Deutsche Bank AG is in talks with potential buyers of its Cosmopolitan resort in Las Vegas as it tries to end a six-year, money-losing venture into casino development, people with knowledge of the matter said.
Germany’s largest bank is seeking more than $2 billion for the resort and has attracted at least four possible bidders, said one of the people, who asked not to be identified because the information isn’t public. Two others said it may be valued closer to $1.5 billion. Deutsche Bank foreclosed on the property after developer Ian Bruce Eichner defaulted on a construction loan in January 2008, and has labeled it a temporary investment.
Parting with the Cosmopolitan now could make the best of an unprofitable situation. Because business has been improving — the resort’s revenue rose 9.6 percent to a record $653 million last year — the property could fetch more than at any time since it opened in December 2010. The two-tower complex that opens onto the Las Vegas Strip cost more than $3.9 billion to build and has never turned a profit.
Ronald Weichert, a spokesman for Deutsche Bank in Frankfurt, declined to comment on the status of any sale.
The Cosmopolitan — whose marketing slogan is “just the right amount of wrong” — was redesigned, financed and completed by the bank after Eichner defaulted on a $760 million loan about 27 months after the construction contractor, now Tutor Perini Corp., broke ground on the project.
The lender entered the casino development business at precisely the wrong time. Amid a construction boom, Las Vegas Strip casino gambling revenue plunged during the financial crisis, and Nevada property prices collapsed.
In November 2012, Deutsche Bank shifted the Cosmopolitan along with other “principal investments” to a newly created “non-core operations unit” tasked with eventually selling them, according to filings.
When Eichner broke ground in October 2005, the Cosmopolitan was slated to cost $1.8 billion and open in mid-2008, according to a press release. By the time Deutsche Bank opened the doors, the tab had soared.
Nevada Property 1, the resort’s parent company and a wholly-owned subsidiary of Deutsche Bank, has a $3.5 billion loan payable to the bank, according to a regulatory filing.
The Cosmopolitan reported 2013 earnings before interest, taxes, depreciation and amortization of $103 million, a 56 percent increase from 2012. Still, it’s posted net losses of around $100 million every year since opening.
Built on 8.7 acres between MGM Resorts International’s Bellagio and CityCenter, Cosmopolitan’s 52-story towers loom over a series of swimming pools that overlook the city. The property’s narrow footprint forced the builders to dig deep, hitting an aquifer that requires the casino to pump groundwater from its subterranean parking garage 24 hours a day.
Shopping, restaurants and shows at the Cosmopolitan, including at its three-story Marquee Nightclub & Dayclub, contributed more than twice as much gross revenue last year as its 110,000 square-foot casino.
The 2,960-room resort drew lawsuits from condominium buyers and sales agents who were offered their deposits back to walk away and allow Cosmopolitan to open as a hotel without residential units. The suits alleged mismanagement and costly design modifications, often made by Deutsche Bank executives themselves. Most of the condo purchasers have settled, and Cosmopolitan has just two remaining condo units under contract that it’s seeking to resolve.
With assistance from Nicholas Comfort in Frankfurt and Stephanie Wong in Hong Kong.
To contact the reporters on this story: Christopher Palmeri in Los Angeles at [email protected]; Beth Jinks in New York at [email protected] To contact the editors responsible for this story: Anthony Palazzo at [email protected]; Mohammed Hadi at [email protected] Anne Reifenberg.