Possible Sale of The Cosmopolitan Could Be Billion Dollar Winning Bet for Blackstone Group

Posted on: April 17, 2019, 09:29h. 

Last updated on: April 17, 2019, 09:29h.

The Cosmopolitan of Las Vegas is not likely to change much for visitors as news broke Tuesday that the current owner, the Blackstone Group, is considering putting the luxury venue up for sale following renovations.

Under CEO Stephen Schwarzman the Blackstone Group may sell the Cosmopolitan after renovating the luxury venue located on the Strip. (Image: YouTube)

Selling the Strip property after upgrades follows the financial services firm’s overall strategy with real estate investments. Close to five years ago, Blackstone purchased the venue from Deutsche Bank AG for $1.73 billion. It represented the first major gambling investment for Blackstone, although it had owned a small stake in Caesars Entertainment.

Blackstone then spent some $500 million on renovations and reports say the property could soon sell for $4 billion. The firm built 21 penthouse suites on the unfinished top four floors — to draw in more VIPs — and renovated about 3,000 guest rooms. The venue also added 18 bars and restaurants.

Rooms now cost more than $330 a night on average, reports said.

Deutsche Bank initially got control of the property in 2008 because an earlier owner’s group — including the Soros Management Fund, a former Las Vegas Sands executive, and a real estate developer — defaulted on loans in the middle of the financial crisis.

The bank had sales discussions with national hotel chains, such as such as Marriott, Hyatt and Hilton — but price was a sticking point.

It eventually opened in stages starting in 2010. About $4 billion was spent to build the two-tower venue before it was sold to Blackstone.

Now, Deutsche Bank has joined with PJT Partners — itself an investment bank that spun off from Deutsche — to work with Blackstone as it considers a possible sale, among other options.

A spokesperson for Blackstone Group declined to comment on the news report on Tuesday.

The Cosmopolitan was a classic buy it, fix it and sell it opportunity,” Ken Caplan, Blackstone’s global co-head of real estate, said in a 2018 company video using the firm’s motto about commercial real estate investments.

The Wall Street Journal, which broke the story on Tuesday, said the rare chance to own such a hotel and casino on the Strip could interest such companies as MGM Resorts International and Wynn Resorts.  Another global operator that may be curious is Malaysia’s Genting Group — or possibly some smaller but prominent casino companies in the US. Last November, Blackstone denied a rumor that Hard Rock International was going to buy the Cosmopolitan.

Promising Outlook for the Strip

As far as the overall outlook for Strip property, in March, John Knott, executive vice president of CBRE Global Gaming Group, predicted that available acres on the Strip will sell for $50 million each in the coming years.

Part of the optimism stems from the upcoming completion of the Las Vegas Convention Center expansion and the Raiders’ NFL football stadium, with the team beginning to play there as early as 2020. There is also promise with venues offering more sports betting and themed sports weekends.

Arguably, the number of tourists visiting Las Vegas has edged down from the approximately 43 million seen in 2016 to about 42 million last year. Also, the Cosmopolitan has been plagued by labor disputes with the Culinary Workers Union Local 226 with employees picketing in front of the hotel in 2013 because then-owner Deutsche Bank and the union could not reach a settlement in stalled negotiations.

Hawaii Lucrative for Blackstone

Analysts also suggest the possible sale of the Cosmopolitan means Blackstone will focus more of its hotel investments on locales like Hawaii. Previously, Blackstone paid $445 million for a leasehold interest in the Hyatt Regency Waikiki Beach in 2013, spent $100 million on renovations and sold the property in 2016 to Mirae Asset Global Investments for about $800 million, nearly double what it originally spent. Last May, Blackstone also finished its investments in Hilton resulting in about $14 billion of profit.