Pakistan Airlines (PIA) Puts Roosevelt Hotel for Sale: Asking Price = $1 Billion

Adil Najam

Pakistan International Airlines’ (PIA‘s) earlier failure to sell Roosevelt Hotel, the prestigious New York property that it owns, because of political in-fights and charges of corruption may yet turn into a windfall for the beleaguered airline.

The story of PIA and the Roosevel Hotel is a long and complicated one; it reads likea roller coaster with financial ups and downs, failed attempts to sell, political intrigue, Saudi princes, court cases, and more.

But, first, the news at hand as reported in the New York Post (12 July, 2007):

NO sooner did we whis per the Roosevelt Hotel as being a potential development site last Friday then we were tipped that it was actually coming to market – and could sell for, gulp, $1 billion as an office development site. Just over a year ago, the Pakistani government, which owns the 1,013 room hotel as PIA Investments, bought out its 50/50 Saudi partner, Prince Faisal bin Khalid of Saudi Arabia.

Infighting and Pakistani political factionalism stopped an earlier sales effort in 2003 that would have brought in around $225 million slated to be used to purchase new jets for its airline. Sources said Cushman & Wakefield will be marking the hotel through its Fab Foursome: Richard Baxter, Ron Cohen, Scott Latham and Jon Caplan. The company declined comment. At a breakfast meeting at Michael’s yesterday morning, C&W executives were bullish on the ongoing sales and leasing markets, as vacancy rates have dropped to 5.3 percent and asking rents are up to $75.79 a foot in Midtown, a 35 percent jump since this time last year.

The hotel occupies nearly a full-acre block just north of Grand Central Terminal bounded by 45th and 46th Streets, Vanderbilt and Madison avenues. Its 43,000 foot site can be built to 800,000 feet as-of-right, but attorneys say that special district air rights can be piled on to create a skyscraper that could leap to 1.5 million feet. Potential bidders are being advised to compare the hotel to the site next to the Museum of Modern Art which sold for $775 a buildable foot, but is mid-block near Sixth Avenue. Over a number of years making strategic land and air rights purchases, Macklowe Properties paid around $950 a foot for the Swisshotel Drake New York at Park Avenue and 56th Street, which they have changed from a residential hotel to offices. Office rents have since climbed markedly in the city with 18 deals completed at over $125 a foot this year alone versus 16 in all of last year.

The article suggests that a USD 1 billion price may be achievable. If so, it will come as a welcome relief to the airline that was once a ‘high flying’ operation (here and here) but has been going down, down, down with a recent spate of crashes, barred from EU airports, technical troubles, financial troubles, management troubles, and more (here, here, and here). The Roosevelt Hotel and PIA’s relationship has itself been a rocky one. Most recently it was in the news when the Saudi Foreign Minister sued the Pakistan airlines for blocking him from selling his shares in the holding company through which the hotel is owned by PIA, and therefore by the Pakistan government (since PIA is the state airlines).

The cash strapped airline has been trying to off-load this and other properties to get some much needed cash for a while. Back in August 2003 it had an offer of US$ 225 million (at which time it also had liabilities worth US$ 70 million). By February of 2005, it was being reported that the government would hold off the divestment of its PIA investments including the Roosevelt Hotel. Dawn newspaper reported then:

The action is reported to have been taken at the request of Saudi Arabia’s Prince Faisal bin Khalid who holds 50 per cent shares in The Roosevelt. The documents reveal that the PIAIL wanted to sell the hotel on a “priority basis to repay the loans obtained by the PIA”. In order to raise the much needed cash for the PIA the management has now decided to sell another prime property, Hotel Scribe in Paris, an official said [ATP Comment: This did not, in fact, happen]. According to the documents, the decision to auction The Roosevelt was approved after an amount of $65 million was spent on renovation of its “1040 classically furnished rooms.”

According to the sales documents, The Roosevelt had a net operating income of a little more than $12 million in 2002. The net income had come down immediately after the 9/11 incident; the hotel earned a profit of $29 million in 2000 with an 84 per cent occupancy rate. According to the PIA, the renovation at a cost of $65 million not only recaptured the original inspired interiors but also restored The Roosevelt to its 1920s splendour and “status as one of Madison Avenue’s finest hotels”.

Last year, however, things changed yet again when a new managing Director for PIA’s investment arm was appointed and (a) it was decided that PIA would seek a sale of Roosevelt Hotel and (b) the shares earlier owned by a Saudi Prince were acquired by PIA. According to The News (18 March, 2006):

The PIAIL, a subsidiary of PIA, owns four hotels including Roosevelt Hotel in New York and Scribe Hotel in Paris. The PIA management was the partner of 50 per cent shares in all these four hotels. However, recently the PIA has acquired the remaining 49 per cent shares of its Saudi partner in the Roosevelt Hotel by paying $67m to dispose of the hotel. Now, the PIA owns 99pc shares of Roosevelt and only one per cent share remains with the Saudi partner for taxation purposes.

Given that this was PIA and Pakistan all sorts of rumors and speculations have been floating all the time. It seems now that the Roosevelt Hotel is, in fact, up for sale. It also seems that teh US$ 1 Billion price is a realistic one. But as anyone who has ever flown PIA would attest, there can still be many ‘slips’ between the ‘cup and the lip’.