Deutsche Bank AG has ended its foray into the Las Vegas gaming market after it sold The Cosmopolitan of Las Vegas for $1.73 billion. The Las Vegas Strip resort and casino is considered a luxury property, but it was unprofitable in the time the German investment bank owned the casino.
Blackstone Real Estate Partners VII is the new owner of the hotel and gaming venue. Deutsche Bank says the sale is still subject to regulatory approvals. The bank had expected to sell the property before it opened in 2010, but the global recession made such a sell-off problematic. Instead, Deutsche Bank placed the casino in a separate bank division, a part of their company specializing in selling unwanted investments.
Blackstone Real Estate Partners
Blackstone is an international real estate investor with a over $81 billion in assets around the globe. The company describes itself as the "largest opportunistic real estate investment manager in the world". Blackstone Real Estate Partners specializes in purchasing underperforming property, then reselling it after improving that property. At present, Blackstone owns just under 1,000 homes throughout Nevada, as well as the Las Vegas office complex known as the Hughes Center. Blackstone also owns a small portion of Caesars Entertainment Corp.
The purchase would appear to be a remarkable bargain for Blackstone. The group bought a $3.9 billion casino development for $1.73 billion. While the pre-crash value of the property might never be realized, the Cosmopolitan of Las Vegas is likely to worth a great deal more than the 2014 purchase price.
Just the Right Amount of Wrong
Tyler Henritze, Blackstone's senior managing director, said in a statement that the new ownership group sees value and potential in the Cosmopolitan. The casino was the last major development project approved before the Great Recession. When the $3.9 billion resort casino's original developer defaulted on a loan, Deutsche Bank AG finished the building project. The Cosmopolitan originally was seen as a condo complex, so it was built with oversized rooms and kitchenettes. Over time, the condo complex was converted into a hotel, because the housing market collapsed.
When the casino opened, it marketed itself as a "decidedly different" type of gaming venue. Unlike the kitschy themes most often associated with the Las Vegas Strip, the Cosmopolitan's casino was designed to appeal to a more sophisticated type of gambler, while the nightlife had the same appeal. The casino's slogan was "just the right amount of wrong".
Decidely Different Casino Appeal
The casino emphasized high dollar entertainment and restaurants owned by celebrity chefs, but the property did not seem to have the kind of widespread appeal the gaudier casinos on the Strip seem to have. It did not help that Deutsche Bank lacked the large database of regular players the more established gaming companies have.
David G. Schwartz of the Center for Gaming Research at the University of Nevada, Las Vegas says the Cosmopolitan has struggled to find an identity in a competitive market. Schwartz told a local news station, "Optimally, you want to use the food and beverage as a driver for gambling." The Cosmopolitan clearly has not accomplished that until now.
One cannot blame Deutsche Bank too much for its performance as a casino management team. The bank's executives never expected to be running a casino. They took over a stalled development, but never intended to own the property as a perpetual source of income. High tone German bankers might not have the pulse of the average American gambler. It is no surprise their choices, which might have seemed appropriate and classy to the business executive, did not appeal to the mass market.
Distressed Properties
On paper, the Cosmopolitan of Las Vegas appears to be a classic reclamation project for Blackstone. Industry experts agree that the Strip's newest casino has never lived up to its potential and a more directed image and marketing campaign would work wonders for the gaming location. Most brand new casinos in Las Vegas attract a certain level of interest, both from gamblers and gawkers.
Players should expect to see a decided image change in the Cosmopolitan's approach in the coming months. It is not known whether Blackstone will give the resort and casino a new name, which sometimes happens when a struggling casino changes owners. What is all-but-certain is the Cosmopolitan will have new themes and attractions. "Urbane" does not seem to work in Las Vegas, so expect an identity change.
