Cabinet approves commercial use of PIA owned Roosevelt hotel New York

The federal government, after passing six long years, has finally taken a big decision to redevelop the site of Pakistan International Airlines’ owned asset Roosevelt hotel, New York for commercial use, it was reliably learnt on Wednesday.

According to sources of the Ministry of Privatization, the federal cabinet has decided to redevelop the site of PIA owned asset Asset-Roosevelt Hotel, New York into a mixed use of primarily office tower over retail and condominium after closing the hotel. Similarly, the federal cabinet has also given a go ahead to initiate the process of hiring of the financial advisor (FA) which was pending from the last two years. Moreover, the cabinet has also sought submission of a progress report from the Privatization Commission within three months.

The hotel’s origins

In use by Pakistan International Airlines (PIA) since the late 1970s, the Roosevelt Hotel occupies a unique place both in the history of the United States and Pakistan’s national airline. One of the grand-old buildings of 19th century New York, the hotel was bought by developer Paul Milstein in July 1978. In the bid for the hotel’s ownership, Milstein beat out a number of high-profile middle-eastern investors that wanted to form a consortium and buy the hotel. 

The very next year in 1979, Milstein ended up leasing the hotel to the PIA which had partnered with Prince Faisal bin Khalid bin Abdul Aziz Al Saud in the transaction. The lease cost an estimated $35 million and was to run for 20 years. Prince Faisal and PIA were to pay $2.7 million to $4 million annually in rent, and they also obtained an option to acquire the hotel after 20 years at a set price of $36.5 million.

True to this, in 2000, the PIA and Prince Faisal bought the hotel for $36.5 million. However, in the course of the lease the hotel was regularly mismanaged and its facilities began to deteriorate and become outdated. 

Over the years, the question of selling the hotel arose a number of times. However, every time the government of Pakistan shied away from actually pulling the plug and has spent millions of dollars on its renovations. Things really took a turn for the worse in 2020 when the Covid-19 pandemic hit. 

Hotel closure and suggestions galore

According to media reports, the hotel took a great hit from the general downturn that the hospitality industry saw during the course of the pandemic. An Aviation Division report from earlier even indicated that the hotel had to be shut down in December 2020 with the approval of cabinet to avoid a yearly loss of $37 million. 

Back in 2020, the Cabinet Committee on Privatization (CCoP) the approved leasing of the hotel site for setting up a joint venture project for prospective mixed used development, the best suited mode of privatisation as delineated in the PC Ordinance, 2000 and directed PC to initiate the appointment of Financial Advisor. 

However, litigation in Tethyan Copper Company (TCC) in a Reko Diq case, halted the process for appointment of FA.

“Owing to the litigation in British Virgin Island (BVI) court’ in the context of Reko Diq & Tethyan. Copper Co. (TCC), the matter of leasing out the Roosevelt Hotel was put on hold in 2021,” said sources.

They added that the leasing of Roosevelt Hotel New York site will be used for setting up a joint venture project for prospective mixed-use development.

Sources said that the Aviation Division has demanded from the Privatization Commission to take a decision regarding the PIA owned asset Roosevelt Hotel New York as early as possible. They said that

Earlier, the National Accountability Bureau (NAB) had launched an inquiry against the sale of Roosevelt hotel on cheap rates in 2020.   

It is also learnt from sources that the Ministry of Privatization had earlier briefed the Cabinet Committee on Privatization (CCoP) on 26th December, 2022 about the privatization of PIA Investment Limited (PIA-IL) owned asset- Roosevelt Hotel, New York. And, CCoP had directed the Aviation Division on 31st October, 2018 to make a detailed presentation on the possibility of high-rise hotels on the land of Roosevelt Hotel New York on Public Private Partnership (PPP) basis. And, in this regard, M/s Deloitte Transactions and Business Analytics LLP was engaged to conduct a feasibility study. M/s Deloitte, after analyzing multiple options, recommended that the highest and best use of Roosevelt Hotel property was to redevelop the site into a mixed use of primarily office tower over retail and condominium, (if necessary) in its report on 18th July 2019. Accordingly, CCoP in its meeting held on 2nd July 2020, inter-alia, directed the Privatization Commission (PC) to initiate the process of appointment of Financial Advisor (FA), to undertake envisage & leasing of Roosevelt site for meeting up a joint venture project for prospective mixed-use development, through the best suited mode of privatization, as delineated in the PC Ordinance, 2000. In compliance to the federal cabinet’s decision, the process of hiring of FA was initiated, pursuant to the Privatization Commission (hiring of financial advisor) Regulations, 2018 and PC Board approved the draft of ToRs for hiring of Financial Advisor, in its meeting held on 2nd September 2020,decision of the PC Board and approved Terms of Reference (ToR). However, the matter was put on hold on the advice of the Office of the Attorney General for Pakistan (AGP), owing to the litigation in British Virgin Island (BVI) court in the context of Reko Diq and Tethyan Copper Co. (TCC). Nonetheless, most recently Aviation Division, on 14th May 2022 had forwarded the advice of the AGP that the Government of Pakistan and Balochistan & TCC had now                  entered into a standstill agreement, whereby, all litigation had been suspended including enforcement proceedings in the BVI court against asset owned by PIA-Investment Limited (IL) till 15th December 2022. AGP further advised that in light of this agreement, PC can proceed to initiate the process of appointment of FA. A meeting was held in this regard with the Head International Disputes Unit, Office of the AGP on 13 June 2022. The Aviation Division also expressed the concerns relating to any delay may lead to land marking of the property. It was further added that the PIA Board had also endorsed the proposal of the Privatization Commission.

Ministry of Privatization submitted the case before the CCoP for re-affirmation of its earlier decision dated 2nd July 2022 regarding appointment of FA for Roosevelt site for setting up a joint venture project for prospective mixed use development , through the best suited mode as delineated in PC Ordinance, 2000 or advise otherwise as deemed appropriate owing to the fact that above approval were singularly focused on the recommendations of the M/s Deloitte report.

The CCoP discussed the matter threadbare and observed that in the light of the advice of Attorney General of Pakistan, Privatization Commission can proceed further to initiate the process of appointment of the FA for the purpose. Therefore, the CCoP reiterated its earlier decision on the matter under Case No. CCoP-5/4/2020 dated 2nd July 2020.

The CCoP on 26th December 2022 had considered the summary dated June 23rd 2022 submitted by the Ministry of Privatization regarding “Privatization of PIA Investment Limited (PIA-IL) Owned Asset-Roosevelt Hotel, New York” and reiterated its earlier decision under the Case No. CCoP-5/4/2020 dated 2nd July 2020 that “ the Privatization Commission to initiate the process of appointment of FA to undertake the envisaged leasing of Roosevelt site for setting up a joint venture project for prospective mixed use development, through the best suited mode as delineated in PC Ordinance , 2000” and submit progress report thereon within three months, to the CCoP for consideration.