In a move that has not been taken in nearly a decade, Blackstone Group LP may put the Cosmopolitan hotel and casino up for sale. This would be the first time in 10 years that a major operating casino on the Vegas Strip has hit the market, although smaller, non-Strip properties and non-operating properties have changed hands. Blackstone retained Deutsche Bank AG and PJT Partners Inc. to “explore strategic alternatives for the property, including a sale” earlier this month. Blackstone acquired the Cosmopolitan in 2014 for $1.7 billion and spent an additional $500 million finishing and renovating the property.
A Short and Storied Past
This would not be the first time the Cosmopolitan made headlines for an unusual sale. The resort first went bankrupt in 2008 during the housing crash when the original developer defaulted on a $768 million loan. Deutsche Bank took over the project at that time, foreclosing on the property and ultimately acquiring the hotel for $1 billion and sinking billions more into its development and eventual debut on The Strip. Ultimately, the Cosmopolitan was the only hotel-casino to open on the strip in 2010, and the lender sold the property to Blackstone Group for a $2.2 billion loss in 2014. If Blackstone sells to another casino operator, the company could snag a sales price in excess of $4 billion in today’s market. At present, the hotel is run as an independent property.
Signs of Trouble in the Vegas Market
Analysts warn that Blackstone’s decision to sell the Cosmopolitan could herald a shift in the Las Vegas real estate market. Local tourism is still booming, but it has eased off a recent peak of 43 million visitors in 2016. Convention attendance is up in the city, however, and the Oakland Raiders are heading for Sin City in 2020 along with the National Hockey League. These two moves could be a gamechanger for Vegas, which has suffered from a lack of professional sports teams because the leagues do not want to appear to endorse sports-related gambling despite benefitting from it via popularity and growth.
So why might Blackstone be interested in getting out? With operators like Wynn Resorts and MGM Resorts International likely interested in the property, it could be a move simply to get out while the getting out is good. The Cosmopolitan routinely sells its rooms at the highest rates on the strip, and its earnings have tripled since Blackstone bought the property five years ago.
However, Blackstone also might be looking to preempt a downturn, however small, in Las Vegas’ volatile real estate market. While the area’s housing prices are still going strong, in February there were nearly 85 percent more homes on the market without offers than there were the year prior. Despite local attempts to counteract the issue, Las Vegas’ economy still relies heavily on the mercurial tourism industry, which means that a swing downward in consumer sentiment, even if unwarranted, could hurt the city as a whole. With a controversial presidential election coming up, Blackstone could be interested in selling off this sentiment-dependent asset while sentiments are still good.
Tell us what you think:
- Is the time right to sell off a major casino?
- Is this a potential sign of good news (or bad) for Las Vegas?
- Would you invest in Vegas?
Thank you for reading the Bryan Ellis Investing Letter!
Your comments and questions are welcomed below.