Blackstone’s $ 5.65 billion sale of the Cosmopolitan of Las Vegas late last month indicates that casino properties can produce a winning formula with the right coins in place.
The real estate giant sold the development of 3,027 key hotels and casinos just seven years after it acquired the Las Vegas Strip property for $ 1.8 billion. At $ 4.1 billion, the deal was Blackstone’s most profitable for a single asset and came despite a period of uncertainty for the hospitality market as the sector seeks to rebound from the headwinds caused by the COVID-19 pandemic.
“When we bought it seven years ago, it was considered a physically difficult asset and underperformed the other top casinos in the market,” said Tyler Henritze, head of real estate acquisitions. Americas from Blackstone. “We bought the asset 60% less than it cost to originally develop it and it was only a few years old. “
The purchase of The Cosmopolitan involves MGM Resorts acquiring its casino business for $ 1.625 billion with plans for a new lease agreement and a 30-year partnership with the expected closing of the deal in the first half of 2022. The new ones Intended owners of The Cosmopolitan’s real estate assets include Stonepeak Partners, the Cherng Family Trust and Blackstone Real Estate Income Trust, who collectively paid $ 4 billion for the property.
The Cosmopolitan debuted in 2010 six years after developer Ian Bruce Eichner bought the site for $ 90 million with the vision of building a 6.9 million square foot venue. The project experienced financial difficulties following the 2008 financial crisis, and Eichner defaulted on a loan from Deutsche Bank, which took possession of the property until the acquisition of Blackstone in 2014. The bank German spent nearly $ 4 billion to develop and manage the asset.
Eichner press representatives did not respond to requests for comment.
The acquisition of Cosmopolitan marks the second major Las Vegas casino transaction this year after Las Vegas Sands announced the sale of The Venetian casino and convention center for $ 6.25 billion in March. The deal, which was reached two months after the death of Sands owner Sheldon Adelson, involves Vici Properties buying land under The Venetian for $ 4 billion and Apollo Global Management acquiring operations for $ 2.25 billion. dollars under a triple net lease.
Amanda Belarmino, an assistant professor at the William F. Harrah College of Hospitality at the University of Nevada in Las Vegas, with a doctorate in hotel and restaurant management, said the Cosmopolitan’s high price was not a surprise, given the Las Vegas Strip’s high real estate values are associated with it being the second newest casino in the city. She acknowledged that the property had differentiated itself from other Vegas casinos in recent years by successfully marketing itself as a destination for young people through new dining and entertainment options.
“While the timing may seem odd to observers outside of Las Vegas due to the ongoing pandemic, we’ve seen a fairly rapid recovery here and we know there is going to be a continued appetite for traveling to Las Vegas,” so I don’t think it’s that unexpected, “Belarmino said.” What we know from other types of deals is that there isn’t a lot of land on the Strip, so I think that some of them are indicative of the uniqueness of the property and are also indicative of the destination. “
Belarmino noted that while franchising in accommodation offerings is common, where one company owns the property and another manages the real estate, it was not prevalent in Las Vegas until recently. It’s a trend that’s likely to spread and become part of future casino transactions along the Strip, she said.
“The Venetian deal is similar to the Cosmopolitan sale,” said Belarmino, former real estate revenue manager and senior training specialist at Caesars Entertainment. “It can be a trend in the market; however, since the Venetian sale corresponded to the death of the CEO, it may not be relevant to compare the two. “
MGM’s new involvement in The Cosmopolitan comes full circle more than a decade after Deutsche Bank approached the company to take ownership of the project following foreclosure proceedings in 2008, but ultimately declined. The offer to MGM was made at the same time as it was in the process of opening CityCenter Las Vegas, which debuted in December 2009.
Blackstone helped The Cosmopolitan turn the corner after its purchase with a nearly $ 500 million investment that included rrenovation of nearly 3,000 rooms, construction of new suites and addition of 17 new restaurants and bars.
Prior to the pandemic, the property generated $ 959 million in net income for the 12-month period ending February 29, 2020, according to MGM. It had $ 234 million in revenue in the quarter ended June 30, MGM said.
Marcus Threats, a certified business investment member with the National Hotel Group for Marcus & Millichap, attributes the high amount of the Cosmopolitan deal in part to a lot of “cheap debt” available after large-scale stimulus packages outside Washington during the pandemic combined with solid management ownership under Blackstone. He said Blackstone had proven through this and other offerings that she knew how to successfully buy and transform properties after a short period of time.
While The Cosmopolitan was Blackstone’s first casino game in Las Vegas, it has stakes in seven hotels in the city. In addition to his real estate skills, Threats credits Blackstone with hiring seasoned gaming executive William McBeath as President and CEO of The Cosmopolitan. This played an important role in the turnaround of the property and the subsequent sale price, Threats said.
“This is truly one of the best hotels out there and it has definitely become one of the trendiest hotels in Vegas,” Threats said, noting that under McBeath he met high demand despite daily room rates. which averaged $ 448 a night in 2021. “The market share that they’ve created and in terms of the room’s price effort, it’s just a constant speed of gain. “
Henritze said the decision to hire McBeath has proven essential in Blackstone’s successful execution of owning The Cosmopolitan, given that he has never addressed a casino deal before. He said Blackstone is open to future Vegas gaming real estate investments that can build on his experience with The Cosmopolitan.
“The management team we have formed, led by Bill McBeath, and the investments we have made in the asset have really changed the perception of ownership,” said Henritze. “We would absolutely make another investment like this.”
Phill Solomond, head of real estate at Stonepeak, declined to comment on the company’s decision to invest in a major Vegas gaming asset. He said in a statement when announcing the deal that the casino brings to the table “an irreplaceable location [and] sustainable cash flow ”with further upside potential.
Stonepeak’s investment in The Cosmopolitan comes as Vegas seeks to boost tourism and business travel to pre-pandemic levels, including through its numerous convention halls.
The latest statistics provided by the Las Vegas Convention and Visitors Authority showed that hotel occupancy rates were down 11.7% in July compared to the same period in 2019, but the average daily hotel rate was down. increase of 19.9%. As the monthly visitor volume was down 10.4% from July 2019 levels, UNLV’s Belarmino said the city’s tourism was on a positive trajectory, which will only improve once once the conventions come back into full force with a relaxation of restrictions on international travel.
“Leisure travel has been phenomenal and, if you look at the numbers, we have exceeded the numbers in the game,” Belarmino said. “For leisure travel, it’s at the pre-pandemic level and in some cases it has been higher; it is therefore a very good sign for the recovery.