The sale, the first of a casino site in more than a decade, illustrates the dramatic drop in the value of casino property and other beachfront sites in recent years.
Land prices had risen after voters approved legal casino gambling in 1976 and heated up when talk abounded about more casino development. Soon after, though, major development came to a halt, and prices began plunging.
At its peak in the mid-1980s, casino-zoned property went for about $10 million an acre. In last week's deal, Bally's paid Chrysler First Business Corp. about $1.6 million an acre for the 4.5-acre lot.
Pennsylvania developer Jack W. Blumenfeld had planned to build a casino on the site in 1986, and staged a groundbreaking in which a backhoe dug a huge hole - which was soon filled in when he was unable to get enough financing. Blumenfeld owed more than $23 million on the property in 1989 when Chrysler First foreclosed.
Industry consultant Marvin Roffman called the property, the site of the old Shelbourne Hotel, "one of the last prime pieces of land" in Atlantic City.
"Somebody got a really good deal. Anybody who bought that land for seven million got themselves a steal," he said.
That remains to be seen.
Caesars Atlantic City Hotel-Casino recently appealed to the county board of taxation for a reassessment of a casino site it owns on the Boardwalk. According to Lois Finifter, county tax administrator, the board reduced the assessed value by about 25 percent, but the city is appealing the decision.
FALLING PROPERTY TAX BASE
Atlantic City tax assessor Doug Stewart said, "Property values have declined because, basically, there hasn't been a good market. Financing hasn't been available, so there hasn't been much incentive to buy and sell land."
He said the property tax base in the city had dropped by $400 million during the last five years, to about $5.6 billion.
Casino property makes up about 62 percent of the city's tax base, and such a dramatic drop in values could be devastating.
But, while property values slide, other indicators may point to a better future for the Atlantic City gambling industry.
The sale comes only two weeks after the state legislature voted to deregulate the gaming industry. That measure, if signed by Gov. Whitman, will streamline casino operations and allow owners to hold more than three casino licenses. The move aims to keep the state's casinos competitive as gambling is legalized in other states across the country.
Bally's already owns two casinos on the Boardwalk, and Roffman said it was unlikely it would build another.
By buying the Shelbourne Hotel site, Bally's has effectively blocked Caesars, the premier high-roller palace, from expanding. Now, if Caesars wants to expand, it will have to do business with one of its strongest competitors.
"That piece of land has great 'extortion value,' in the legal sense of extracting a fat price," said one casino lawyer familiar with details of the transaction.
A spokesman for Caesars said the sale did not interfere with any plans the company had for the casino.
A spokesman for ITT Corp., which recently offered $1.7 billion to buy Caesars World, owner of the Atlantic City casino, said sale of the adjacent property did not change the company's plan to acquire Caesars.
The additional land may make Bally's more attractive to potential buyers.
In September, state regulators granted a gaming license to Marvin Davis, former owner of Twentieth Century Fox Film Corp. Last week, billionaire Ronald Perelman, corporate raider and owner of Revlon, applied for a license.
"Nobody's going to do this unless they're serious about coming to Atlantic City," Roffman said. "To go through that licensing process costs about $1 million. They ask for every canceled check for the last 10 years. By the time they finish with you, they know what color underwear you have."
Some industry sources said that although Perelman is making a licensing bid in connection with the Claridge, that may not be his ultimate goal. Instead, they said, Perelman may be interested in acquiring Bally's Manufacturing, owner of Bally's Park Place and the Bally's Grand, and then spinning off the Grand to its original owner, Las Vegas gambling magnate Steve Wynn.