Valued at around $3.3 billion, the Cosmopolitan of Las Vegas is the most expensive investment ever made on a casino in Las Vegas.
The company footing the bill for this massive investment?
The German based Deutsche Bank invested roughly $3 billion on the construction, marketing, and operating costs of the Cosmopolitan after becoming the sole owners of the property back in 2008.
The bank inherited control of the Cosmopolitan of Las Vegas when the original owner defaulted on a $768 million loan that the bank had given him.
After taking over, the Deutsche Bank was unable to find an investment partner. Instead the bank had to go it alone, and provided the project with a low-interest loan that could have potentially made the bank liable for almost $4 billion.
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With so much invested in this venture, the Deutsche Bank recognized the need for an experienced staff at the helm. The project had accumulated $116 million in preopening expense before it had even opened its doors.
In 2009, the bank hired a management team to run the Cosmopolitan that was led by John Unwin, the former general manager from Caesars Palace.
The Cosmopolitan of Las Vegas offers guests everything they’re looking for when it comes to entertainment and comfort. It features oversized luxury rooms complete with kitchens and wrap-around terraces. With the average room costing over $300 a night, it is one of the most expensive resorts on the Strip.
The casino-resort’s Marquee nightclub has become a new hotspot on the strip after a $12 million Grand Opening party on New Year’s Eve featuring Jay-Z, Coldplay and Beyonce.
Upon opening, the Cosmopolitan's rooms sold out immediately and it made $4.2 million on room rates and another $4.3 million from gambling. In all, it made $10.6 million just in the first three weeks that it was open in 2010.
However, the Deutsche Bank still posted a loss of $139 million in costs from last year.
In order to recoup its losses, the Deutsche Bank will need a strong 2011 to pay for the massive costs of construction and operations. Skeptics say the Cosmopolitan will need to figure out how to bring in more gamblers.
So far the Cosmopolitan has had no trouble selling out its rooms and filling its swanky nightclubs and restaurants. However, it lacks the foundation of any casino, a deep base of gamblers.
The Cosmopolitan appeals to a relatively younger demographic than most casinos; a group that prefers partying to gambling.
“When you build a $4 billion casino in the middle of the Strip, it is important to have a base of gamblers-they have zip,” said former employee Bill Lerner, now an analyst with the Union Gaming Group.
Typically the casino floor accounts for half of a property’s profits, with roulette and poker usually the biggest money-makers. With a young crowd and a small property that forced the building's designers to build up rather than outward, the casino will have to figure out a way to get more visitors to its casino floor.
“The young vibe can be attractive from a volume perspective, and it can become the place to be on the Strip,” said David B. Katz, an industry analyst at the brokerage firm Jeffries & Co. “The rub is that demographic profile isn’t the most affluent and most predisposed to spending, inside and out of the casino. People that are 40 years old and older simply have more money.”