News & Analysis

driven by the PitchBook Platform
This Day in Buyout History

This day in buyout history: Blackstone bags the newest jewel in Las Vegas

Five years ago today, Blackstone completed its $1.73 billion purchase of The Cosmopolitan of Las Vegas, a swanky new property on the Strip that had spent the previous six years in unprofitable limbo.

 The Cosmopolitan of Las Vegas, towering over the Strip.
(via Allen McGregor/CC BY 2.0)

Over the past three decades, Blackstone has built itself into a $157 billion powerhouse in the world of real estate. And from the beginning, hotels have been a major part of its strategy in the space.

So in some ways, it was only a matter of time before Blackstone set its sights on Sin City. That was the case five years ago today, when the firm completed its purchase of The Cosmopolitan of Las Vegas for $1.73 billion, rescuing one of the swankiest new properties on the Strip from years of limbo under the ownership of Deutsche Bank.

The resort that would become The Cosmopolitan was conceived in 2004, when a veteran casino executive, a real estate developer and Soros Fund Management announced plans to build a new hotel and casino just south of the Bellagio. At first, it was to be called the Grand Hyatt Las Vegas. But by the time work had begun on the project in earnest, an economic crisis had started to grip the globe. The company financing the hotel defaulted on a major loan from Deutsche Bank. And in March 2008, the German banking giant informed the builders that it planned to foreclose on the property. Six months later, Deutsche Bank bought what was now known as The Cosmopolitan for a reported $1 billion.

Over the next two years, the bank kept pumping capital into the project—a total of $3.9 billion when it was all said and done, according to reports. The Cosmopolitan opened in 2010, and it wasn’t long before it began to win rave reviews. But it was a while before Deutsche Bank was able to find a buyer for the hotel and casino, as potential investors shied away from a property that was struggling to turn a profit in the aftermath of the Great Recession.

When Blackstone finally came calling in 2014, it already knew more than most about the ins and outs of the hotel business. The firm officially launched its real estate unit in 1991, but it had been active in the hospitality space even before that. In 1990, Blackstone agreed to pay a reported $133 million for a 65% stake in the Ramada and Howard Johnson hotel franchises. A year later, it reportedly handed over $250 million for the Days Inn of America chain. And in 1993, it shelled out a reported $125 million for Super 8 Motels.

By the next decade, Blackstone had moved on to bigger fish. In 2007, the firm agreed to take Hilton Hotels private in a deal valued at $26 billion, a prime example of the PE industry’s penchant for mega-deals in the months immediately preceding the global financial meltdown. Amid the crisis, Blackstone wrote down its stake in Hilton by some 70%. But by 2014, the firm had turned things around. When Blackstone finally sold off the last of its stake in Hilton in mid-2018, the firm had realized a reported profit of $14 billion.

So it was with a degree of confidence that the firm swooped in to take over The Cosmopolitan. And if recent reports are to be believed, that confidence was well placed. This April, The Wall Street Journal reported that Blackstone was pursuing an exit from the hotel that could be worth up to $4 billion, a 135% premium to the price it paid less than four years prior.

While it was attempting to line up an exit from one staple of the Strip, Blackstone was also negotiating a deal to take over another Las Vegas icon. This October, a division of the firm teamed with MGM Resorts to create a joint venture that agreed to purchase the real estate assets of the Bellagio for $4.25 billion. Blackstone immediately agreed to a leaseback agreement that would allow MGM to continue operating the property, putting Blackstone in the position to simply sit back and watch the rent payments pour in.

Las Vegas is known as a town where money flows freely. And over the past half-decade, Blackstone has emerged as one of the biggest whales around.

*This story has been updated to better describe the size of Blackstone’s real estate operations.

  • 2016-10-05-11-14-50-442x480.jpg
    Written by Kevin Dowd

    Kevin Dowd wrote The Weekend Pitch newsletter for PitchBook, covering startups, buyouts and the rest of the private market.

    A native of the Pacific Northwest, he’s an alumnus of the University of Washington with a degree in creative writing and journalism. He enjoys books and basketball and, most especially, books about basketball. He feels uncomfortable writing about himself in the third person.

Join the more than 1.5 million industry professionals who get our daily newsletter!