The Blackstone Group has agreed to buy The Cosmopolitan of Las Vegas, a resort and casino, from Deutsche Bank for $1.7 billion in cash. The deal was made on behalf of Blackstone’s $13.3 billion global real estate fund, Blackstone Real Estate Partners VII and is scheduled to close by the first quarter of next year.
The Cosmopolitan, which opened in December 2010, is known for having a troubled history. In December 2005, Deutsche Bank made a mortgage to the property’s original developer, Ian Bruce Eichner, but it acquired ownership of the loan in August 2008 after the debt went into default that January. The bank then bought the resort and casino in a foreclosure sale for $1 billion one month later. Since November 2012, the Cosmopolitan had been held within Deutsche’s non-core operations unit.
“As part of our Strategy 2015+, the bank is committed to reducing its non-core legacy positions in a capital efficient manner that benefits shareholders,” said Pius Sprenger, the unit’s head, in a statement. “We are pleased to have agreed to this sale and to have delivered on our commitment.”
Blackstone is said to typically favor a cost basis that represents a 60 percent discount to what the previous owners paid for an asset. In the case of the Cosmopolitan, Eichner and Deutsche Bank collectively spent $4.3 billion on the development of the resort and casino. PERE understands that Blackstone could invest up to $600 million in equity from BREP VII for the base acquisition price, as well as additional money for capital improvements.
Potential enhancements could include building out the top four floors of the tower and improving the performance of the casino, which has lagged those of other establishments on the Las Vegas strip. Additionally, Blackstone could develop the retail frontage of the Cosmopolitan along the strip and has the ability to build additional hotel rooms at the property.
The Cosmopolitan has posted a net loss of approximately $100 million in each of its three full years of operation, according to a March filing with the US Securities and Exchange Commission. However, the property appears to be stabilizing. As of year-end 2013, it commanded an ADR, or average daily rate, of $275, which is said to be the highest in Las Vegas, as well as an occupancy rate of 90.2 percent. This was up from $259 and 85.6 percent in 2012, the filing noted.
Although The Cosmopolitan represents the New York-based alternative investment manager’s first deal in the hospitality sector in Las Vegas, it has invested in other property types in the Las Vegas area, including buying a large number of single-family homes for rent, amassing an industrial portfolio of approximately 15 million square feet and acquiring the Hughes Center, the largest office complex in the city.