Revel: Right idea at wrong time and place, say many

Gov. Christie hands his pen to Senate President Stephen Sweeney after ensuring Revel would be finished.
Gov. Christie hands his pen to Senate President Stephen Sweeney after ensuring Revel would be finished. (TOM GRALISH / File Photograph)
Posted: August 19, 2014

ATLANTIC CITY - Revel's waning days stand in stark contrast to just over three years ago, when its chief executive at the time, Kevin DeSanctis, wowed everyone at the East Coast Gaming Congress with his vision.

Four months before, in early February 2011, Revel had secured $1.15 billion in new financing to finish construction, which had been halted for more than a year by the recession and frozen lending.

In April 2010, Morgan Stanley, Revel's original chief financial backer and operator, had decided to pull out of the project, taking a $932 million loss on it, rather than spending the $1 billion that finishing the casino would cost. The bank's withdrawal set off a scramble for new financing that included Gov. Christie's getting involved.

The state of New Jersey, thanks to Christie, kicked in a critical final piece - $261 million in financing to ensure Revel would get built.

Then on May 24, 2011, DeSanctis captivated industry leaders, regulators, consultants, and journalists in the Atlantic City Convention Center with a video. The room watched in rapt silence as computer renderings of the gleaming, 57-floor casino draped in steel and blue glass flashed on the giant screen.

"Atlantic City has the most potential, in my view, of any market in the Northeast," DeSanctis said. Images of Revel's planned features rolled, including two theaters, a dozen celebrity-chef restaurants, luxury retail shops, hip nightclubs, a spa, 10 pools, and its own beach to complement a 150,000-square-foot casino.

Now, as the postmortems are pronounced after its second bankruptcy, a recurring conclusion is that Revel probably was the right idea at the wrong time and place.

In a note to investors on Thursday, gaming analyst Andrew Zarnett of Deutsche Bank AG wrote: Revel "should never have been built, not because of its bad design, location, or business plan, but because you just don't add more supply in a declining revenue market where competitors are bringing supply closer to your feeder markets."

After DeSanctis gave his presentation in 2011, he got a rousing standing ovation. In the audience was Michael Paladino, a gaming analyst for Fitch Ratings, who had been part of a Wall Street panel hours earlier on the gambling landscape ahead.

He recalled telling the audience that for the most part, Revel's "going to be cannibalizing the existing operators."

Revel modeled itself after Borgata, the city's top-grossing casino, and aimed for its clientele. But it never drew them.

Tom Ballance, president and chief operating officer of Borgata, was hired by Boyd Gaming Corp. in 1998 to oversee development of that casino. He said in fairness, Revel faced conditions that didn't exist when Borgata opened nine years earlier, in July 2003.

"The Atlantic City market had grown for years before we entered it, so we were adding supply in a growing market," Ballance said last week. "And 2003 was a very healthy economy - housing and employment was high. It was a great time to open a casino in Atlantic City.

"April 2012 was a much more challenging environment," he said. "The A.C. market had been shrinking, and Revel had to compete against regional competition that didn't exist [in 2003], and macroeconomic conditions were much different. That's a fundamental difference."

Game on

The state assistance for Revel was a prospective tax credit, meaning the casino wouldn't see a dime until it turned a profit, but it was needed to assure banks and investors that the project had what it needed to forge ahead.

Christie traveled to the stalled construction site on Feb. 1, 2011, for a news conference in what was then just a shell of the casino. The governor, standing on a mound of dirt with a few structural beams behind him, proclaimed, as hundreds of workers cheered, that construction was moving ahead.

DeSanctis, a respected industry veteran who had spent years as a top executive at Penn National Gaming Inc. in Wyomissing, Pa., appeared at the annual, daylong gaming conference in Atlantic City nearly four months later to assure everyone it was game on: Revel would open on May 15, 2012.

DeSanctis said upscale nongaming amenities were what Atlantic City needed to attract customers in the increasingly competitive Northeast casino market.

Revel, he said, would be a "lifestyle" resort that just happened to have a casino. He said it would open as the first fully nonsmoking casino in Atlantic City, underscoring its lack of emphasis on gamblers, who typically like to smoke.

"I'm a believer that if you build a product that the customer wants today, you will be successful," he said then.

Things didn't work out as envisioned.

Revel, the $2.4 billion megacasino that aspired to chart the Shore resort's future, didn't make it to a delayed auction last week. No qualified buyer came forward, and late Friday, the hobbled casino announced it would move up its closing by a week.

On Monday, company representatives are to go before U.S. Bankruptcy Judge Gloria M. Burns in Camden to present Sept. 1 and 2 as closing dates for Revel's 1,400-room hotel and casino, respectively. It will be one of four casinos to close in Atlantic City this year.

Revel's fall is seen now as a textbook business school case study of what not to do. Many went all in for the casino's completion, despite the signs: The economy remained weak in 2011, discretionary spending was low, and regional gambling competition continued to eat into Atlantic City's profits.

"People genuinely believed it," Zarnett said in an interview Thursday. He warned as early as 2006, when A.C. gaming revenue was just starting to decline, that Revel would just take business from other city casinos. "I clearly didn't get it."

But the momentum was behind it, and on March 27, 2012, Christie and DeSanctis toured the completed casino. The governor said it was going to create 5,500 permanent jobs and drive visits to Atlantic City.

It did neither.

"The completion of Revel and its opening is a turning point for Atlantic City, and a clear sign that people once again have faith in the city's ability to come back and be successful," Christie said.

Just a year later, in spring 2013, DeSanctis was removed as CEO after Revel emerged from its first bankruptcy, and new investors wrote off $1.5 billion in debt, exchanging it for equity. Smoking and new, less-expensive restaurants were added last year, along with a new focus on gamblers.

But it was all too late.

DeSanctis declined to be interviewed for this article. But Christie spokesman Michael Drewniak said the state assistance to Revel was worth it.

"Given that there was no risk to the taxpayer whatsoever, this was a very good vehicle to assist in getting Revel finished," Drewniak said on Friday. "The alternative was to leave a hulking shell of an unfinished skyscraper there."

That sentiment was shared by the entire South Jersey legislative delegation, including State Sen. Jim Whelan (D., Atlantic), a former mayor of Atlantic City. He said nobody wanted a half-built building on the Boardwalk.

He said another factor favored Revel: the city's track record with new casinos. "Whenever we offered a new product in A.C., it generally did very well," he said. "That happened when the [Trump] Taj Mahal opened in 1990, and Borgata in 2003.

"That turned out to not be the case with Revel," Whelan said, "but it was the hope and thinking. We were facing competition, so you build a new product with a 'wow' factor. I'm not aware of anybody . . . who was against it."

Michael Petri, 42, a schoolteacher from Doylestown, stayed overnight at Revel in a "comped" - free - room on Wednesday, the day after the casino announced it would close by Sept. 10.

"It was a good idea at the time, but the economic situation that the country is in, as well as maybe bad luck or bad timing" did it in, he said. Of his final stay at Revel, he said, "This is one last hurrah before a historic event."


sparmley@phillynews.com

856-779-3928 @SuzParmley

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