Atlantic City Casinos Go From Giddy to Glum

[clevfan]

March 23, 2008

Economic Fallout

Atlantic City Casinos Go From Giddy to Glum

By ROBERT STRAUSS
NY TIMES

ATLANTIC CITY’s business administrator, Carol Fredericks, came back to the office after attending the opening of the new Harrah’s Atlantic City hotel tower earlier this month, giddy with enthusiasm. The tower, with more than 900 rooms, increased the city’s supply by about 7 percent, and became the city’s tallest building at 525 feet.

But that was one of the few bright spots in an otherwise grim time for Atlantic City’s casinos. Just before Harrah’s tower opening, Pinnacle Entertainment, which bought the old Sands casino site and imploded the old hotel last year, announced that it may delay construction because of the dicey credit market. The Tropicana is operating under a state-appointed overseer after its operators were denied a license renewal. And, for the first time, year-over-year returns from the city’s casinos dipped, mainly because of the introduction of slot machines in nearby Pennsylvania.

After a seeming gold rush into a new phase of construction and expansion coinciding with the mid-decade boom times, current and potential casino operators in Atlantic City are sounding and acting more cautious in light of the latest economic downturn, at least in the short term.

“We are definitely disappointed by all of this,” Ms. Fredericks said. “We’re worried that people are thinking too short term. It takes visionary individuals, those who take risks, to dive into the casino arena. We can’t lose that now just because of a downturn.”

Pinnacle seemed one of those visionaries when it announced, after buying the Sands from the financier Carl C. Icahn for $250 million, that it would build the most expensive casino ever in Atlantic City, outdoing the Borgata Hotel Casino & Spa, the first of the $1 billion casinos here. Now, though, it seems to be running in place.

“We are continuing to buy adjacent parcels contiguous to our site,” said Kim Townsend, chief executive of Pinnacle Atlantic City, a subsidiary of Pinnacle Entertainment. “It is a large project and it will take years, so we will continue on other fronts and are as excited about Atlantic City as we were before when the economy was better.”

Jeffrey Vasser, executive director of the Atlantic City Convention and Visitors Authority, was a bit more upbeat, saying, “When the markets seize up, things can’t be what they were.” But he noted that no other casino project was off schedule, and that the MGM project in the Marina district had hired a general manager in recent weeks, which he viewed as a confident sign.

“The slowdown in the capital markets has the potential to delay projects, but it doesn’t alter the fundamentals, which are that Atlantic City, long-term, is an attractive market,” said Michael Pollock, whose Spectrum Gaming Group consults for casino companies.

Curtis Bashaw, former head of the Casino Reinvestment Development Authority, a state agency overseeing development in Atlantic City, is bullish long-term on the city. He is now co-chief executive of Cape Advisors, which is redeveloping two old Atlantic City hotels into the 330-room high-end Chelsea and is also getting preliminary approvals for a casino-hotel in the southern end of town.

“Two billion dollars is a lot of money to put together,” he said. “That said, we are big believers in Atlantic City, which has this storied history, but its gaming potential is still really unharvested.”

Trump Taj Mahal has a 782-room tower going up that will open by fall. And the Borgata will be opening its own 800-room non-casino hotel, the Water Club, by summer. Its president, Larry Mullin, said it was already fully financed, but he said he hoped no one would stop building just because of the temporary problems.

“We hope all the projects get built out because a rising tide lifts all boats, as they say,” Mr. Mullin said, noting that the Revel Group, backed primarily by Morgan Stanley, has broken ground for a proposed $2 billion project extending the casino district to the far north end of the Boardwalk.

At Harrah’s, which owns four casino properties in Atlantic City, the downturn is merely a time to take stock.

“We’re taking a better look at the Atlantic City master plan,” said R. Scott Barber, the general manager of Harrah’s Atlantic City. “We’ll probably be looking at our Caesars property in the center of the Boardwalk next to upgrade. This will give us time to see what’s next, but what is next is really only around the corner in Atlantic City.”

[howid]

“We’re taking a better look at the Atlantic City master plan,”

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