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Deutsche Bank is checking out of its Strip casino. The German bank agreed on Thursday to sell the Cosmopolitan of Las Vegas to the Blackstone Group for $1.7 billion in cash.
The sale ends Deutsche Bank’s ownership of the property after it foreclosed on the resort’s developer – Bruce Eichner – in January 2008.
The bank completed construction of the 8.7 acre property between Bellagio and CityCenter on the Strip, opening the Cosmopolitan in December 2010 at a cost of $4 billion. The Cosmopolitan has never turned a profit. The high-end resort reported a fourth quarter loss of $25.5 million and a net loss of $94.8 million for all of 2013. Deutsche Bank has held the Cosmopolitan in a part of the bank designated for non-core operations, which the bank is looking to sell.
“As part of our Strategy 2015+, the bank is committed to reducing its non-core legacy positions in a capital efficient manner which benefits shareholders," Pius Sprenger, head of the bank’s non-core operations unit, said in a statement. “We are pleased to have agreed to this sale and to have delivered on our commitment.”
Sprenger said the transaction is subject to regulatory approvals. The Nevada Gaming Control Board and Nevada Gaming Commission will have to approve the sale.
The transaction is a significant gaming investment by Blackstone’s Real Estate Group and its global fund, Blackstone Real Estate Partners VII. The firm also owns some 1,000 homes in Nevada and has owned a small piece of Caesars Entertainment Corp.
“As a significant investor in the hospitality sector, Blackstone recognizes the value and potential in the Cosmopolitan as well as Las Vegas itself and looks forward to working with management and all (employees) to build on the success to date,” Blackstone’s Real Estate Group Managing Director Tyler Henritze said in a statement.
This is Blackstone's second major purchase in Las Vegas in less than a year. In September, Blackstone Real Estate Partners VII spent $347 million to acquire the Hughes Center.
The Hughes Center is a 68-acre master-planned development comprised of 10 office and retail properties that is located on Howard Hughes Parkway between Flamingo Road and Sands Avenue, just west of the Strip.
Cosmopolitan CEO John Unwin said he appreciated the "support and partnership" provided by Deutsche Bank over the last few years. He said the sale to Blackstone represents "the beginning of the next chapter for the Cosmopolitan of Las Vegas."
J.P. Morgan gaming analysts Joseph Greff told investors Thursday Blackstone is paying a healthy 16.7-times Cosmopolitan's cash flow of $103.3 million last year, which is a favorable valuation for other luxury Strip gaming companies, including Wynn Resorts Ltd.
"We also think this announcement speaks to a historically smart real estate buyer making a statement on the length of the Las Vegas Strip recovery, also a positive," Greff wrote in a research report.
Nevada Property 1 LLC, the parent of the Cosmopolitan, on Thursday reported a $12.6 million loss for the first quarter, compared to a loss or $24.7 million in the same period last year. The Strip resort’s decline in red ink last quarter was helped by gains in casino, hotel and entertainment revenues.
The Cosmopolitan posted casino revenues of $49.2 million in the first quarter of 2014, compared with $40.8 million in the same period last year. Hotel revenues quarter-over-quarter jumped by more than $12 million to $75.7 million, while revenues generated by entertainment and retail climbed $10.7 million to $85.3 million in the first quarter.
Joshua Smith, Commercial Real Estate Consultant, Gaming Division, Colliers International