Blackstone Acquires Deutsche Bank's Ownership of Las Vegas' Cosmopolitan Hotel
Since Deutsche Bank foreclosed on The Cosmopolitan of Las Vegas in 2008, they've been eager to sell the hotel and casino to anyone willing to pay a decent amount. Being a bank instead of a casino operator, they considered it an odd fit.
Many major casino companies around the globe expressed interest in potentially acquiring The Cosmopolitan, which appeared to possess significant potential although it hadn't yet achieved profitability. It was therefore somewhat unexpected when Deutsche Bank announced it had sold The Cosmopolitan to a group with limited casino experience.
Deutsche Bank disclosed an agreement to sell the casino to the Blackstone Group for $1.73 billion in cash, signifying the first major gambling investment for Blackstone.
Blackstone's Investment in Vegas Recovery
Blackstone, however, isn't quite a novel presence in the world of casinos. They've been a major investor in the realm of real estate and even owned a minor stake in Caesars Entertainment.
"As a significant investor in the hospitality sector, Blackstone recognizes the value and potential in The Cosmopolitan and Las Vegas and looks forward to working to build on the success to date," stated senior managing director Tyler Henritze.
Some analysts saw the purchase as a significant sign about the future of the Las Vegas Strip.
"We...believe this announcement speaks to a historically savvy real estate investor making a statement on the length of the Las Vegas Strip recovery," said JP Morgan gaming analyst Joe Greff. And other analysts suggested this could boost interest—and pricing—in future sales of Strip properties.
Deutsche Bank Ditches an Incongruous Asset
For Deutsche Bank—the largest bank in Germany—it was a relief to offload a property that didn't align with their broader business strategy.
"The Bank is committed to reducing its non-core legacy holdings in a capital-efficient manner which benefits shareholders," wrote Pius Sprenger, head of the Non-Core Operations Unit at Deutsche Bank.
The Cosmopolitan's Profitability Struggles
Should Blackstone turn The Cosmopolitan into a noteworthy investment, they'll need to counteract a track record of negative news for the building. Construction on the luxury resort began just before the 2008 financial meltdown, putting it at a disadvantage from the outset.
Once developer Bruce Eichner was compelled to relinquish The Cosmopolitan to Deutsche Bank in January 2008, the bank stepped in to complete the construction costs. However, the hotel has failed to turn a profit since opening in December 2010. Although the hotel has been highly desirable and its nightspots and restaurants are often bustling, the casino has yet to generate sufficient income to cover the exorbitant operating costs.
Although the situation has been improving somewhat in conjunction with a broader recovery for Las Vegas casinos, The Cosmopolitan suffered a loss of $12 million in the first quarter of 2014. Furthermore, there have been tensions with the Las Vegas Culinary Union, which has protested the staff's two-year absence of a contract.
The sale to Blackstone is projected to proceed, albeit it is still under review by state gaming regulators.
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