How trustees sent Karume's jewel to auctioneers' hammer

The late Karume's children Jane Mukuhi Karume and Samuel Wanjema outside Jacaranda Hotel in Westlands, Nairobi, when auctioneers on behalf of Kenya Revenue Authority came knocking after Trustees failed to pay over Sh400 million debt. [Jenipher Wachie, Standard]

Billionaire Njenga Karume was a meticulous planner who settled all loans before his death, leaving his estate, including the Jacaranda Hotel in Westlands, Nairobi, debt-free.

When he breathed his last on February 24, 2012, there were some Sh300 million that would cover unforeseen events and medical bills.

Part of the cash, Sh149 million, would be placed in fixed deposit accounts.  That only happens in families that have made it.

Today, the West African headquartered GT Bank is for the third time trying to auction the Sh2billion-hotel to recover Sh280 million in outstanding loans, penalties and arrears.

Lenders provided the cash to refurbish the 42-room Jacaranda now described as “run down” by family members.

Mary M’Mukindia, an independent director at the Nigeria-owned GT Bank, sought the loans on behalf of Jacaranda Hotel, where she was also a director.

Questions are now arising as to how Karume’s most iconic asset would be auctioned. Karume had taken loans against the hotel nine times and repaid them all.

Three days after his death, the last charge against Jacaranda Hotel by a syndicate comprising KCB and Equity Bank was to unshackle the prime property.

Two years into his death the trustees he entrusted with his wealth trudged on what is turning out to be a slippery path to the imminent auctioning of Jacaranda Hotel.

Court documents relating to various petitions involving the management of Karume's estate have helped piece together the history of the four-star hotel through its highs and today’s lows.

It is a tale of questionable management strategies and possible fraud in a facility that was at the heart of Karume’s vast wealth.

Jacaranda was significant in building the empire, considering the number of times it has been used as collateral in bank loans.

“It is too dear an asset for us to lose because it was the first tangible business which helped mzee to acquire most of his wealth,” Lucy Karume, his daughter, said.

“We will do everything to save it. A High Court in Nairobi ordered the trustees to pay Sh4.5 million to GT Bank by today as part of a commitment before another attempt to re-negotiate with the lender on terms of the loan.”

It all started on December 4, 1964, when the then Prime Minister, Jomo Kenyatta, presided over the opening of a French-owned hospitality facility in the proximity of Waiyaki Way.

In October 1976, the Kenyatta administration formally granted parcel number I.R22971/6 along what is today Woodvale Close, Westlands, to Agip Kenya.

A condition tied to the award was that Agip Kenya would build a motorists' hotel, commonly known as a motel, where travellers would enjoy food and accommodation, according to the court filings.

In less than two years Karume acquired it from the Italian oil marketer, which would eventually exit Kenya in 2000.

On the same day of transfer in April 1978, the then nominated MP would charge the property to Standard Chartered Bank for a loan. He would continue to use it as security to procure several other loans in 1987, 1991, 1994, 1996, 1997 and 2007.

Karume's daughter Lucy says proceeds of the loans were spent on expanding the hotel empire, which today includes Jacaranda Indian Ocean Resort, Pizza Garden now renamed The Node and Elementeita Lodge – which Karume built in the neighbourhood where he was born.

Fast forward to 2011 when Karume’s health deteriorated and he was advised by doctors that he had only a few months to live.

Karume's plan then was a buyer would be found would found for a swathe of land near the institution.

That buyer was found in the Kenyatta University Staff Pension Scheme.

Payment worth Sh1.127 billion came in three instalments, of which Sh609 million was spent to settle bank loans, many procured by the hotel businesses.

Karume had, in person, lent his companies Sh617 million at the time of his death.

Unpaid taxes

The Kenya Revenue Authority was owed millions in unpaid taxes, too.

With the cash balances from the land sale, the trustees spent Sh73 million to buy Karume’s wife a house as the family home, an 18-bedroom mansion, was too big for her alone. Her children were already grown up too.

Another Sh60 million was supposedly spent to cover Karume’s medical bills while Sh149 million was placed with a bank in a fixed deposit account. 

Two years after his death, his trustees decided to refurbish Jacaranda Hotel.

Directors of the hotel business were approved to seek funds, and they settled on GT Bank.

Lucy holds that the supposed refurbishment never took place. In her argument, the loan was not necessary as there were funds locked in bank accounts. M’Mukindia, the former hotel’s director, was yet to respond to our queries.

On September 24, 2014, GT Bank notified the hotel that its application had been considered and extended Sh200 million against the property and a further Sh200 million against the fittings, including electronics and furniture.

That would set off a string of borrowings starting with an overdraft facility of Sh50 million in October 2014, Sh100 million in March 2015 and loan restructuring in May 2017.

As of August 2017, the loan repayment had long been erratic while GT Bank was owed a total of Sh230 million.

By June 2018, the debts had grown to Sh280 million and the bank was already apprehensive, giving notices of attachment of the collateralised property.

GT Bank’s outstanding debt was Sh283 million in the latest computation dated January 2, 2020.