DB Folds on Vegas Megaresort After Six Years

LAS VEGAS—Six years after issuing a default notice to 3700 Associates LLC, the developer of the $3-billion Cosmopolitan of Las Vegas, and then taking ownership of the unfinished project, Deutsche Bank is finally cutting its ties to the 2,995-key hotel and casino. The lender, which reportedly has sunk $4 billion into the Cosmopolitan, said Thursday it had agreed to sell it to a Blackstone Group fund for $1.73 billion in cash.

Deutsche Bank said Thursday that the sale of Nevada Property 1 LLC, which owns the Cosmopolitan, to Blackstone Real Estate Partners VII would have a five-basis-point positive impact on the bank's tier 1 capital ratio. The Cosmopolitan is held within the bank's non-core operations unit.

“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,” says Pius Sprenger, head of the NCOU. “We are pleased to have agreed to this sale and to have delivered on our commitment.” Published reports say the casino resort has lost more than $300 million since opening in 2010.

For Blackstone, the deal represents its first major property acquisition on the Strip, although it owns a small stake in Caesars Entertainment. However, it's far from the private equity giant's first investment in Nevada. The Wall Street Journal reported on Friday that Blackstone has acquired about $3.5 billion of property in the state over the past two years, including 1,000 single-family homes and the 68-acre Hughes Center office complex.

The Las Vegas Review-Journal quoted JP Morgan gaming analyst Joe Greff as saying that Blackstone is paying nearly 17 times the Cosmopolitan's 2013 cash flow of $103 million, a good omen for the valuation of other upscale Strip casino companies, such as Wynn Resorts Ltd. and MGM Resorts International. “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 said.