Deutsche Bank Sells Las Vegas Cosmopolitan to Blackstone
Posted on: May 21, 2014, 05:30h.
Last updated on: May 20, 2014, 10:39h.
Ever since they foreclosed on The Cosmopolitan of Las Vegas back in 2008, Deutsche Bank has been looking to unload the casino and hotel onto anyone willing to give them a good price. After all, they’re a bank, not a casino operator, and that made the venue a very awkward fit.
Major casino firms around the world expressed interest in potentially buying The Cosmopolitan, which seemed to have great potential, even if it had yet to make a profit. That meant it was somewhat surprising when Deutsche Bank announced that they had sold the casino to another group with very limited casino experience.
The bank announced an agreement to sell The Cosmopolitan to the Blackstone Group for a price of $1.73 billion in cash, marking the first major gambling investment for Blackstone.
Blackstone Invests in Las Vegas Recovery
That said, it’s not quite as far of a reach for the group as it might seem. Blackstone is a major investor in the world of real estate, and they already owned a small stake in Caesars Entertainment.
“As a significant investor in the hospitality sector Blackstone recognizes the value and potential in The Cosmopolitan and Las Vegas and looks forward to working to build on the success to date,” said senior managing director Tyler Henritze in a statement.
Some analysts found the purchase to represent a major statement on the future of the Las Vegas Strip.
“We…think this announcement speaks to a historically smart real estate buyer making a statement on the length of the Las Vegas Strip recovery,” said JP Morgan gaming analyst Joe Greff. And 0ther analysts suggested this could raise interest – and the price – in future sales of Strip properties.
Deutsche Bank Removes Non-Core Asset
For Deutsche Bank – the largest bank in Germany – it was a relief to unload a property that did not fit in with their overall business plan.
“The Bank is committed to reducing its non-core legacy positions in a capital efficient manner which benefits shareholders,” wrote Pius Sprenger, head of the Non-Core Operations Unit at Deutsche Bank.
Cosmopolitan Yet to Turn a Profit
For Blackstone to turn The Cosmopolitan into a good investment, they’ll have to reverse a long history of bad news for the venue. The massive undertaking of building the luxury resort took place just before the 2008 financial collapse, hurting the casino’s chances from the start.
After developer Bruce Eichner was forced to turn over The Cosmopolitan to Deutsche Bank in January 2008, the bank picked up the costs to finish building. But the resort has never turned a profit since opening in December 2010. While the hotel has proven massively popular and its clubs and restaurants are often full as well, the casino has never brought in enough revenue to sustain the resort’s sky-high operating expenses.
While the situation seems to have been improving recently (in line with a general recovery for Las Vegas casinos), The Cosmopolitan still lost $12 million in the first quarter of 2014. There have also been issues with the Las Vegas Culinary Union, which has protested the fact that employees have been working without a contract for two years.
While the sale to Blackstone is likely to go through, the sale is still subject to approval by state gaming regulators.
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