Revel casino an unfulfilled vision

Posted: February 08, 2014

It is a silvery, soaring monument to a stream of bad decisions.

Revel Casino Hotel in Atlantic City offers a remarkable tale of government and industry collaboration on what has proven to be a magnificent failure that has obliterated at least $2 billion in investments.

Despite a bankruptcy last year that wiped out $932 million in debt and cut yearly debt payments by 96 percent, losses grew, leading Revel's hedge-fund owners to put the casino up for sale.

A deal - for as little as $200 million - could happen this month.

That's not what officials hoped for. "If Revel is successful, Atlantic City is successful," Alisa Cooper, a member of the Casino Control Commission, said in May just before Revel left bankruptcy.

Three years ago, when Gov. Christie went to Revel to sign a package of bills designed to revive Atlantic City's beleaguered casino industry, he was optimistic that the city could become "the destination it was meant to be."

On that same day, Feb. 1, 2011, the New Jersey Economic Development Authority also approved a $261 million package of tax incentives for Revel, then just a shell because money ran out during the financial crisis of 2008-09.

About two weeks after the approval of the tax incentives, Wall Street came through with $1.15 billion in loans, allowing construction to resume.

Revel's then-chief executive, Kevin DeSanctis, thanked Christie publicly for talking to investors, effectively endorsing Revel as part of his bid to turn Atlantic City's fortunes.

"This project wouldn't have been completed without the incentives," said David Rousseau, a former state treasurer who is now budget and tax analyst for New Jersey Policy Perspective, a nonprofit research group in Trenton.

The incentives included $70 million that would have helped pay a $304.4 million slice of debt that was especially risky for lenders, but no incentives were paid because Revel never made money, state officials said.

"I think that, regardless of who the governor was, there was going to be some type of plan to save Revel," Rousseau said. In any attempt to boost Atlantic City, "you weren't going to leave a half a building there," he said.

At the time, government officials, industry executives, and gaming analysts were convinced that support for Atlantic City needed to continue because of its importance to the South Jersey economy and that the $2.4 billion Revel was the type of casino that could help counter the onslaught of competition from Pennsylvania and other nearby states.

Guess again.

Less than a year after opening in April 2012, Revel was in bankruptcy. Losses continued post-bankruptcy and cash ran short last year, forcing Revel to go deeper into debt in November and announce that it was exploring a sale.

Revel is "probably the worst-performing large-scale project in the industry," said Alex Bumazhny, who follows casinos for Fitch Ratings Inc.

An auction of the casino is expected in the first half of this month, according to Bloomberg News. Interested parties are rumored to include Hard Rock International and Caesars Entertainment Corp.

Meanwhile, in a move that troubles the union that represents thousands of Atlantic City casino workers, the New Jersey State Investment Council has agreed to invest $300 million each in two hedge funds that helped refinance Revel in 2011.

One of those funds, Chatham Asset Management L.L.C., of Chatham, N.J., leads the current group of Revel owners.

The investment council agreed to invest in Chatham in November. The second investment, in Solus Alternative Asset Management L.P., of New York, was approved on Monday.

"Solus has no current investment in Revel Casino securities, and we expect Chatham to exit its Revel holdings before the pension fund closes on its investment later this year," said Christopher J. Santarelli, a spokesman for the New Jersey Treasury Department, which oversees pension investments.

Chatham and Solus did not return calls seeking comment this week.

Local 54 of Unite Here, which represents many Atlantic City casino workers and is part of a coalition trying to unionize Revel's workers, urged the state council in a letter Monday to use its influence to protect jobs.

"We ask that you join our call for Chatham to require any buyer of Revel to retain its existing workforce," the union wrote.

Revel employed 2,792 in December, down from 3,421 the year before. Over 10 years, nearly 14,000 jobs have disappeared from Atlantic City casinos.

The Christie administration did not respond to a request for comment.

If Revel seems like an absurdity now, it is instructive to step back to December 2007, when workers were installing piles in the ground in preparation for construction that spring.

At the time, casino developers were touting plans for at least four new casinos in Atlantic City.

The talk was of $10 billion in construction that would completely remake the city, which had begun to lose business to Pennsylvania's new "warehouses with slot machines," as they were called by Atlantic City executives.

The frozen credit markets of 2008 tossed cold water on those dreams, including a proposed $5 billion MGM Grand Atlantic City. Only Revel was under construction at year's end, but by early 2009 construction stopped after refinancing efforts failed.

Morgan Stanley, which had invested $1.25 billion in Revel by April 2010, tried to convince the Export-Import Bank of China to lend $1 billion for the project. When that failed, the New York investment bank wrote off $1.2 billion, later selling its remaining interest for $35.5 million.

The Feb. 2011 refinancing was a political victory for Christie and other politicians in that it put thousands of construction workers back on the job.

But Revel - with its quirks, such as placing the casino on the sixth floor and its relatively remote location - failed to attract gamblers and has recorded $345 million in operating losses from April 2012 through September.

No buyer, no matter how low the price and how little debt is used to buy Revel, can fix the layout.

"I don't know if you can do anything with that," said Bumazhny, the Fitch analyst. "You could probably do some mitigating factors to expedite how fast people get to and from the casino floor."


BY THE NUMBERS

2,792

Number of Revel employees in December.

3,421

Number of Revel employees the year before.

14,000

Number of Atlantic City casino jobs lost over 10 years.


hbrubaker@phillynews.com

215-854-4651

@InqBrubaker

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