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.
The chips are down
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.
Source: Philly.com
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