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Blackstone refinancing Cosmopolitan (again) via CMBS

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Blackstone Real Estate Partners VII is tapping the commercial mortgage bond market to refinance the Cosmopolitan Las Vegas Hotel and Casino.

It has obtained a $1.38 billion first mortgage on the property from a consortium of lenders including Goldman Sachs, Citi Real Estate Funding, JPMorgan, Bank of America and Deutsche Bank.

If this sounds familiar, it's because the real estate investment arm of the Blackstone Group refinanced the property via the CMBS market just a year ago, in 2016. And that transaction refinanced debt used to acquire the property in 2014.

The new interest-only first mortgage will be used along with a companion $420 million subordinate mezzanine loan (not part of the securitization) to pay off more than $1.56 billion in borrowings made by Blackstone last November. That transaction included a $1.03 billion loan collateralized by the central Las Vegas Strip hotel property, as well as a companion $513 million mezzanine loan that funded an equity-cash distribution used in part for capital improvements.

The first mortgage is being used as collateral for CHT 2017-CSMO Mortgage Trust, which will issue six classes of notes that will be privately placed. The capital stack includes a $479.7 million Class A tranche has preliminary triple-A ratings from Moody’s Investors Service and DBRS.

A Deutsche Bank subsidiary, German American Capital Corp, will retain notes in the deal for risk-retention purposes.

The new loans are increasing the hotel's total leverage by 15.4%, a "substantial" increase, DBRS stated in a presale report. But even with the loan-to-value ratio bulging to 99.7% from last year’s 67.5% level, DBRS noted Blackstone has increased net cash flow nearly 30%, or $50.2 million, due to last year’s refinancing.

The new two-year loan (with five one-year options) will deliver even more interest savings: it has a 1.94% interest rate, compared to the prior loan’s 2.8% rate.

About $153 million of the cash going to Blackstone from the 2017 loans will be spent on forthcoming guest-room renovations and to compensate for capital improvements that have already been undertaken. Last January, the Blackstone partnership finished construction on 21 new East Tower luxury suites, for example.

The Cosmopolitan opened between 2010 and 2011 in two phases, at a cost of $3.8 billion. It features over 3,000 “condo-quality” room and suites in two high-rise towers, according to Moody’s, and houses an 111,500-square foot casino. The casino property was appraised at $2.98 billion.

The hotel was originally owned by Deutsche Bank, which took over the development of the property in 2008 through a deed-in-lieu of foreclosure. Deutsche sold the hotel to Blackstone in 2014.

As of Aug. 31, 2017, Cosmopolitan reported 94.8% occupancy and a revenue per available room (RevPAR) rate of $300.13.

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