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Pakistan

Chairman NAB takes notice of Roosevelt Hotel closure, orders inquiry

PIA purchased the hotel for $36.5 million in 1999 and managed it through Interstate Hotels and Resorts.
Updated 13 Oct 2020

Chairman National Accountability Bureau (NAB) Justice (retd) Javed Iqbal has taken the notice of Roosevelt Hotel issue ordering an inquiry into the matter.

On October 10, it was announced that Pakistani government-owned Roosevelt Hotel has announced that "it is closing its doors permanently.

However, Aviation Minister Ghulam Sarwar Khan on Monday stated that the government had no intention to sell or dispose of the iconic Roosevelt hotel in New York.

Taking the notice of the issue, the Chairman NAB has directed the Director General of the Bureau Rawalpindi to investigate the aforementioned issue.

“The investigation will review why there was a need to close down Pakistan’s national asset Roosevelt Hotel located in central New York,” said a press release issued by the accountability watchdog. It also said that the bureau will investigate the reasons behind the alleged losses in thousands of dollars to the government.

NAB further said it will identify those responsible for allegedly neglecting their national duties to turn the Roosevelt hotel into a profit-making entity.

All you need to know about Roosevelt Hotel issue:

October 10: The hotel's management has cited economic reasons for its abrupt closure. “Due to the current economic impacts, after almost 100 years of welcoming guests to “the Grand dame of New York” The Roosevelt Hotel is regretfully closing its doors permanently as of October 31, 2020,” said a statement released on the hotel's behalf.

The management offered alternate options "for those guests with future reservations, we are working on communicating alternative accommodations”.

In July Pakistan's government decided against selling the hotel and announced to run it through a joint venture.

According to a Finance Division statement, the Privatisation Commission was to hire the services of a financial adviser to start the process of its privatization.

A report by accounting firm Deloitte from July 2019 recommended that “the highest and best use of the Roosevelt Hotel property is to redevelop the site into a mixed-use [property] (through a joint venture) of primarily an office tower over retail and condominium.”

Although the consolidated financial statements of PIA also showed that the hotel contributed a negligible amount in terms of annual cash flow to the airline, the incumbent government had put this hotel in privatization list last June, which triggered severe criticism on the government. Later it was delisted by the Privatization Commission with the decision to hire services of a financial advisor to lease out the Roosevelt Hotel site in Manhattan, New York, for setting up a joint venture project.

M/s Deloitte in its draft report dated July 18, 2019, after analysing multiple options recommended that the highest and best use of the Roosevelt Hotel property was to redevelop the site into a mixed use of primarily office tower over retail and condominium if necessary. Meanwhile, PIA spokesman said that the decision was made to save operating costs in a down market.

Aviation Minister rules out selling of the iconic hotel:

Aviation Minister Ghulam Sarwar Khan rejecting all rumours circulating in certain quarters regarding the sale of Roosevelt hotel, said the government had no intention to sell or dispose of the iconic Roosevelt hotel in New York.

Such misleading news was nothing more than political point scoring, he added.

He said the property had more than a thousand rooms and having an area of 43,313 square feet, covering a whole city block centrally located at the heart of Manhattan area of New York.

He said the main reason for its downfall was progressive decline of its infrastructure and dilapidated room conditions, further reinforced by the global COVID-19 Pandemic.

The minister said the Hotel was currently operational and had valid contracts till December this year with various other airlines. Multiple options were being considered for its future and all decisions were made collectively by the hotel’s board and the government of Pakistan, he added.

‘History of PIA Roosevelt’

The hotel originally opened in 1924, it was leased by the Pakistan International Airlines through its investment arm PIA Investments Ltd. (PIA) in 1979, with an option to buy after two decades.

In 1999, during the second administration of Prime Minister Nawaz Sharif, the government chose to exercise its option of purchase and bought the hotel, along with Prince Faisal, for $36.5 million.

One of the investors in the deal was Prince Faisal bin Khalid bin Abdulaziz Al Saud of Saudi Arabia. The hotel is operated through a management contract by Interstate Hotels and Resorts - a subsidiary of Brookfield Asset Management, a Canadian investment firm.

The previous owners engaged in a year-long battle in court, arguing that since the hotel was worth at least $250 million at the time, they should not be obliged to sell at the previously arranged price. Later, New York courts ruled in favour of the Government of Pakistan in June 2000, though PIA was forced to pay off the $23 million mortgage on the hotel.

In the early years of the Musharraf administration, the government came to own a prime piece of New York real estate and bought it at a steal of a price. However, the Roosevelt Hotel had lost money for PIA for nearly every year between 1979 and 1999. The government bought out the Saudi prince's share in 2005 for $40 million.

The government put up the hotel for sale in 2007 for $1 billion but was never able to close the deal, largely due to the near-simultaneous change in government in Islamabad and collapse in US real estate prices. In 2011, the government formally took the hotel off the market. It is an extremely valuable asset hence there were reports that the US President is also interested to buy it.

Earlier, the PPP had opposed the closure of the hotel by calling it an ill-timed move. “Is this the time to sell Roosevelt Hotel, when due to the pandemic property prices have come down significantly and it will result in a loss to Pakistan as we will not get the right price?” PPP’s leader Sherry Rehman said in a statement.

“The property is worth billions and it was making a profit when I was serving as ambassador to the US,” she added.

In July, another report revealed that the United States President, Donald Trump is interested in purchasing the PIA owned Roosevelt Hotel.

Roosevelt Hotel has been a symbol of Pakistan's culture and PIA's glory days for decades.

The Pakistani government has not explained why the hotel is closing down only two months after it decided against the decision.

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