East Coast firm still ‘bullish’ on Las Vegas
The global investment firm Blackstone Inc. might be based on the other side of the country, but it has a sizable presence in the Las Vegas Valley.
With a $514 billion global real estate portfolio, the New York-based firm exists to turn a profit, and Tyler Henritze, head of strategic investments for Blackstone’s real estate arm, believes Las Vegas is one of the best places in the United States to do that.
Last year, Blackstone made headlines by announcing the $5.65 billion sale of the Cosmopolitan to MGM Resorts International after investing more than $500 million in recent years into improvements and additions at the Strip resort.
It purchased the Cosmopolitan in 2014 for about $400 million.
In the complicated transaction, MGM bought the operations of the Cosmopolitan from Blackstone for $1.6 billion, but the firm still stands to profit from the resort.
Along with Stonepeak Partners and the Cherng Family Trust, the Blackstone Real Estate Income Trust bought the real estate of the Cosmopolitan for $4 billion.
In the past three years, the Blackstone trust also purchased the real estate assets of the Bellagio, and about half of the real estate assets of Mandalay Bay and the MGM Grand.
In all, Blackstone controls about $25 billion worth of real estate investments — about 100 properties — in Nevada.
Henritze recently spoke with the Sun over the phone to discuss the Las Vegas market and why Blackstone remains excited about its potential.
What does Blackstone see on the horizon for Las Vegas?
We’re big believers in Las Vegas. We’re as bullish today as we’ve ever been. Las Vegas has grown up. Today, it’s much more of a diversified entertainment economy, but it goes beyond that. It’s no longer just about gambling in Las Vegas, it’s about business and sports and entertainment. As a result, if I look across our real estate business, we’ve made big investments across the board.
Certainly, some of the gaming-related investments get more publicity, but look at multifamily (apartments) investments — we own 23 multifamily assets across the Las Vegas market. We own almost 10 million square feet of logistics facilities. We own office spaces. There’s not many other markets I can think of where our investment activity has been as broad and as diverse as it is in Las Vegas. I think that’s a testament to Las Vegas having grown up. We see it as having a very healthy economy today, and we expect it to stay that way for a number of years.
You mentioned the gaming side of the Las Vegas economy, which still brings in a lot of money. With all the talk about possible new casinos in places like New York City and Chicago, could that cut into Vegas’ gaming take?
It’s not a huge concern because Vegas has taken some thoughtful steps to diversify its economy. From an entertainment perspective, the reason people visit Vegas today goes way beyond just pulling the handle of a slot machine or throwing down some poker chips. It’s about the overall experience. It’s about the shows, the dining, the retail, hospitality experiences, the Raiders, the Golden Knights, the recently announced Formula One race … the experiences there don’t exist anywhere else. Because of that, from a pure tourism perspective, Vegas has wisely diversified.
Yes, gambling is a component of what’s offered, but there’s much more. Take the National Football League — if you’re an NFL fan, what’s a more exciting place to go watch your team than Las Vegas?
Blackstone officials have talked previously about how it’s important for the company to become involved in the communities where it invests. How has that happened in Las Vegas?
When we have the type of commitment that we have in Las Vegas, we want to bring our capital to bear not only to transform great assets like the Cosmopolitan, and really elevate them to a new level, but to also get involved in the city and in the community.
We have a partnership where we helped with an incubator project with local entrepreneurs, but we’ve also made pretty sizable donations to the Three Square Food Bank, and we have a solar project that’s related to one of our industrial projects. If you look across the market, we have wanted to be a part of the community in a constructive manner.
In recent years, we’ve seen a fair amount of these “real estate investment trust” deals where Strip casinos are sold to the trust, then leased back to the operator. Why have these types of deals become so popular?
Simply put, the market has felt that by bifurcating the operations of a casino from the real estate, you allow capital to invest in one or the other, as people see appropriate.
As you might imagine, managing and operating a casino is complex. There’s a lot of risks. We have different pockets of capital, so we have participated in both types.
At the Cosmopolitan, that was an example of where we not only owned the real estate, but managed the operations of the asset. That’s generally an investment with a little more volatility, but a little more upside, too. The (Las Vegas) market has evolved to bifurcate these integrated gaming-related resort assets so that the right capital can be exposed to the right portion of those assets.
We were ecstatic with our investment in the Cosmopolitan. We’ve also had a lot of success where we own the real estate and just collect rent from some of the best operators in the business, like MGM Resorts International. We’d love to do more of those types of opportunities. The question is how many more assets can be bifurcated that haven’t been.
“Vegas has taken some thoughtful steps to diversify its economy. From an entertainment perspective, the reason people visit Vegas today goes way beyond just pulling the handle of a slot machine or throwing down some poker chips.” Tyler Henritze, head of strategic investments for Blackstone Inc.’s real estate arm
You touched on what you think Blackstone could possibly be interested down the road in Las Vegas, but what else might it be interested in here?
It’s hard to say because we’re involved with so much already. Our range of investments (in Las Vegas) goes from the (business-to-business) commerce space to large office investments, logistics holdings, and multifamily investments. Certainly our gaming-related investments are sizable. Generically speaking, we’d love to do more of the same. We’ve had a positive experience across the board in Las Vegas. We do like the logistics area, too. We just want to continue to be a positive force. We want our capital to be seen as a force of improvement and to help bolster the local economy and the local workforce.
Were you surprised at how Las Vegas has seemed to recover so quickly from the economic downturn caused by the pandemic?
We were a little surprised at just how robust and quick the bounce-back was. The numbers we saw at the Cosmopolitan coming out of the pandemic were astounding. We had a conviction, even in the middle of COVID, to not bet against the basic desire of people to congregate and be together. Human beings like to be together. Unfortunately, a lot of people were isolated during the pandemic and I think Vegas represents this incredible combustion of human energy. That’s not going away.