Opening, Closing, Trying to Confuse
Following the loud and highly-visible closing of a number of casinos in the wake of the recent Russia-Georgia political conflict, this topic is slowly departing into the shadows. Indeed, today unclosed casinos are operating well and the closed casinos have successfully re-opened, while everyone as a whole does not wish to move to gambling zones nor redesign themselves. Outside observers remarked on this subject, as the owners of the casinos themselves said, “We are not speaking with the press and we are not commenting about anything.” However, they will very likely have to change their place of residency in the very near future, in fact.
At the beginning of October, employees at the Ministry of Internal Affairs (MID) of the Russian Federation began to close casinos. Among the claims were accusations of tax evasion, lack of approved documentation for gambling tables and machines and groceries without attending documentation. Accordingly, Crystal was the first casino closed, and the next day, another casino belonging to the same owners, Golden Palace, was closed, and during the night of the fourth to the fifth, Golden Palace Weekend was shut down. Alexander Vorobev, PR director at the Economic Crimes Department (ECD) of MID RF, noted in the press, “According to our estimates, about one million dollars is wagered daily here, while most places do not account for these amounts in any form when paying taxes.”
Maiya Rumyantseva, PR director at Golden Palace holding, has confirmed that “the equipment is registered and licensed and there is documentation, and taxes are being paid in good order to the city’s coffers. Taxes on the gambling business, which were paid from January to August 2006, altogether for Golden Palace and Crystal were $6.7 million.” Later it was the turn of Cosmos and Sol casinos, respectively. According to ITAR-TASS, the Cosmos restaurant and bar lacked attending sanitation documentation, excise stamps on the alcohol were counterfeit, and the numbers on the stamps did not correspond to those indicated on the inserts. It also became clear that the number of gambling chips issued by the cashier and those located on the gaming floor diverged by approximately one million dollars. Moreover, there were 65 gambling machines without approved documentation discovered in the casino.
Today the gambling establishments are once again opening up, although at the end of October, Vorobev announced that information on the opening in Moscow of a number of entertainment establishments, whose activities were halted at the beginning of October by employees of the ECD MID of Russia, does not correspond to reality. A CRE correspondent was able to phone two of the casinos, Crystal and Golden Palace. We were told by the first casino that “we are working our regular hours,” while we were told by the second that “the cultural and entertainment center has resumed its operations.”
The places are not that far removed
President Vladimir Putin of Russia has sent his draft law bill on gambling to the State Duma for review, with the deputies declining to write their own variant of the law in favor of the president’s. In accordance with the draft law bill, as of July 2007, limits on the concentration of the gambling business will come into effect. Indeed, the full assets of a casino must not be less than 600 million rubles and the minimal premises must be 800 sqm, while a hall with gambling machines must be at least 100 sqm.
It is proposed to create four gambling zones where casinos and gambling machines will be transferred. The new locations of the casinos should appear by 2009, while it is assumed that market players not ending up in the special zones will vanish in 2009, when licenses issued by Rossport expire. Moreover, today new licenses are not being issued.
Representatives of the gambling business naturally do not agree with this and predict that gambling will go underground. According to their confirmations, it is not possible to establish zones, sign lease contracts and build new establishments within two years. By the way, this is the same opinion of Iosif Ordzhonikidze, deputy mayor of Moscow, who reckons that it is not possible to build a whole gambling town within five years.
Two gambling zones, probably, will be situated in the far east and Siberia. It seems also that two others will be located in Kaliningrad and in the Moscow suburb of Ramensky. However, the Moscow government does not wish to have a casino in the Moscow region as well as the city proper. Accordingly, Ordzhonikidze at the beginning of November announced that, “We do not want such a zone to appear near the MKAD, that its operations use our roads, our people and our infrastructure. We will oppose the situating of such a zone in Remensky and other regions of the Moscow suburbs.”
However, other regions would like to host gambling zones, and the forecasted taxes from such business are forcing them into action. Indeed, the authorities of various regions of the far east are prepared to compete for the right to create a Russian Las Vegas, specifically on their territories. For example, deputies of the Legislative Assembly of the Kamchatka Region have sent a letter to the government of the Russian Federation, requesting the review of the possibility of creating a gambling zone specifically in Kamchatka. Today it is more likely that the zone will be situated in Primore, Khabarovsk Territory or the Amur Region. The gambling business has caused the most enthusiasm in the Amur Regions, where Chinese from the city of Kheikhe cross Amur to reach the casino in Blagoveshchensk. The authorities of Ivanovsky Region have offered to build a gambling town at the border of Ivanovsky and Kostromsky regions.
However, in addition to personal wishes, governors must be able to assure that they will be able to build a gambling zone with the required infrastructure from scratch within two years.
Coming into the Light
Moscow Won’t Be Empty
At the same time, Moscow has begun quietly and systematically to decrease the number of gambling locations, not waiting for federal legislation to be implemented.
According to Ordzhonikidze, in one year the number of gambling establishments in the capital has decreased by 69%. Indeed, prior to November 2005, there were 2,720 locations, while in November of that year the Moscow City Duma implemented law No.58. Accordingly, these establishments must not be situated in many public places, for example, in stores and at bus stops. Since then, the number of gambling halls has shrunk to 537, and by the end of this year, this figure should reduce even more to 174. “Despite the number of gambling establishments reducing by 69%, taxation has only decreased by 3%. This means that only those who pay taxes remain,” says Ordzhonikidze. According to Ordzhonikidze, in 2005 the city budget received 4.5 billion rubles from gambling establishments; however, the government of Moscow is prepared to refuse this money. “Moscow will not compete to retain gambling zones on its territory. Even if we are asked, we will not agree,” says Ordzhonikidze.
There are around 40 casinos and one thousand gambling machine halls of various sizes operating in Moscow today. If the federal law entitled State Regulation of the Activities on the Organization and Conduct of Gambling and Betting is implemented, according to data provided by Blackwood, 200,000-250,000 vacant premises could enter the market. Casinos and gambling clubs for the most part are located on populated streets and represent from 50 sqm (small halls in commuting areas) to 2,000-3,000 sqm (large casinos). According to consultants, vacated premises could be of interest to entertainment operators, retail, restaurants and cafes, etc.
Most of the quality premises being snapped up today are still at the construction stage. In this situation, any premises located in a liquidated building with heavy traffic will be in demand by tenants. “Until recently, casinos and gambling machine halls leased the majority of the most ‘liquid’ premises located in close proximity to the subway. This was connected with the high profitability of this type of business; therefore, the owners were willing to pay any lease rates, which caused even larger growth in prices for similar premises and limited the possibilities of development in these zones of other retail establishments, such as cafes, restaurants and grocery stores,” says Natalya Sazonova, senior consultant of the market research department at Knight Frank
The location of a casino, as a rule, is advantageous. Indeed, this could either be along central thoroughfares (casinos are situated on the first or second floors of large buildings), or in separately standing buildings in the center of the city, or in hotels (Cosmos in Cosmos hotel, Ambassador in the Baltchug Kempinski, Slavyanka in the Radisson SAS Slavyanskaya, Peking in the Peking hotel, etc.) and entertainment centers and movie theaters (Arlekino in the Kinocenter on Krasnaya Presnya).
The premises where casinos are located today have a number of indisputable advantages, such as high ceilings (for the installation of reliable video-surveillance systems), spacious parking next to the building, good ventilation and the possibility to set up a restaurant, namely, the premises of former casinos will correspond to the main list of basic requirements of tenants. “However, the specifics of the planned concept of casino buildings could significantly raise the cost of their further use, as they would require reconstruction,” warns Alexander Bazykin, director of the commercial real estate department at Blackwood. “Depending on which tenants take up residency in the casino buildings, a full change in the interior and a new design could be required.”
Gambling halls in stores and retail shopping centers (10-30 sqm) are suitable for the location of small stores selling household cleaning substances, cell phones, groceries, etc. The lease rates for these tenants are 20%-50% lower than in gambling halls.
Moreover, there are pavilions of 20-100 sqm which were occupied by gambling establishments, but there are very few of them in the city. Indeed, Sazonova believes it is better to situate here stores selling flowers, cell phones and clothes and shoes. “The current law is not applicable to non-residential premises on the first floor of residential buildings and built-in and built-on premises, as well as premises of gambling establishments in the lineup of shopping centers,” says Sazanova. “As far as the last variant, a typical question arises of whether it is worth prohibiting, given that in 90% of the cases, the gambling halls do not fit the concept of a shopping center and at the moment there is a trend in the gambling business to leave such complexes. These places, in turn, are occupied by tenants whose profile is not represented in the present shopping center.”
Furthermore, there are casinos situated in hotels. Should they be closed, boutiques and restaurants would compete for the premises.
The plan to redesign a casino as a shopping center or a cafe is fairly simple and elegant. As stated previously, until July 2007, all gambling establishments will operate as per the current schedule, at which time lease agreements will not be extended. “Tenants of casinos having long-term leases could possibly sublet the premises or, perhaps, they could change their activity profile,” says Bazykin. “The premises located in the property could be easily redesigned, and no problems with this should arise. The owner would either sell the retail premises or lease them out.”
There is considerable experience in redesigning in Moscow. During the first half of 2006, gambling machine halls were closed which were occupying premises of one to five sqm in the at home and supermarket formats, and their space was quickly snatched up by bill-payment establishments and photo kiosks.
Vacated premises, according to experts, will not cause a decrease in prices on the market. Indeed, it is less than likely that following the closing of gambling establishments, lease rates on vacated retail premises will be lower than the average market rate, believes Sazonova, as demand in this segment is growing at a faster pace than supply of new premises.