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Press of Atlantic City - August 29, 2010
Investors hope Resorts sale inspires more just like it
By DONALD WITTKOWSKI Staff Writer | Posted: Saturday, August 28, 2010
ATLANTIC CITY — Resorts opened in 1978 as Atlantic City’s first casino, saving what was then a dying tourist town by instantly transforming it into a gambling mecca. Now, Resorts may help pull Atlantic City out of its latest economic crisis — simply by being sold.
Former Atlantic City gaming executive Dennis Gomes announced Monday he has agreed to buy Resorts for an undisclosed price. Resorts is currently owned by lenders who took charge in December after Resorts defaulted on its $360 million mortgage.
Analysts believe the Resorts deal may finally jump-start the depressed real estate market, possibly leading to a chain reaction of sales as buyers look to scoop up other distressed casinos at bargain prices.
Cory H. Morowitz, chairman of Morowitz Gaming Advisors LLC, said investors seem to have a renewed interest in Atlantic City, suggesting “that the free fall, at least, is over.”
“I think from an investors’ standpoint, it seems like we’ve bottomed out,” Morowitz said. “Whenever you start seeing a number of transactions occur, it means that the market has had a clearing price. I think we’re heading, hopefully, for an upswing in terms of investment.”
Gomes said he has no intention of trying to flip the property for a quick profit. He indicated that he is in it for the long haul.
“Right now, what we realize is that the property can stand on its own. We’re not looking at it as a development or real estate play. We’re looking at it as an operating opportunity, to make the operations successful and profitable.”
Steve Norton, a private gaming consultant who formerly served as a senior executive at Resorts, said Gomes’ acquisition of the money-losing casino is a vote of confidence in Atlantic City’s future.
“People are going to look and say, ‘Dennis knows what he’s doing,’” Norton said. “He understands this market as well as anybody. The fact that someone with his knowledge is buying Resorts, despite its negative cash flow, has to send a message that these things are undervalued and this is the time to get into the market.”
Kevin DeSanctis, chief executive officer of casino developer Revel Entertainment Group, called Resorts’ sale “a positive sign for Atlantic City at a time when there’s not a lot of positive news.”
DeSanctis said he hopes Gomes’ purchase is the start of more locally based casino companies, headed by executives who have been involved in the community. Gomes, 65, of Margate, has spent much of his 30-plus years in the gaming industry as a top Atlantic City executive, including former stints at Trump Taj Mahal Casino Resort and Tropicana Casino and Resort.
“The concept of Atlantic City casino resorts being owned by Atlantic City-based gaming companies is one that I hope would catch on and be encouraged,” DeSanctis said. “Dennis Gomes understands the market. He has been successful here and has been an integral part of the city.”
DeSanctis, meanwhile, continues to try to secure $1 billion in additional funding to complete the $2.5 billion Revel casino project following the withdrawal of his chief financial backer, Wall Street giant Morgan Stanley. Although he believes the Resorts deal is a boost for the city, DeSanctis said it likely will not have an impact on the Revel project.
“We are working very hard on a plan to complete the project,” DeSanctis said. “Unfortunately, from a confidentiality perspective, we can’t comment on that now. I hope to provide some clarity in the next several weeks.”
A month before the Resorts sale, a deal involving the land underneath Borgata Hotel Casino & Spa began perking up the real estate market. MGM Resorts International, half-owner of Borgata, sold 11.3 acres of property and related ground leases to Vornado Realty Trust and Geyser Holdings for $73 million.
Separate from that deal, MGM is also looking to sell its 50 percent stake in Borgata itself. Boyd Gaming Corp., which operates Borgata and owns the other half, has first rights to buy MGM’s share.
Analysts say that even in a down market, Borgata should have no trouble finding a buyer because it remains Atlantic City’s top-grossing casino. But the Resorts sale could be a catalyst for buyers to take a chance on weak properties, such as the Atlantic City Hilton Casino Resort or Trump Marina Hotel Casino, they said.
“The values of other casinos or other Atlantic City property are all very dependent on the marketplace and how the city reinvents itself,” Morowitz said. “If the casinos can increase their cash flow, then other investors will be interested in Atlantic City.”
Atlantic City real estate values have tumbled, mirroring the four-year slump in casino revenue. At least four casino projects were scrapped in the past two years as the economy remained weak and gaming competition from surrounding states grew stronger.
One of those projects, a proposed $1.5 billion megaresort by Las Vegas-based Pinnacle Entertainment Inc., became nothing more than a dirt lot. Pinnacle imploded the old Sands Casino Hotel in 2007 to create space for its project, but announced in February that it was abandoning its plans and would put the property up for sale.
Pinnacle paid $270 million in 2006 for the Sands site, buying it at the market’s pre-recession peak. Reflecting the market’s current troubles, Pinnacle’s real estate broker recently acknowledged that the 20-acre oceanfront site may attract just 30 percent of the original purchase price.
However, gaming analyst Chad Beynon, of Macquarie Securities, believes that the Resorts deal “bodes well” for the Pinnacle sale by generating some movement in the real estate market. Beynon is among those who predict Atlantic City is heading for a shakeout that will result in the closing of some of the weaker casinos.
“We continue to believe that the market may need to shutter certain properties for the market to experience gentrification. However, should Gomes decide to invest in the property and drive business back from the nearby Pennsylvania casinos, we would view this as a net positive for Resorts and the entire Atlantic City market,” Beynon wrote in a report to investors.
Beynon also said he is encouraged by Gov. Chris Christie’s plan, announced in July, to place Atlantic City’s casino district under state control. Christie wants to clean up blight and tackle crime to make the city safer and more appealing to tourists.
Gomes, who serves on a planning committee formed by Mayor Lorenzo Langford to boost the casino and tourist markets, said the governor is putting aside partisan politics to rescue Atlantic City.
“I hope he’s going to be successful, because everything that he’s doing flies in the face of traditional politics and is really aimed at supporting development and investment in the city,” Gomes said.
Contact Donald Wittkowski
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