Blackstone Group Plans to Sell Cosmopolitan Las Vegas
Blackstone Group is analyzing “strategic options” in the Las Vegas casino market, including a sale of the Cosmopolitan Hotel & Casino. Bloomberg reports Blackstone is conferring with Deutsche Bank AG and PJT Partners about potential buyers for the Las Vegas Strip casino.
The Wall Street Journal says the Cosmopolitan could fetch as much as $4 billion on the open market. When asked about the rumors sale, respresentatives from Blackstone and Deutsche Bank declined comment. PJT did not reply to requests at all.
Blackstone acquired The Cosmopolitan for $1.7 billion in 2014, so a $4 billion sale would represent a windfall profit. Of course, the two-tower complex cost $3.9 billion to construct.
Cosmopolitan was one of several Las Vegas casino project the 2008 financial crisis wiped out. Recent reports suggest those other troubled casinos (Echelon, Fontainbleau) remain on pace for openings in 2020 and 2022, respectively.
The Cosmopolitan’s History
Previously, Deutsche Bank owned the property. The German financial institution acquired The Cosmopolitan in 2008 when the original developers defaulted on a loan.
Deutsche Bank oversaw completion of the project, then opened the resort-casino as an actual operator. Since it is a bank and not a casino developer, mistakes were made in the rollout phase for the multi-billion dollar casino. When Blackstone Group bought the resort, it was expected to hire a world class management group and make improvements to the property.
Blackstone Group Buys The Cosmpolitan
That is exactly what happened. Blackstone completed the top four floors of the resort, eventually building up to 3,000 hotel rooms. The investment firm also improved the slots area, so the casino would be more profitable. The changes seem to have worked, since the value of the property has more than doubled in the past 5 years.
Of course, Blackstone Group is a private equity firm — not a casino operator. Therefore, it comes as no surprise that the New York City-based firm would make improvements, then sale the property.
Ken Caplan on Flipping The Cosmopolitan
In fact, that’s exactly the strategy Blackstone co-head of real estate described in a recent video. In a video posted on the company’s official website, Blackstone’s Ken Caplan characterized Cosmopolitan as a “classic buy-it, fix-it, sell-it opportunity“.
Caplan told potential shareholders, “This was an opportunity that really played to our strengths. By investing capital, bringing our expertise and experience in the lodging space, we created something very special.”
2019-2020 Is a Buyers Market
The Cosmopolitans’ current owners could face a buyers’ market, though. Activist investor Carl Icahn called for Caesars Entertainment to sell itself to competitors. Since Caesars announced the hiring of former Tropicana (Icahn) executive Tony Rodio as its CEO this week, the Carl Icahn vision appears to have won the day.
If so, then the largest domestic owner of casinos — Caesars Entertainment — might be on the market at the same time as The Cosmopolitan. Caesars has $18 billion worth of debt, so many will shy away from the company, but Caesars also owns 35 casino properties across the United States.
Echelon Becomes Resorts World Las Vegas
Two other casino project undermined by the 2008-09 Global Recession near completion. Malaysian casino giant, Genting Group, bought the Echelon project, which failed in the 2008 financial crisis.
Genting finished construction on Echelon, renamed it Resorts World Las Vegas, and plans a grand opening in 2020. When it opens, the $4.2 billion Resorts World Las Vegas will become the most expensive casino in Las Vegas Strip history.
Fontainbleau Becomes Drew Las Vegas
Also, developer Steve Witkoff continues to build the Drew Las Vegas. Drew Las Vegas began as Fontainebleau Las Vegas, a project expected to cost $2.8 billion. Construction on Fontainbleau began in February 2007, but ended in 2009 when its owners declared bankruptcy. Carl Icahn bought Fontainbleau in 2010 for $156 million, which included a $51 million debtor-in-possession loan.
Icahn kept Fontainbleau on ice for 5 years, then listed it for $650 million. The Witkoff Group bought the casino for $600 million. Construction estimates sit at $1.2 billion. Just this week, Steve Witkoff pushed back the Drew Las Vegas grand opening date to 2022, but construction continues apace.