US immigration policy may impact $228m deal

Concerns over immigration restrictions prompt review of Roosevelt Hotel lease

ISLAMABAD:

Any possible ban on foreign immigrants by President-elect Donald Trump worries Pakistan due to its likely impact on a $228 million, three-year deal between the Roosevelt Hotel in New York and the city government for housing detained persons who illegally cross into the United States.

In July last year, Pakistan leased the Roosevelt Hotel—a prime property located in the heart of New York—for three years to the city government for detaining illegal immigrants, with a total estimated contract value of $228 million. Sources said the issue of the potential impact of Trump's immigration policies emerged during a meeting of the Cabinet Committee on Privatisation (CCoP), chaired by Deputy Prime Minister Ishaq Dar on Thursday.

Pakistan aims to sell the New York hotel, and the CCoP meeting was convened to decide between three options for the transaction. However, it resolved to set up a committee under the chairmanship of the Minister of State for Finance, Ali Pervaiz Malik. The Roosevelt Hotel is owned by Pakistan International Airlines (PIA).

The CCoP chairman noted the need to assess the potential negative impact of Trump's immigration policies on the three-year lease agreement.

In July, Pakistan approved the deal to lease the 1,025-room hotel to the New York City government for housing immigrants. The contract includes payments of $202 per room per day in the first year, $205 per room in the second year, and $210 per room in the third year. These rates are considerably lower than prevailing market rates in the prime Fifth Avenue area, popular among tourists in New York.

The CCoP also formally rejected Blue World City's Rs10 billion offer to acquire 60% of PIA's shares. It decided the government would either sell PIA through a competitive process or under a government-to-government deal with a foreign country.

Previous attempts to sell PIA through direct deals or competitive processes have failed, as no foreign companies showed interest.

According to a statement issued by the Deputy Prime Minister's Office, the CCoP expressed satisfaction with the Aviation Division's assessment of PIACL's finances. Out of PIA's total Rs825 billion debt, Rs625 billion has been parked in a holding company and is being serviced by taxpayers.

The press statement underlined that the CCoP constituted a committee under the Minister of State for Finance to evaluate possible transaction options for the Roosevelt Hotel and determine appropriate modes in light of legal provisions.

There was no consensus on whether to privatise the hotel through competitive bidding or a government-to-government deal. The Roosevelt Hotel is located in one of the most sought-after areas of New York.

The Privatisation Commission Board had presented three options to the CCoP for decision-making: an outright sale, a joint venture, or a 99-year lease. The CCoP did not select any of these options and decided to establish the committee instead.

Pakistan hired Jones Lang LaSalle Americas as the financial adviser for Rs2.2 billion. According to its report on the transaction structure, Pakistan would not need to pay any additional money for a joint venture, as its contribution would come in the form of the hotel's land value.

"Based on pre-marketing, due diligence, and analysis of the options, the joint venture structure nets the highest value to the government of Pakistan," the adviser stated in its report.

Proponents of the lease agreement argued that Pakistan urgently needed funds, which could be ensured through a lease agreement. This model would provide a consistent revenue stream without requiring the sale of the land.

Under the lease model, the land's value would be assessed based on the property's full potential. Pakistan would sign a contribution agreement and a ground lease agreement in 2027, receiving fixed payments over a 99-year period. The government would retain ownership of the land, although the time required to realise sale proceeds would be the longest.

"The lease option has a medium risk with fairly high net proceeds to the government of Pakistan, higher than an outright sale but lower than the joint venture option," the report noted.

In the joint venture scenario, the government would contribute the entire land value to a JV partner. The land value would be calculated based on its full potential, including the 32-story building. A contribution agreement would be signed immediately, with the JV agreement to follow in 2027.

The development partner would make two initial deposits—one in the current fiscal year and another in 2027—with the remaining sale price to be paid by 2033. "This option has the highest risk with the highest net proceeds to Pakistan," the adviser remarked. However, some members of the committee expressed concern that the joint venture process would take too long, while Pakistan urgently needed funds to address some of PIA's liabilities parked in a holding company.