Blackstone To Sell Cosmopolitan Casino For $5.65BN, Its "Most Profitable Single Asset Ever"

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by Tyler Durden
Monday, Sep 27, 2021 - 08:45 AM

America's largest commercial and residential real estate landlord, Blackstone, has reached an agreement to sell the Cosmopolitan casino and hotel on the Las Vegas Strip for $5.65 billion, telling investors that the sale is "the company's most profitable of a single asset ever" according to the WSJ, and with good reason: the company made a 10x return its invested equity in 7 years.

Blackstone famously acquired the two-tower property for about $1.8 billion seven years ago and spent an additional $500 million on upgrades, including renovating the nearly 3,000 guest rooms, building luxury suites and adding new restaurants and bars. Total profits after the sale would be about $4.1 billion, including cash flow from the property's operations, according to a Blackstone letter to fund investors. In other words, the company made back nearly 10 times the amount of equity it invested in the Cosmopolitan, the Blackstone letter said.

According to the report the deal will separate ownership of the property from the hotel and casino operations, which are being sold to MGM Resorts International for about $1.6 billion. A partnership that includes a Blackstone real-estate investment trust is acquiring the property for about $4 billion. The buyers' group also includes Stonepeak Partners, an infrastructure-focused investment company, and the Cherng Family Trust, a Las Vegas-based family office for the founders of the Panda Restaurant Group.

The deal is the latest in a scramble of real-estate sales on the Las Vegas Strip, as casino operators look to raise cash for growing operations like sports betting and entertainment by selling their real estate. In August, real estate owner Vici Properties agreed to buy MGM Growth Properties in a deal that values the casino real-estate owner at $17.2 billion, including debt. MGM Resorts previously spun off MGM Growth Properties and still controls the REIT, whose Las Vegas properties include Mandalay Bay, Luxor and MGM Grand Las Vegas.

Earlier this year, Las Vegas Sands agreed to sell its Las Vegas properties to Apollo Global Management and a real-estate investment trust for about $6.25 billion. The first new megacasino on the Strip in more than a decade, the $4.3 billion Resorts World, also opened over the summer.

Despite the recent crackdown on Macau gambling by China which hammered casino stocks, Las Vegas tourism has been solid, climbing back steadily this year despite concerns over the Delta variant. In July, more than 3.3 million people visited Las Vegas, about 90% of pre-pandemic visitation for the same month in 2019. Casinos have brought back dining, including buffets, and entertainment, even as state officials restored an indoor mask mandate for areas with high rates of Covid-19 transmission, including Las Vegas. That said, concerns over the pandemic are still damping the convention business, which drives much of the hospitality economy in Las Vegas. Earlier this month, the National Association of Broadcasters, which brought more than 90,000 attendees to Las Vegas in 2019, canceled its October show, citing the pandemic and the Delta variant. The group delayed the event until April 2022.

The Cosmopolitan was one of the most high-profile real-estate flops during the boom years leading up to the 2008 market crash. Deutsche Bank took ownership after developer Ian Bruce Eichner defaulted. The German bank sunk around $4 billion into the Cosmopolitan, first as a lender and then as an owner after it took over the property.

Then, in 2014 Blackstone acquired the Cosmopolitan from Deutsche Bank and began pumping money into a hotel that was charging some of the highest room rates on the Strip with a casino ranked near the bottom in terms of revenue. The company converted the unfinished top four floors of the hotel's 52-story east tower into luxury suites geared toward Asian gamblers and other high rollers. To attract a younger crowd, Blackstone added 18 new bars and restaurants. Blackstone also brought in a new management team, resolved a pending labor dispute with the previous owner, opened up the gaming floor and increased the sports-betting business.

The hotel was nearly 87% occupied for the month of September through Friday, with average daily room rates at $448, according to Blackstone.

According to the WSJ, The Cosmopolitan was the first major operating casino on the Strip to hit the market in more than a decade, when Blackstone began exploring a sale in 2019. At the time, Blackstone was hoping for about $4 billion for the independently run casino and hotel but with Las Vegas bouncing back was able to exceed the company's initial expectations.