred, including through a real estate purchase transaction.
This example clearly shows why it is almost impossible to use a comparative approach for large real estate objects. Transactions with such objects are rare, and the information available in the public domain often does not allow taking into account all the features of a particular transaction, despite the fact that they can affect the value of an object even more than the difference in the qualitative characteristics of the objects themselves.