Real Estate Sale at Bellagio May Drive Up Casino Stocks, Says Analyst
There's a buzz going around that Blackstone Group's Blackstone Real Estate Income Trust (BREIT) could potentially sell the property of Bellagio, located on the Las Vegas Strip.
A research analyst from CBRE believes that if this were to happen, the property would certainly have several interested buyers, potentially boosting casino stocks in the process. In a recently released note to clients, CBRE Research's John DeCree said there'd be no shortage of potential suitors if BREIT were to put Bellagio up for sale.
According to DeCree, the iconic status of Bellagio would likely attract any real estate investor with the necessary financial means, even for a lesser stake in the property. If BREIT does decide to market Bellagio, a partial sale may be more appealing to a broader pool of potential buyers, considering the high price tag involved.
Reports surfaced last month indicating that BREIT might be considering the sale of a 50% stake in Bellagio, prompted by the increasing demand for redemptions.
Bellagio Property: Highly Sought After
BREIT obtained the Bellagio property from MGM Resorts International in November 2019 for $4.25 billion, after which the latter maintained a 5% stake in the real estate. Bellagio's property acquisition marked a cap rate of 5.8%, but DeCree estimates BREIT could still fetch a similar valuation at a 6.1% cap rate today. Real estate investors typically use cap rates to assess a property's potential returns and risk. These rates typically range between 3% to 20%.
"Despite tight credit markets and higher interest rates, cap rates for casino real estate have held up remarkably well," DeCree said. "We wouldn't be surprised if Bellagio garnered a similar cap rate as in 2019, given the robust fundamental landscape in Las Vegas, the great performance of Bellagio itself, the considerable replacement value of Strip resorts, and the scarcity of assets of this caliber."
DeCree anticipates that if BREIT moves forward with a sale of Bellagio's property, it will likely do so in a partial fashion. A full sale could be challenging given the current unwillingness of banks to lend for large-scale commercial real estate projects.
Bellagio Sale could Benefit Strip Operators
DeCree also noted that there could be benefits for other Strip operators who hold considerable real estate, like Caesars Entertainment and Wynn Resorts. Although Caesars doesn't own the land beneath Caesars Palace, it does own most of the other properties on the Strip where it operates its casinos. As of 2022, it was thought that Caesars might sell one of their Las Vegas venues to raise funds to reduce their debt burden. However, this deal never transpired and it's doubtful such a transaction will occur this year either. As time passes, the more valuable Caesars' Sin City land becomes.
Furthermore, DeCree remarked that VICI Properties, the largest landlord on the Strip, would also profit from Bellagio being sold, even if VICI wasn't part of the transaction directly. The sale could serve as a reminder of the significance of the value of gaming real estate on the Strip.
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Source: www.casino.org
