Las Vegas Sun

September 21, 2021

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ANALYSIS:

Why Cosmopolitan’s credit collapse accentuates positive in Strip outlook

Interest of prominent buyers suggests long-term health

0717Cosmo2

Steve Marcus

Cranes and construction equipment surround the Cosmopolitan on Monday. The resort’s unconventional design places retail on the first several floors and makes the casino accessible from a side entrance.

Click to enlarge photo

An ironworker looks out from the Cosmopolitan this week. Deutsche Bank, the project's primary lender, took possession of the property after its developer, New York condo builder Ian Bruce Eichner, defaulted on a $760 million construction loan.

Beyond the Sun

The Cosmopolitan, which sits half-built in the middle of the Strip, has been held up as a symbol of Las Vegas’ doubtful future.

In fact, the $3 billion property — part of the resort corridor’s largest construction boom, amid its worst economic slump in recent memory — might better serve as a symbol of the Strip’s long-term economic strength.

While Cosmopolitan reps have kept quiet since the project’s primary lender started foreclosure proceedings in January, plenty has gone on behind the scenes.

The centrally located site offers a rare opportunity to buy Stripfront property, and experienced hotel operators, including Hilton and Hyatt, are lining up to acquire it.

Evidently, some investors still think Las Vegas is a good long-term bet.

Closing a deal, however, will be difficult.

The usual hurdles have grown higher amid the economic downturn. Prospective buyers need to come up with several billion dollars during a credit crunch that has made capital cost-prohibitive. Owner Deutsche Bank, unwilling to see the costly and complex project that it bankrolled fall into the wrong hands, will be choosier than the typical seller.

The difficulty in getting financing, the tourism slowdown and the challenge of reconfiguring an under-construction property to meet a new owner’s needs will likely add up to a loss on the sale for Deutsche Bank, which is owed more than $900 million on the property.

Just how much of a loss the bank will take is an open question. The bigger the discount, the more appealing the prize.

The company declined to comment.

The resort was the vision of an outsider who financed it when capital was cheap.

Where others saw a 9-acre parcel that might have housed a parking garage or a strip mall, New York condo developer Ian Bruce Eichner saw enough space for a 7 million-square-foot resort featuring twin skyscrapers attached to a five-story base. Rather than buy out time share owners at the neighboring Jockey Club, he erected his resort flush with their property and built parking spaces for the Jockey Club residents beneath Cosmopolitan.

The towering design tested the limits of county planners, who weren’t entirely comfortable with its density.

The design also presents a challenge for potential buyers.

The resort stands out on the Strip, where whimsical designs belie a time-tested method for separating customers from their money.

Eichner viewed his design, with retail on the first few floors and restaurants and other amenities on floors high above the Strip, as an eye-catching innovation that would appeal to well-heeled city dwellers. The casino is planned for the resort’s ground floor, accessible from a side entrance fronted by retail stores.

Some casino operators, at least privately, panned the design. Gamblers should expend little effort to get to the casino floor, they said. Guests want to be greeted by the energy of gaming tables and whirring slots rather than the relatively sterile atmosphere of a mall, the insiders said.

Others said Eichner was ahead of his time. CityCenter and even the new Palazzo have entrances that lead into malls, and space constraints will require future developers to be more creative with multistory attractions.

Deutsche Bank took possession of the property after Eichner defaulted on the property’s $760 million construction loan.

The plans for Cosmopolitan’s rooms — which have the bold look of a rock star’s pad — are another hard pill to swallow. Hipsters will no doubt welcome the shag carpeting, mirrored walls, glass chandeliers and zebra-print furniture. But what will a conservative hotel company do with such baubles?

Eichner planned to open the property by early 2010, but the foreclosure process might delay its debut.

All this uncertainty is making a lot of people uncomfortable, including hundreds of condo buyers who plunked down nonrefundable deposits.

Despite the challenges the project poses, would-be buyers are already at the table. The wheeling and dealing will continue to be quiet but intense. And it could go on for as long as the credit crunch continues.

The winning bidder will gain a status purchase and a potential flagship property, and help continue to fuel the Strip’s growth for decades.

(This story has been corrected. An earlier version indicated that the casino would not be on the ground floor.)

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