Atlantic City’s crap shoot

With gambling on the decline, seaside city looks to roll the dice on life after large casinos

Dec.December 01, 2014 07:00 AM

atlantic-city

Atlantic City is looking back to its heyday for a map to the future. But the city’s collective eyes are focused, not on its height as the East Coast’s gambling mecca, but further back, to its historical role as a seaside resort.

“Atlantic needs to be put back into Atlantic City’s appeal as [the] city pivots away from reliance on the gaming industry,” stated a report from the summit of elected officials and gambling industry leaders on what to do for the beleaguered city, a gathering convened by New Jersey Gov. Chris Christie last month. 

It’s notable that none of the four large casinos that closed earlier this year were expected to reopen for gambling as of late November. Brookfield Asset Management had won an auction to buy the Revel, the newest of the city’s once-dozen gaming houses, for a fire sale price of $110 million in early October and had planned to restart operations after a renovation. Those plans collapsed, however, just before Thanksgiving, reportedly because of a dispute over electricity payments.

Only one other plan is concrete, though still lacking in details: The conversion of the former Showboat Casino into a satellite campus for Richard Stockton College, a public university about 13 miles northwest of Atlantic City. The other two redevelopments are more speculative — and all come amid a tense backdrop of financial decline and government intervention.

The Showboat Casino was shuttered in August.

The Showboat Casino was shuttered in August.

In fact, among the proposals that came out of Christie’s summit was one to appoint an emergency fiscal manager (the report suggested giving the position “extraordinary supervisory powers”) for the seaside community, home to roughly 40,000 residents. Another suggestion was a public-private partnership to redevelop some of the other casinos, a recommendation that Christie said is designed to “stop the bleeding.”

What is clear is that there is no talk of returning Atlantic City to its large-scale gambling prime. Instead, if new gambling is in the city’s future, it would be there through smaller, boutique casinos with fewer slot machines and more table games. Condos, rental apartments and other uses are also being considered for the shuttered casinos — as is demolition of one.

It’s a promising sign that talk of such divergent repurposing is even happening, and the prevailing sentiment could portend big real estate changes along the famed Atlantic City Boardwalk, with reverberations up the coastline to brokers and buyers in New York.

“People are finally talking about things that were long-held taboo subjects,” said Curtis Bashaw, co-managing director of development and investment firm Cape Advisors, and a former executive director of the New Jersey Casino Redevelopment Authority. He was also one of the developers of the Chelsea Hotel, a non-casino boutique property that opened on the Boardwalk in 2008. “The gloves are off; there is a real concerted effort about rebuilding the town.”

The house loses

Atlantic City reached this point of no return due to a sharp decline in gambling revenue. 

The casinos raked in what turned out to be a record $5.2 billion in 2006, only to see it drop by more than half to a projected $2.5 billion in 2014 — chipped away by competition as a wave of gambling opportunities sprouted up in Delaware, Pennsylvania, New York and Connecticut, as well as online. 

The decline’s effects hit home in 2014. As of mid-November, four casinos had closed this year: the Revel, the Atlantic Club, Trump Plaza and the Showboat. A fifth, the Trump Taj Mahal, may close by the end of the year due to revenue declines, as well as disputes with labor units. Eight, including the Taj Mahal, remained open as of mid-November.  

Almost 8,000 casino workers lost their jobs this year as the casinos shut down; if the Taj Mahal closes, it could throw another 3,100 employees out of work. 

The losses only add to the woes of Atlantic City as a municipality. Total assessed property values have fallen 45 percent since 2008, according to an advisory commission Christie set up. At the same time, the municipal tax rate has jumped 101 percent, making Atlantic City a decidedly unappealing place for property investment — and spurring those calls for an emergency manager. 

The history of the Sands casino illustrates Atlantic City’s decline as a desirable investment. Once a venue for headline entertainment like Frank Sinatra, Liza Minnelli and Whitney Houston, it closed in 2006. It was sold for $270 million and demolished by its new owner, casino operator Pinnacle Entertainment, which had plans to build a new, $2 billion resort. Instead, Pinnacle let the 20-acre site languish for years, then sold it this past spring to an investment group called Boardwalk Piers — for barely $30 million, or a fraction of the purchase price. 

As if to put an exclamation point on the city’s decline as a destination, either for slot-cranking tourists or real estate investors, United Airlines announced last month it was stopping direct flights to Atlantic City International Airport on Dec. 3. 

The $2 billion Revel shut down in September.

The $2 billion Revel shut down in September.

Bets are off

The Revel offers a cautionary tale similar to the Sands, although with a potentially happier ending. The 1,399-room Revel cost $2.4 billion to build on 20 acres at the northern end of the Boardwalk in 2012. It never turned a profit, went bankrupt twice, then shut down and was sold at auction in early October for $110 million to Brookfield Asset Management and Brookfield Capital Partners, the property and private-equity wings, respectively, of Brookfield Asset Management.

The firm said in October that it would reopen the Revel as a casino and hotel following around $200 million in renovations. Then, in a brief statement issued Nov. 19, Brookfield announced that it had “terminated the Revel acquisition.” A Brookfield spokeswoman told the Press of Atlantic City that the decision stemmed from a disagreement with bondholders controlling debt related to the casino’s power plant. It was not clear at press time if a deal with Brookfield, which also owns other casinos, including the Hard Rock Hotel & Café in Las Vegas and the casino resort Atlantis Paradise Island in the Bahamas, could be resurrected. 

Also on the Boardwalk’s northern end, the 1,331-room, 17-year-old Showboat is now the only shuttered casino with a concrete future: conversion into a satellite campus for Stockton College. 

Details of the deal announced in late November between the school and owner Caesars Entertainment have not been disclosed. “Our intent is to engage in a project that enhances Stockton’s educational growth, offerings and cost-containment, while at the same time bringing new educational opportunities to Atlantic City,” Stockton College President Herman Saatkamp said in a statement on the school’s website.

The statement called it “premature” to release more details because the deal was not yet finalized. However, the report from Christie’s summit mentioned a “New University Park” — to be anchored by Stockton as well as a “medical district” at the casino site. Stockton and Caesars did not respond to requests for comment; the New Jersey Casino Reinvestment Development Authority, a state agency, directed TRD to the summit report.

Whatever the former Showboat’s ultimate academic use, Caesars Entertainment CEO Gary Loveman suggested in a statement that he thought the trade would help the fortunes of an Atlantic City reeling from gambling-revenue declines. “I believe the construction of a Stockton campus there will help to diversify the economy of the city, which is critical to its future well-being,” Loveman said.

Longer odds

As for the other shuttered casinos — the Atlantic Club and the Trump Plaza — their futures are various shades of murky. 

The Atlantic Club is the ripest for redevelopment — but not as a new casino. Caesars Entertainment bought the 801-room resort at the Boardwalk’s southern end with Tropicana in late 2013, after it slid into bankruptcy. 

The new owners closed its doors in January, and divvied up its gambling equipment and customer data. Caesars, which also owns Caesars Atlantic City, Bally’s Atlantic City and Harrah’s Resort Atlantic City, placed a clause in the property’s deed that it not be reopened as a casino, thereby ensuring any new owner would have to come up with another use.

Some on the ground said they think the Atlantic Club could come back as condos or apartments, or as an assisted-living center for the elderly. The redevelopment costs — one analyst estimated it would cost $100 a square foot to convert the property into condos — could prove a challenge, especially given Atlantic City’s high property taxes. In short, drawing investors or individual buyers to the struggling municipality may prove a challenge. 

The Trump Plaza, which closed in September, may be demolished.

The Trump Plaza, which closed in September, may be demolished.

Trump Plaza may not even remain. Christie’s summit report said that “demolition of certain failed casinos to create greenscapes providing entertainment access to the Boardwalk and ocean by non-gambling visitors could help re-orient the ‘new’ Atlantic City.”

Many, including Atlantic City Mayor Don Guardian, have identified the 906-room, 20-acre resort as the best candidate for demolition, given its location in the middle of the Boardwalk. The demolition would allow a shopping plaza known as the Walk to connect directly with the Boardwalk, thereby broadening Atlantic City’s appeal beyond large-scale gambling. Guardian did not respond to requests for comment.

As for large-scale gambling, it seems to be in Atlantic City’s rear-view mirror, especially when it comes to redevelopment and development options. Instead, small-scale gambling could be the new normal. In January 2011, Christie signed legislation allowing new casino-resorts with fewer than 500 rooms, an old threshold that state legislation set in 1976.

The new 200-room minimum was designed to foster so-called “boutique casinos,” ones with more table games and fewer slot machines. These gambling houses, observers say, might appeal to younger visitors not wishing to spend hours feeding the slots and help to shake off the city’s dusty reputation. Notably, however, no new boutique casinos have been constructed since the 2011 law took effect. Hard Rock International planned to build a 200-room casino on the Boardwalk, at Albany Avenue, but the firm abandoned plans in late 2012, after the poor initial showing of the then-new Revel.

More boutiques may yet be in Atlantic City’s future, as may condos and other real estate attractions that don’t involve hundreds of hotel rooms situated around acres of slots. If they are, then the closings of 2014 will be seen as the turning point. 

The idea of a redeveloped Atlantic City, not reliant on large-scale casinos, is not so far-fetched to some.

“If you went to Miami Beach in 1982 or 1979,” Bashaw of Cape Advisors said, “all those fabulous deco hotels had white fluorescent lights and little old ladies sitting out front in those aluminum chairs. It was written off.” 


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