Blackstone exec ready to bet big on Cosmopolitan of Las Vegas

Blackstone Group executive Jonathan Gray never will be mistaken for Nick the Greek. The company’s head of global real estate considers himself just a gambling novice.

Yet, the head of the New York-based private equity fund is wagering $1.73 billion it can make The Cosmopolitan of Las Vegas a shining jewel on the Strip.

To hear Gray describe the 4-year-old Strip hotel-casino, Blackstone is well on its way to beating the odds.

Gray, 45, oversees Blackstone Real Estate Partners, which owns $81 billion in real estate assets.

The company completed its purchase of the 2,995-room Cosmopolitan from Germany-based Deutsche Bank in December. The stylish hotel-casino was Blackstone’s largest real estate asset purchase ever.

“We’ve bought companies, but this is a sizable real estate investment,” Gray said. “I live in New York, and of all the assets we’ve bought, this is the only one that people come up to me and say, ‘Oh my God, I love the Cosmo.’ ”

In December, Gray and other Blackstone executives talked exuberantly about the Cosmopolitan when the purchase was approved by Nevada gaming regulators.

His tone hasn’t changed in two months.

During an interview in a Cosmopolitan board room, Gray said the company, which owns the Hilton Worldwide hotel chain, has a history of investing in businesses or into markets that have run into difficult times.

In Las Vegas, the company already owned about 1,000 homes purchased out of foreclosure and the 1.4-million-square-foot HC | Hughes Center at Paradise and Flamingo roads when it acquired The Cosmopolitan.

“We have a positive view of Las Vegas,” Gray said. “Las Vegas is down, but not out.”

Gray said regional gaming markets will continue to face economic and competitive challenges. And they will never replace Las Vegas.

“It’s difficult to replicate the entertainment and infrastructure you have here, with the meeting space, restaurants, retail and hotels all in one location,” Gray said.

The Cosmopolitan is best known for its dining options and popular nightclubs, including The Chelsea, Rose.Rabbit.Lie. and Marquee, which is one of the top-grossing clubs in the United States.

During its presentation to state gaming regulators, Blackstone said the property collects 80 percent of its revenue from the hotel’s two 52-story towers and the extensive food and beverage operations.

Gray said the figure is something the ownership wants to change. The company plans to invest more than $100 million initially into The Cosmopolitan to complete four floors of unfinished hotel rooms in the East Tower. Other public areas of the property also will be enhanced.

“It could take a couple hundred million to get this place where it should be,” Gray said.

He said the property’s unique advertising message, “just the right amount of wrong,” won’t change, and the hotel rooms will remain available through Marriott’s Autograph Collection. New restaurant concepts also are being considered.

The focus will be on the gaming floor.

“It’s an area of great opportunity,” Gray said. “From a mathematical standpoint, The Cosmopolitan runs the highest average room rates on the Strip today. The gaming revenue per room is below the average of all the hotels on the Strip. That doesn’t seem to make a lot of sense to us.”

To fix those matters, Blackstone brought in veteran gaming executive Bill McBeath. He was president of three Strip resorts, The Mirage, Treasure Island and Bellagio, and most recently served as president of CityCenter.

McBeath says he is looking at ways to increase the casino play but also improve other areas of the resort. McBeath, who has been on the job since late December, likened the past few months to “drinking a glass of water out of a fire hydrant.”

He’s taken in every aspect of the property.

“I have put together a pretty aggressive program to enhance and differentiate our product offering,” McBeath said. “We have to deliver a product with a great nongaming offering, but at the same time, you can’t escape that we have a 100,000-square-foot casino on the first floor. You have to celebrate that with programs and services.”

McBeath’s commitment goes beyond his CEO position. He said he “made an investment” in the resort and is a minority owner.

Blackstone is relying on McBeath. Gray called his hiring a “coup” for the property.

He also believes the company’s history with hotel workers union UNITE HERE will lead to a labor agreement with Culinary Local 226, which had an adversarial relationship with Deutsche Bank and previous management.

That’s one reason Blackstone, Culinary leaders and elected officials participated in an event last month to celebrate the new ownership. Labor strife is over. It was also a way to introduce Blackstone to the community.

Gray said the company is looking for other potential Strip purchases so The Cosmopolitan won’t be a one-casino company, although he wasn’t tipping his hand on any new deal.

“We generally don’t talk about anything specific,” he said.

He said the private equity group is committed to the investment for the long haul and isn’t looking to a quick sale to recoup its investment.

“We see a lot of upside in this asset,” Gray said. “Selling quickly is not in our plan.”

Gray said his only experience with gambling was with small-stakes blackjack games on trips to Las Vegas. He’s relying on McBeath’s experience and background when it comes to The Cosmopolitan’s casino.

“I like the energy, excitement and entertainment in the casino, but it’s a real stretch to call me a big gambler,” Gray said. “I’ll leave my risk-taking to the investment side of things.”

Howard Stutz’s Inside Gaming column appears Wednesdays and Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. Find on Twitter: @howardstutz.