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CMA
November 10, 2017  

Deutsche to Lead $1.8 Billion Loan

Deutsche Bank is leading a group of five lenders that will originate a $1.8 billion financing package for Blackstone on the Cosmopolitan of Las Vegas hotel and casino.

Goldman Sachs, Citigroup, Bank of America and J.P. Morgan will team up with Deutsche, each putting up 20% of the proceeds to refinance the 3,974-room property. They will securitize the senior portion of the floating-rate loan in an upcoming stand-alone offering and structure the rest as mezzanine debt to be placed with private investors. The size of the junior piece is still being finalized.

Blackstone will use most of the proceeds to retire $1.55 billion of debt that it lined up just one year ago. That package, with a two-year term and three one-year extensions, becomes prepayable without penalty next month.

The existing debt includes a senior $1.037 billion portion that was securitized in a stand-alone deal underwritten by J.P. Morgan and Deutsche on an agent basis (CHT 2016-COSMO). It carries a coupon of Libor plus 257 bp. J.P. Morgan co-originated a senior mezzanine note of $388 million with Canada Pension Plan, and wrote a $125 million junior mezzanine slug on its own. The mezzanine debt was subsequently sold to private investors. The 2016 package, in turn, refinanced $1.3 billion of securitized and mezzanine debt originated the previous year.

The higher proceeds in the new loan reflect increasing cashflow at the property. Net operating income for the 12 months ended March 31 was $257.9 million, up from $189.6 million for calendar year 2015, according to servicer reports.

The Cosmopolitan’s developer, Bruce Eichner, defaulted in 2008 on $768 million of financing provided by Deutsche. The bank assumed the partially completed property and repositioned it, increasing its total investment to a whopping $3.8 billion. The hotel opened in 2010. Blackstone acquired it four years later for $1.7 billion, via its $13.3 billion Blackstone Real Estate Partners 7 fund.

The property, on the Las Vegas Strip, includes a 112,000-square-foot casino along with more than a dozen restaurants, a nightclub, a 1,800-seat theater and meeting and fitness facilities. It encompasses two high-rise towers on a relatively small 8.7-acre site at 3708 South Las Vegas Boulevard, between the Bellagio and CityCenter resorts. The Bellagio, by comparison, occupies a 120-acre site.