July 19, 2014


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With Atlantic City, N.J.’s Trump Plaza Hotel and Casino set to close in two months, mortgage holder Carl Icahn may regret spurning a $20 million offer — or he may bid on the property and others nearby.

The casino warned its more than 1,000 employees on Monday that it expects to shut down on Sept. 16. Parent Trump Entertainment Resorts Inc. and Trump Plaza’s board of directors are still in the process of “reviewing alternatives for the property,” however, according to a Monday statement.

The neighboring Revel and Showboat Atlantic City casinos both could be in play as well, as Revel owner Revel AC Inc. seeks buyers in a bankruptcy auction and Showboat prepares for a quiet wind down.

Ultimately, sources said, multiple properties could end up with the same buyer, either as casinos or repurposed for other uses.

Downey, Calif., real estate and construction firm Meruelo Group offered $20 million for Trump Plaza in February 2013 and promised to spend an additional $100 million to renovate the property. Icahn, however, blocked the deal.

“Meruelo Group could resurface,” said Robert Heller, CEO of Linwood, N.J., advisory firm Spectrum Gaming Capital LLC. Heller, though, noted any proposed deal must be approved by Icahn, who thought Meruelo’s last offer was too low. “This will all be driven by Icahn and what he wants,” he said.

A spokesman for Meruelo didn’t return calls seeking comment. Icahn couldn’t be reached for comment.

Icahn also drove the outcome of Trump Entertainment Resorts’ last Chapter 11 restructuring.

The company filed for bankruptcy protection on Feb. 17, 2009, in the U.S. Bankruptcy Court for the District of New Jersey in Newark, marking its second trip to bankruptcy court since 2004 and the third bankruptcy filing for its casinos since 1991.

Icahn Partners LP bought up first-lien debt during the 2009 bankruptcy, angling for control, and proposed a rival reorganization plan along with senior lender Beal Bank SSB. Icahn and Beal appealed the confirmation of a plan that handed the reins to a bondholder group led by hedge fund Avenue Capital Management LP.

The parties, however, reached a settlement under which Icahn and Beal, which were owed $483 million, were to receive the proceeds of a sale of the Trump Marina Hotel and Casino in Atlantic City, $125 million in proceeds from a rights offering and a $346.5 million secured term loan. Real estate mogul Donald Trump retained a 10% stake in Trump Entertainment Resorts.

The company sold the Trump Marina Hotel and Casino to Houston casino and restaurant operator Landry’s Inc. for $38 million in 2011.

A 2008 deal to sell the property for $316 million was scaled back to $270 million and then fell through when Trump Entertainment Resorts filed for bankruptcy.

The company retains only two properties — in addition to Trump Plaza, it holds the Trump Taj Mahal in Atlantic City, which will remain open.

Heller said he believes the recent financial turmoil in Atlantic City could inspire the activist investor to increase his holdings there.

“When you can buy a lot of real estate really cheaply, [Icahn] always seems to surface,” he said.

Icahn returned to Atlantic City in 2010, leading a group that paid $200 million for the Tropicana Casino and Resort in a bankruptcy auction. In September 2006 he had sold the Sands Hotel and Casino for $270 million in bankruptcy proceedings for GB Holdings Inc.

Steve Epperly, a senior director of corporate finance at CIT Group Inc., wasn’t sure Icahn would want to increase his position in Atlantic City on the gaming side. He said, however, Icahn’s $156.2 million purchase of the Fontainebleau Las Vegas resort in 2010 could serve as a model for any casinos scheduled to close.

Icahn bought the unfinished property, a 63-story tower that is 70% constructed, sold off the furnishings and has made no move to continue building, stoking speculation the Fontainebleau will end in a scrap metal liquidation.

Atlantic City politicians have made it clear that they want to expand the city’s nongaming attractions, and Heller said he believes there are good real estate and hotel investment opportunities in the city.

Heller noted it is cheaper to operate hotels and other nongaming properties than it is to run a casino.

Furthermore, developers have the support of regulators eager to move projects along quickly, which will make it easier to obtain building permits and clear other regulatory hurdles.

Heller said he believes Trump Plaza could be a compelling real estate play or hotel play. It has a great location, but the building is old and could be complicated to renovate, he warned.

The property, which has 39 stories, 906 rooms and an 8,600-square-foot casino, cost $210 million to build and opened in 1984.

A Trump Entertainment Resorts spokesman declined to comment beyond the company’s statement.

The future of other Atlantic City casinos, meanwhile, also is up in the air. Caesars Entertainment Corp. announced in June that it plans to close its Showboat Atlantic City casino, and bids for Revel AC’s casino are due Aug. 4, with an Aug. 7 open auction looming. Caesars also said in its latest Form 10-Q that it is “actively pursuing” a sale of the real estate of the shuttered Atlantic Club Casino Hotel.

“It’s hard for me to imagine that no one will buy Revel,” Heller said, nonetheless pointing to significant costs in repositioning and modifying the twice-bankrupt property. Still, he pointed out, “Even after these closures and with new competition coming, [Atlantic City is] still a $2 billion market. Why wouldn’t you want to have the newest property in town?”

CIT’s Epperly asserted, “If they get bought, it will be at a very steep discount” to the $2.4 billion construction cost, estimating a price under $400 million. Revel AC has valued its assets at roughly $486.9 million in court papers, against $454.2 million in secured debt.

The property boasts more than 1,800 oceanview rooms plus 2,000 slot machines and about 100 table games in a 130,000-square-foot casino.

Heller said he could imagine a scenario in which the buyer of Revel would also pick up the adjacent Showboat and turn it into a nongaming hotel.

A real estate fund might spring for Revel, he said, suggesting Blackstone Group LP as one logical possibility.

The asset manager in May agreed to buy the Cosmopolitan of Las Vegas hotel and casino for $1.73 billion. Officials at Blackstone couldn’t be reached for comment.

Epperly noted the Seminole Tribe of Florida, which already has a thriving casino empire, has made some inquiries into Revel in the past but has pulled out. A spokesman for the Seminole Tribe didn’t return calls.

Epperly was concerned Revel has been outperformed by the rival Borgata Hotel Casino & Spa, Tropicana and Resorts Casino Hotel in Atlantic City. Though Revel’s top line has been improving, “it’s still very anemic,” he said.

After previously filing for Chapter 11 on March 25, 2013, in the U.S. Bankruptcy Court for the District of New Jersey in Camden, Revel returned on June 19 because of continuing operating losses.

Revel debtor counsel Michael J. Viscount Jr. and Raymond M. Patella of Fox Rothschild LLP didn’t return calls.

The Atlantic City gaming market as a whole has seen declining revenue that is expected to further decrease, as more regional competitors are set to open in New York and Pennsylvania.

Casino revenue was down to $2.8 billion in 2013 from more than $5 billion in 2006, and Heller said he believes the market is headed downward to settle at $2 billion in annual gaming revenue.

Accordingly, valuations for Atlantic City gaming properties are low.

For instance, the assets of the Atlantic Club Casino Hotel were sold to Icahn’s Tropicana Atlantic City Corp. and Caesars Entertainment Operating Co. for $23.57 million in bankruptcy auctions that closed in January and February. Caesars, which acquired the real estate and nongaming assets, is converting the property into a noncasino hotel.

The former Atlantic City Hilton has 801 hotel rooms, more than 75,000 square feet of casino gaming space and 37,000 square feet of event space.

Any permanent casino closures would be bad news for Atlantic City, as gaming properties account for 70% of its tax base.

According to Epperly, the closures may have been delayed due to hopes that the advent of online gaming in New Jersey would boost profits for Atlantic City operators.

“Online gaming has turned out to be very underwhelming,” he said. “New Jersey’s online gaming revenues are nowhere close to what people hoped they would be.”

Still, closures could help rationalize the market and make the surviving properties healthier.

“If two of these three [casinos] close, it helps the other players in the market. … There has to be some Darwinism here, some survival of the fittest,” Epperly said. “Unless a buyer steps out of the woodwork, Showboat will close; same with Trump [Plaza],” he concluded, adding he is still on the fence about Revel.