Parent to direct subsidiary deals

Blackstone's $5.65B sale of Cosmopolitan Las Vegas sees no real estate transfer taxes due to Nevada's 2007 law change

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The transaction that saw Blackstone sell The Cosmopolitan of Las Vegas for $5.65 billion, including a $1.625 billion lease-back deal for MGM Resorts International to acquire its operations last month, became the latest high-priced sale in Las Vegas that did not publicly report tax payments routinely levied on home purchases, in the form of real estate transfer taxes. 

Blackstone announced on May 17 that it completed its sale of The Cosmopolitan. The same day, a deed for the property was recorded with Clark County that showed no sales price, no transfer-tax value and no transfer tax due, with those designated lines blank, according to county records cited by Las Vegas Review-Journal.

The transaction —like several others in Southern Nevada, according to an investigation by the cited news website last month— cites an exemption allowed under a 2007 state law when property owners transfer real estate to a subsidiary to spare companies from paying the tax, which is regularly applied on sales of homes, apartment buildings and other sites. Buyers often acquire a limited liability company or other entity that holds ownership of the real estate instead of purchasing the property directly. Its stated explanation: “Transfer between business entities with a parent subsidiary relationship (parent to direct subsidiary).”

While Blackstone did retain part-ownership in the property, two new groups acquired ownership stakes as part of its sale. MGM Resorts entered into a 30-year lease agreement, with three 10-year renewal options, with a partnership among Stonepeak Partners, Cherng Family Trust (operators of fast-food chain Panda Express) and Blackstone Real Estate Income Trust, Inc., which will acquire The Cosmopolitan's real estate assets. MGM leased the property for an initial annual rent of $200 million.

Blackstone told Las Vegas Review-Journal: “We abide by all laws and follow the tax code in every situation. We are incredibly proud of what we delivered for the state and citizens of Nevada through our investment in The Cosmopolitan.”

Blackstone acquired the Cosmopolitan in 2014 for $1.73 billion from Deutsche Bank. The deed that recorded the property sale with the county listed the sales price, transfer-tax value and transfer-tax due all as “$N/A.”

Nevada’s transfer tax law was approved in 1967, and did not apply under scenarios including a property being transferred to a government agency, or changing hands as part of a bankruptcy. By 1985, owners could seek an exemption when transferring real estate with an affiliated corporation, and in 2007 language was changed by swapping “corporation” to “business entity.”

The cited investigation before Cosmopolitan's transaction found that some of Las Vegas’ biggest real estate deals have resulted in no transfer taxes, with at least $27.5 billion worth of transactions, mostly on or near the renowned Strip, having closed since 2007 without publicly reporting tax payments routinely levied on home purchases. 

The deals include the $4.2 billion cash sale of the Bellagio, which was completed in fall 2019 and was supposed to generate about $21 million in real estate sales taxes. The deals also involved multiple buyers and sellers, including casino operators MGM Resorts, Station Casinos, Wynn Resorts, Las Vegas Sands Corp. and Genting Group; casino landlord Vici Properties; pension fund TIAA; Blackstone; and billionaire Phil Ruffin, owner of Treasure Island and Circus Circus. 

Nevada Governor Steve Sisolak said this month that he is “hopeful” the state Legislature “will look at this in its entirety” when the next legislative session convenes in February. “We need to capture the transfer tax on those sales,” he told the Review-Journal. He also said that deals big and small need to be analyzed.

Employees of The Cosmopolitan were surprised by Blackstone in May with individual $5K bonuses. As many as 5,000 workers were honored with the special recognition, totaling $27 million, handed out ahead of Blackstone’s planned sale of the resort’s operations to MGM Resorts International.

Earlier this month, The Venetian said that George Markantonis is leaving his role as President and Chief Executive Officer. Patrick Nichols, who began his career with The Venetian and is currently the General Manager & Chief Strategy Officer at The Cosmopolitan of Las Vegas, will replace him in both roles, effective August 1. The company, which includes The Venetian Resort Las Vegas and The Venetian Expo, is now owned by New York-based investment firm Apollo Global Management. In February, Las Vegas Sands completed the sale of The Venetian Resort assets (The Venetian, Palazzo and Venetian Expo) for approximately $6.25 billion to their new owners —affiliates of Apollo and VICI Properties.

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