PIA property: Is The Roosevelt Hotel worth over $1 billion?

Published: January 7, 2015
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The hotel has 1,015 rooms, including 52 suites; some of the suites are among the most luxurious available in Manhattan. PHOTO: WIKIMEDIA COMMONS

The hotel has 1,015 rooms, including 52 suites; some of the suites are among the most luxurious available in Manhattan. PHOTO: WIKIMEDIA COMMONS

NEW YORK: 

It stands on the corner of 45th Street and Madison Avenue, in the heart of Midtown Manhattan, bearing a quintessentially American name. Yet The Roosevelt Hotel is the property of Pakistan International Airlines (PIA). As the conversation about the national carrier’s ailing finances continue to unfold, one of the questions that will invariably be asked is: how much is The Roosevelt Hotel worth, and would selling it help PIA? But a little knowledge of history is needed first.

The Roosevelt Hotel was completed in 1924 and is named in honour of former US President Theodore Roosevelt, who had previously been the governor of New York State. It has 1,015 rooms, including 52 suites. Some of the suites are among the most luxurious available in Manhattan. The hotel has a remarkably good location, adjacent to Grand Central Terminal, one of the two major railway stations in New York, and right in the middle of the largest business district in the US.

In 1979, PIA, through its subsidiary PIA Investments Limited, leased the hotel on a 20-year lease with the option to buy the hotel at a specified price at the end of the lease period. 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.

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. 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. 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.

And so, 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. Yet in reality, this was merely the recovery of what had until then been a losing deal for PIA. 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.

Now, with the government trying to restructure PIA, the hotel may once again be put up for sale. So how much is the hotel worth now?

According to many real estate experts, this is one of the best times to be selling a hotel in New York City. Several large, iconic hotels have recently been sold, creating a high benchmark for asking prices. The Waldorf-Astoria, one of the most famous hotels in the world, was recently sold by Hilton Hotels to Anbang Insurance Group – a Chinese insurance company – for $1.95 billion, which translates to $1.4 million per room. Two other hotels in Midtown Manhattan – the Park Lane Hotel and the Langham Place Fifth Avenue – recently sold for over $1 million per room. However, the average price of a hotel sold in Manhattan was $627,000 per room in 2014, according to a report by Bloomberg.

So what would that translate to for The Roosevelt Hotel? At the average price, the Roosevelt, with its 1,015 rooms, would sell for $636 million. If it sells for the prices of hotels sold in Midtown Manhattan, which are its true comparable, it would sell for between $1 billion and $1.4 billion in enterprise value.

In short, it is an extremely valuable asset that would fetch some much needed cash for the government. So should it be sold? Well, the consolidated financial statements of PIA showed that the hotel contributes a negligible amount in terms of annual cash flow to the airline, and offers no real direct strategic benefits. When an asset has a high market price, low cash flows and no real strategic value, it is usually a good time to sell.

Published in The Express Tribune, January 7th,  2015.

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Reader Comments (18)

  • Woz Ahmed
    Jan 7, 2015 - 3:59AM

    Sell it and buy a motel near the airport.

    Stop pampering PIA staff, government free
    Loaders and hangers on.

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  • Shakil Khan
    Jan 7, 2015 - 4:38AM

    Tried hard by successive corrupt governments to sell and make money out of it, against at all odds it stayed with Pakistan and will do so! an asset that has high price tag can not be loss making business as portrayed by the writer, who will buy such an asset? So its baseless!
    Even if you sell it PIA will not become a fine airline that it used to be, some will get kick backs or buy it through shell company and money will be wasted very quickly just like another aid package!

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  • cheebz
    Jan 7, 2015 - 5:14AM

    under normal business operations, it would be good to sell.. but knowing that currently PIA is in shambles and the government and its employees are completely corrupt, selling such a valuable asset means loosing the money to the coffers.

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  • Astonished
    Jan 7, 2015 - 9:18AM

    Well the writer has tried the best to show the hotel is better to be sold rather to be retained for PIA. He has not covered the business operations of the hotel so as the ordinary person could know, how it is being operated and what makes it less profitable from the other hotels of the town. Further, the PIA staff going to USA uses the hotel for their stay whether on duty or on so called duty (where they stay for days/weeks in name of break between work hours). this free of cost stay also reduces the profit of the hotel but on other hand it also reduces the cost incurred if the hotel is sold and this staff stays at the cost of PIA’s potential profit on higher rates at the same place.the hotel might worth more then 2 billion dollars if other factors are counted in selling the hotel.

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  • Bewildered
    Jan 7, 2015 - 10:49AM

    Please don’t sell the hotel. The hotel has not only accumulated worth more than 20 times in short time, but also has a historical value in USA (frequently mentioned in ‘Mad Men’) and is situated at the most prime location in Manhattan. The Pakistani flag hosted at the main entrance also has sentimental value to the Pakistanis living in USA. Selling it would be like killing the chicken to get all the eggs at once, and I am sure all the proceeds will be wasted all together or land in the personal accounts of some. Saying that the hotel is less profitable is totally not true if we consider the 20 times appreciation in its worth. If operational profits are not at par with other hotels, it is because of mismanagement, not the hotel itself.

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  • Wali
    Jan 7, 2015 - 10:59AM

    Well, the hotel is definitely worth more than PIA many times and goes to show how far PIA has fallen as an airline and management.
    Pakistan cries out for competent professionals as leaders who could be running many a state companies that are worthless now and yet have potential in a market place of over 180million people and abroad.

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  • Lt Col Imtiaz Alam(retd)
    Jan 7, 2015 - 2:05PM

    If used exclusively for the Airline with proper Check & balances otherwise will again go into the pockets of the corrupt Politicians & Bureaucrats running the show.

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  • Parvez
    Jan 7, 2015 - 2:54PM

    If anyone thinks that the sale proceeds will help PIA out of its financial problems…..is living in a fools paradise.

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  • Woody
    Jan 7, 2015 - 3:31PM

    Why in the World did PIA buy a hotel in the first place? Sell it immediately – hire an American real estate expert to handle the sale – let the market determine it’s value. Use the proceeds to pay off some of the enormous PIA debt which is owed to Pakistan.

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  • Bewildered
    Jan 7, 2015 - 5:52PM

    @Woody:

    “Why in the World did PIA buy a hotel in the first place?”

    PIA didn’t buy the hotel from it’s profits, the government of Pakistan did, from the tax money I and other Pakistanis pay. The hotel has nothing to do with PIA, only her name was used. Anyway, PIA is also owned by the people of Pakistan, not by anyone else.

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  • John B
    Jan 7, 2015 - 7:34PM

    $400-550 Mil

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  • fus
    Jan 7, 2015 - 7:53PM

    Keep the hotel and sell the PIA :).

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  • GrammarNazi
    Jan 7, 2015 - 8:35PM

    You wrote “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.”

    “bought the hotel, along with Prince Faisal, for $36.5 million.” Pakistan bought a Prince?! :p

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  • Woody
    Jan 7, 2015 - 8:36PM

    @Bewildered:

    @Woody: … PIA didn’t buy the hotel from it’s
    profits, the government of Pakistan
    did, from the tax money I and other
    Pakistanis pay. The hotel has nothing
    to do with PIA, only her name was
    used. Anyway, PIA is also owned by the
    people of Pakistan, not by anyone else

    Good example of why govt shouldn’t be in the business of running an airline or any other business. It’s a question of accountability and aptitude – something all govt’s have a tough time with. Your suppose to evaluate the performance of an airline based on it’s profits/losses of the airline business — not real estate investments. PIA should sell asset now and use the proceeds to pay off debt to govt of Pakistan.

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  • Parvez
    Jan 7, 2015 - 11:43PM

    @fus: That was an absolute beauty of a comment.

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  • Talat Ali
    Jan 9, 2015 - 3:23PM

    Tis is the property of Pakistan. I haven’t heard that the prime minister or presidents of Pakistan stay at this hotel. They always stay at the Waldorf Astoria. Why? Can somebody enlighten me. The writer is obviously in favour of selling because he says the hotel is not giving PIA any profit worth while. Don’t sell but lease it out to someone who can run it. The governments of Pakistan over the years can’t run Pakistan in Pakistan and this is in the US. Wecouldn’ run East Pakistan either.

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  • Faraz
    Jan 17, 2015 - 1:24AM

    Mr. Astonished!
    Just a piece of advice for you. When you don’t know the facts, don’t present your opinions as facts. This is ethically wrong.
    PIA staff DO NOT use the hotel for stay (Neither during duties nor during leisure times).

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  • Karachi Wally
    Jan 18, 2015 - 4:32PM

    Supreme Court should be involved in transparent handling of affairs here else I see a huge money making opportunity for politicians. Surprised how come NS and AZ missed this opportunity for so many years.

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