Basically, Dubai World (or its investment arm, Istithmar) paid $282 million in total for the hotel, and took out a $115 million mortgage. Istithmar put down $50 million of its own money, and borrowed the rest in what’s known as a “mezzanine” transaction: $117 million of high-yielding debt which isn’t secured against the property.
–[The connection to Vegas: Dubai World’s investment in CityCenter. Not saying this is exactly what will happen to CityCenter and MGM Mirage as Dubai World continues to collapse, but it does illustrate how this sort of financial mess washes out.
Also, it is enlightening to consider that as financing for Cosmopolitan fell apart, Starwood (which owns the W brand) was in the running to take it over along with MGM Mirage (which declined because it didn’t want the additional debt), Hilton (which backed out after Starwood filed suit), and lastly Hyatt (which is going to open Cosmopolitan as a Grand Hyatt). The number of corporate entities with the wherewithal to build, buy, and/or manage hotels on this scale isn’t that large. The Dubai World collapse takes money out of the market, but clearly it was money that never existed in the first place.]
