(Reuters) - When the $2.4 billion Revel
Casino opened its doors in 2012, the curvy blue-glass tower was hailed
as the wave of the future for Atlantic City, New Jersey.
But only two years later, with the announcement that it will close
next month while in bankruptcy for the second time, the gleaming,
52-story gambling palace is looking very much like a white elephant
stranded on Atlantic City's beachfront.
"You don't expect to see a two-year-old property close," said Alan
Woinski, president of Gaming USA, an industry consultancy and
newsletter publisher. But "all the things that doom a property were
in there."
Rather than heralding a new era, Atlantic City's newest gaming house
has become an embarrassment for the now-fading resort city, where
three other casinos are shutting down, leaving eight to cater to
gamblers.
That said, the Revel's dilemma is also one of its own making. Its
sleek, dramatic design was supposed to be its prime attraction, but
critics say the structure was too grandiose, and its cavernous
gaming floor often feels dead. By most accounts, the Las Vegas buzz
that the Revel's backers hoped to recreate is conspicuously missing.
Those same flaws are now likely to work against an eventual sale of
the property, which has no other obvious uses than as a casino. Even
conversion to condos seems impractical in a city that is losing
thousands of jobs and has a reputation for high crime.
The latest turn of events comes after years of hard luck for the
project. Since its inception just before the financial crisis, the
Revel has encountered huge cost overruns. Its out-of-the-way
location at the edge of the city was a turn-off. Early on a plane
crash killed some executives, delaying construction.
By the time it opened in April 2012, Revel was already struggling
with its debt burden and the broader challenges facing Atlantic City
as casinos opened in nearby states, according to bankruptcy court
documents filed last month.
Gaming revenue for Atlantic City, which once held a lucrative East
Coast gambling monopoly, has dropped from a peak of $5.2 billion in
2006 to $2.8 billion in 2013, according to New Jersey gaming
regulators.
Now community leaders, real estate professionals and gaming experts
have been left to wonder: what comes next for the Revel?
“We really don't know,” said Liza Cartmell, president of the
Atlantic City Alliance, the New Jersey city's tourism marketing
organization.
Observers have begun to ponder the Revel's future as a hotel without
casino gambling, or as condos. But they say any fix will cost a
buyer tens of millions, if not hundreds of millions of dollars, to
put kitchens in its 1,400 rooms and do something – anything - with
the restaurants and gaming floor on the lower levels of the tower.
And then there are those who still hold out hope that a buyer will
come in with a low-ball offer and continue to operate it as a
casino.
That, too, could be expensive, requiring cash for rebranding, cash
to build a customer base, and cash to fix serious design flaws in
the casino itself.
“It's like a church built for Easter Sunday,” said Rob Heller,
president and CEO of Spectrum Gaming Capital, an investment banking
and advisory firm focused on the casino industry.
In a worse-case scenario, Revel could liquidate in its current
bankruptcy if it can’t find a buyer.
At this stage, it is difficult to say what might happen to an
investment that initial backer Morgan Stanley abandoned in 2010,
taking a $1.2 billion loss.
New investors were then wooed in part by a promise from New Jersey
for $261 million in future tax rebates and a strong show of support
by Gov. Chris Christie, who lauded the project "the model for the
future" of Atlantic City.
Christie has called a 'summit' on Sept. 8 to chart a direction for
the struggling gambling center.
After the Revel's first bankruptcy
in 2013, lenders including hedge funds took ownership. A unit of New
Jersey hedge fund adviser Chatham Asset Management now controls 27
percent of Revel AC Inc. and Los Angeles-based hedge fund manager
Canyon Capital Advisors owns 16 percent.
NEW ERA POSTPONED
Revel's design features ocean views from every hotel room, rooftop
gardens, and dance clubs with which it hoped to lure a younger crowd
with Vegas-style elan.
Early plans to build two hotel towers, each with 1,900 rooms, were
scrapped for the construction of a single one with 1,400 rooms.
Public spaces, however, were scaled to a 3,800-room property, giving
the gaming floors an empty feeling.
Then there is, in the words of University of Nevada Las Vegas gaming
expert David Schwartz, “the escalator of death.” a long, steep
conveyance that carries gamblers from the ground floor to the
casino's second-floor gaming hall. Some critics have compared it to
the escalators in the London Underground, only with nothing but air
underneath.
Schwartz, who admits to a fear of heights, said that breaking up
escalators is “Casino Design 101.”
One of Revel's biggest problem is its location at the far northern
end of Atlantic City, said Paul Steelman, an Atlantic City native
and Las Vegas-based casino architect
“A person driving needs to pass many alternative locations,”
Steelman said. “Revel is the last casino in a long line of
alternatives.”
While many have held out hope that Revel could be converted to a
non-casino use, Steelman has his doubts. Casinos are designed to be
casinos, and the expense of operating the building make other uses
difficult.
“To convert these rooms to residential uses would be difficult, but
I also believe real estate taxes would be prohibitive,” Steelman
said. “There really is no alternate use."
(Reporting by Daniel Kelley in Philadelphia and Hilary Russ in New
York; Editing by Frank McGurty and James Dalgleish)
