American investment management giant Blackstone Incorporated has reportedly signed a deal with MGM Resorts International to offload the Cosmopolitan of Las Vegas. Some reports pegged the value of the deal at a whopping $5.65 billion. The reported valuation of the deal is quite encouraging as it has nearly tripled the NYSE-listed investment management giant’s investment on the Las Vegas Strip venue in just around seven years.
However, under the terms of the deal, MGM has acquired only the business operations of the Cosmopolitan. It means that the rights to the real estate will be retained by Blackstone and a couple of other investors, viz. Stonepeak Partners, and Cherng Family Trust. In other words, Blackstone and other investors will collect rent from MGM in exchange for the leased property. MGM has agreed to pay $1.625 billion for the business operations.
Specifically, MGM is going to net lease the gaming property from Blackstone and other investors for an initial 30-year term. In rent, it will pay $200 million per annum. So, instead of receiving more than $5 billion for the gaming property that Blackstone initially wanted, it is going to receive roughly one-third of that amount in addition to a steady stream of rental income for the three decades to come. The business operations acquisition deal is expected to close in the first half (H1) of next year.
In a newly released statement, the private equity firm said, “Blackstone implemented significant operational changes and invested over $500 million into the property to renovate nearly 3,000 guest rooms, build 67 new rooms and suites, enhance the food and beverage offerings and dramatically improves the gaming amenities and common areas.”
The Cosmopolitan of Las Vegas is considered to be one of the casino hub’s leftovers of the global financial crisis, when developer Ian Bruce Eichner defaulted and Deutsche Bank seized control of the property. Initially, the German lender was a creditor of Eichner, but it ended up taking ownership of the venue by pumping a huge amount of $4 billion into it. A few years later, the lender sold the casino to Blackstone for $1.74 billion. Based on that price and the $500 million that Blackstone spent to enhance the property, the investment management firm enjoyed almost a three-fold rise in the money it invested.
In addition to a massive casino, the Cosmopolitan of Las Vegas offers over 3,000 rooms, more than two dozen food & beverage outlets, a theater, and 243,000-sq.-ft. of meeting space.