Trade for MGM Grand, Mandalay Bay Assets Valued at $4.6B

MGM Growth Properties and Blackstone REIT entered a joint venture and leaseback agreement for the MGM Grand and the Mandalay Bay in Las Vegas.

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Blackstone is all-in on Las Vegas. 

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Three months after acquiring the Bellagio in a $4.25 billion deal, Blackstone Real Estate Income Trust (BREIT) announced a joint venture with MGM Growth Properties (MGP) that will acquire the Las Vegas Strip assets of the MGM Grand and Mandalay Bay, which are valued at $4.6 billion.

MGP will own a majority 50.1 percent of the joint venture, and BREIT will own 49.9 percent. BREIT will also purchase $150 million in MGP Class A shares.

MGM Resorts International, the largest operator of casinos on the Strip, will continue to manage and operate the properties. The firm will enter a long-term triple-net master lease for both properties and provide a full corporate guarantee of rent payments. MGM Resorts’ initial annual rent will be $292 million.

The standout properties MGM Grand, at 3799 South Las Vegas Boulevard, and Mandalay Bay, at 3950 South Las Vegas Boulevard, together amass 226 acres on the Las Vegas Strip. They combine for 9,743 rooms, approximately 3 million square feet of meeting space, and 300,000 square feet of casino space. 

The properties add to the sale-leaseback agreement for the Bellagio in October 2019, in which MGM sold a controlling 95 percent stake to Blackstone. 

Jonathan Gray, Blackstone’s president and COO, explained in statement that the transaction reflects Blackstone’s “strong conviction in Las Vegas.”

James Stewart, CEO of MGP, said the joint venture shows the “institutional demand for gaming real estate assets.”

Las Vegas has been expanding for years thanks to increasing investment sales, as investors look to reposition older assets along the Strip and the surrounding corridors. The demand to redevelop projects into entertainment and dining destinations has such properties trading above the market average. According to JLLs construction outlook report, 8,433 rooms were added to Las Vegas in 2019, which represented about 4.2 percent of the national pipeline.

Marcus Threats, CCIM with the national hospitality group for Marcus & Millichap, told Commercial Observer that the kind of action on the Las Vegas Strip these days has never happened before. He said MGM is continuing its “asset light” strategy announced in late September, in which the company takes advantage of its growing land values while continuing to operate its iconic properties. MGM also recently sold Circus Circus Las Vegas to billionaire Phil Ruffin for $825 million.

“Their balance sheet is going to be phenomenal. Their next push is to get into Japan, and they’re going to do that without a lot of debt,” Threats explained. 

He added that he believes many have overlooked that Blackstone has become one of the largest investors in Las Vegas over the past decade. The firm also acquired the Hughes Center for $347 million in 2013, and owns a substantial residential portfolio, among other properties.

Threats expects more merger deals to strike on the Strip moving forward. Eldorado Resorts is set to take over Caesars assets in the third quarter this year in a similar merger deal valued at $8.6 billion.

Morgan Stanley & Co. LLC and Evercore served as financial advisors to MGP, and Hogan Lovells US LLP served as legal counsel. Citigroup Global Markets Inc., Barclays Capital Real Estate Inc., Deutsche Bank AG, and Societe General served as financial advisor to BREIT, with Simpson Thacher & Bartlett LLP as legal counsel.