After losing $4 billion as both a lender and equity-holder, Deutsche Bank has decided now is the time to sell The Cosmopolitan of Las Vegas. The lucky buyer of the 3000-room hotel and casino... none other than America's largest landlord - Blackstone Group. The formerly biggest "buy-to-rent" private equity firm is paying $1.7 billion for the Vegas hotspot after having piled $3.5 billion into property across the city and other parts of Nevada. It is ironic that it was Steve Wynn, another Vegas magnate, who recently noted just how great times were for the 'big guy' seeking cheap financing (and, unfortunately, just how bad it was for the average joe).
The world's largest private-equity firm on Thursday agreed to pay $1.7 billion in cash to Deutsche Bank for the Cosmopolitan of Las Vegas, a 3,000-room hotel and casino on the Strip that ran into big financial trouble during the downturn. The German bank sunk around $4 billion into the Cosmopolitan, first as a lender and then as an owner after its original developer defaulted.
The sale comes two years after Deutsche Bank, Germany's largest bank, formed an internal unit for unwanted assets to cut its balance sheet and improve its equity capital.
The deal caps a series of major real-estate investments in Las Vegas by Blackstone. Over the past two years, the New York-based company has acquired about $3.5 billion of property in the city and other parts of Nevada, say people close to the firm.
Blackstone is using cash from its $13.3 billion real-estate fund, but later is expected to borrow around $1 billion toward the acquisition, say people close to the sale.
Blackstone is betting that the recent uptick in Las Vegas' economy will continue and that the small casino won't be a major drawback in a changing Las Vegas tourism industry. With gambling proliferating throughout the country, Las Vegas hotels have aimed to attract tourists with fine dining, nightclubs and other entertainment.
Blackstone's acquisition of the Cosmopolitan "speaks to a historically smart real-estate buyer making a statement on the length of the Las Vegas Strip recovery," said J.P. Morgan casino analyst Joe Greff in a report Thursday.
Blackstone's other Las Vegas deals were partly motivated by low prices. The homes it acquired were bought in foreclosure auctions.
The question - of course - is, has Blackstone bitten off too much at the peak of the latest credit cycle? or is this "Just the right amount of wrong?"
It’s a perfect storm for a businessperson unless you look at the truth of the matter and the impact it has on your customers and your employees.
And that’s a much darker story.
It doesn’t lend itself to a soundbite, but it’s — for every businessman in America and any economist that has their heads screwed on right, it’s an ominous situation.
But in terms of our moment in history, in commercial history...along with our colleagues in the industry, it’s nirvana.
But look at it from a consumers’ point of view or a working person’s point of view, who’s paying for all this cheap money? Well, right now, the Fed is.
I thought Bernie Madoff went to jail for that.”