Commercial Real Estate Finance

The Revel Resort and Casino in Atlantic City is a huge gamble.

I apologize for the pun. There was no other word.

Those who criticize the behavior of the investment and financial world–particularly in the wake of the recession–often refer to Wall Street’s “gambling” culture. Sure, a gambling dynamic is fundamental to any business: people with varying levels of experience, intelligence, and appetite for risk weigh known data against unknown data,  make a decision and hope for the best. Investment, you might say, is gambling without the social stigma (at least, it used to be).

The difference between casino gambling and high finance, in my mind, has come down to analysis. While someone feeding quarters into a slot machine may be “going with his gut” (or compulsive gambling problem), the investment world collects and analyzes data to form strategies with a fair amount of probability on their side.

At least, that’s how I thought it went.

Apparently, when it came to financing and developing Revel, the new $2.4 billion resort in AC, this venture may have been a product, not of carefully vetted data and strategy, but simply “a gut feeling.”  Though Revel has emerged as the new crown jewel of Atlantic City’s skyline while generating plenty of national buzz, it’s proving to be a very nerve-wracking venture for those with money (or reputations) riding on it, such as New Jersey governor Chris Christie.

Based on numbers from the last few months, Revel is shaping up to be the John Carter of casinos. Philly.com reports,

June is a peak month at the Jersey Shore resort, and the mega casino generated $14.9 million on total gambling revenue, ranking it 8th among the city’s dozen gambling halls for the third consecutive month since it debuted April 2.

By comparison, market leader Borgata pulled in $53.3 million last month, about three and a half times more than Revel.

For a resort this beautiful, expensive, and publicized, these numbers are spectacularly disappointing (though I didn’t expect a blockbuster opening, I can’t understand how the casino would show up in eighth place, either).

All of which begs the question, are these early numbers indicative of Revel’s future? (Not to mention other gaming and hospitality real estate in AC?) Judging from its peak-season performance, the highly leveraged casino is headed for trouble, but was a slow start to be expected?

All we have is short-term data, of course, which can only reveal so much about anything as long-term as commercial real estate. We do know the casino/resort’s management isn’t idly watching their property drain capital. Their media campaign has been aggressive, and they’ve been seriously playing up the whole non-gaming aspect of Revel, with shopping, dining, and big-name concerts.

Now that it’s lost its gambling niche, Atlantic City is attempting to rebrand itself the way Vegas has. Still, it seems Revel and its investors are trying to manufacture demand where very little actually exists (after all, you don’t need to go to AC to gamble these days, much less see a concert or enjoy a good meal).

On the other hand, if we’re making long-term projections about casinos, we can’t ignore those inland, such as the new Valley Forge Casino. Its first few months’ revenue has similarly disappointed. Still, Pennsylvania’s gaming industry is nimbler, more accessible, and most importantly, less burdened with debt. I’m inclined to bet on the little guys, rather than the mega-resorts. Still, we’ll have to wait and see whose bet, if any, pays off in the end…

#CRE #AtlanticCity

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