n Atlantic City’s topsy-turvy real estate market, casino land coveted only four years ago at the gaming industry’s pre-recession peak may now be sacrificed for a bargain-basement price.
The seller, Las Vegas-based gaming operator Pinnacle Entertainment, has made the extraordinary disclosure it will likely have to accept just 30 % of the us$ 270 million that it paid for the old Sands Casino Hotel site in 2006 to get rid of the property. “It’s a substantial haircut that Pinnacle is going to take,” said Tom Kirschbraun, managing director of Jones Lang LaSalle, a real estate services firm hired to oversee the sale.
In this case, it’s not as simple as putting up a “For Sale” sign in hopes of attracting a buyer. Jones Lang LaSalle is marketing the property nationally and internationally to an array of potential buyers that Kirschbraun noted will include Chinese, Russian and eastern European investors. “We don’t care which continent investors come from,” he said. “One of the selling points of our organization is our international reach. Properties like this one get international exposure from our organization.”
Marketing materials prepared by Jones Lang LaSalle tout the nearly 8 hectares of oceanfront property as a “one-of-a-kind asset” in the heart of the Boardwalk casino district. “This is the last remaining assemblage of land available along the Boardwalk in Atlantic City,” an online sales brochure says. “The property represents a unique opportunity to create the premier entertainment destination on the East Coast.”
Ironically, Pinnacle Entertainment made similar claims when it intended to develop the site itself for a lavish, Las Vegas-style gambling resort costing between us$ 1.5 billion and us$ 2 billion. The company staged a spectacular implosion of the Sands casino in October 2007 to clear space for its project, but less than three years later the development plans were killed by the recession and Atlantic City’s gaming slump.
Pinnacle has not disclosed how much it will ask for the property. Kirschbraun, emphasizing that Pinnacle is eager to leave Atlantic City, estimated the deal will come at a 70 % discount. “It’s tough to speculate on this stuff, but the fact is, this property is up for sale and Pinnacle has made it clear it is going to focus on other markets,” he said.
No offers have been made yet, Kirschbraun said. Jones Lang LaSalle will be contacting casino companies, private investment funds, foreign investors and wealthy Americans to see if they have any interest.
Pinnacle’s property joins a crowded list of Atlantic City casino sales. Trump Entertainment Resorts is shopping the underperforming Trump Marina Hotel Casino. Resorts Atlantic City, taken over by lenders in December after the casino defaulted on its mortgage, is on the market. Another group of lenders is seeking court permission to force the financially troubled Atlantic City Hilton Casino Resort into receivership and sell it.
Overshadowing all of those sales is the Revel casino project, the $2.5 billion megaresort that came to a halt this summer after chief financial backer Morgan Stanley pulled out and said it would unload its stake. Morgan Stanley, the Wall Street giant, announced it lost us$ 900 million on a us$ 1.2 billion investment in Revel and no longer wanted to be part of the project. Revel Entertainment Group, Morgan Stanley’s partner, estimates it will take us$ 1 billion to complete construction once a new buyer is found.
Unlike the mammoth Revel project, the buyer of the Pinnacle site would have the opportunity to build a smaller, more affordable casino — possibly two — that could be complemented by a mix of nongaming attractions, Kirschbraun maintained. “Rather than doing a megaresort like Revel, I think there’s a benefit on a site like this one for phasing in development instead of immediately going to us$ 2.5 billion,” he said.
Overall, the Pinnacle site consists of 7.8 hectares concentrated where the Sands once stood, a supersized block bordered by Indiana and Pacific avenues, Dr. Martin Luther King Jr. Boulevard and the Boardwalk. The property also includes parts of the beach block of Kentucky Avenue.
Harvey Perkins, executive vice president of Spectrum Gaming Group, a Linwood-based casino consulting company, called Pinnacle’s site a “blank palette” just waiting for the right development plan. “I think it’s a great opportunity for somebody who has the right vision to piggyback on and have a symbiotic relationship with Governor Christie’s plan,” Perkins said.
Christie announced plans in July for the state to take charge of Atlantic City’s casino and entertainment zones. He wants to clean up blight and tackle crime to make the city and the casinos more appealing to tourists.
Jones Lang LaSalle is hyping the governor’s proposal in its sales pitch for the Pinnacle land. “The state of New Jersey is not standing by idly as surrounding casino states siphon away business. Whatever form that plan takes, it should benefit everybody in New Jersey,” Kirschbraun said.
Despite the state’s involvement in Atlantic City and the site’s development potential, Pinnacle’s sale likely will come down to the old adage “the price is everything” — especially if it is at 70 % off. “It shows how distressed the market is now,” Perkins said. “We also have to remember that the property was acquired at the peak of the market. Being acquired at the peak, there probably was some premium built in.”