Download Atlantic City`s Casino Closings Have Far

Atlantic City’s Casino Closings Have Far-Reaching Effects
By Jack Nash, Northeast Area Leader / Principal, Philadelphia
What was once one of the country’s premier vacation destinations and East Coast gambling monopoly is now a city on the
brink of bankruptcy, suffering from long-term decline in visitation and plummeting casino revenues. For the past several
years, Atlantic City has faced major economic hardship due in large part to increased competition from casinos opening in
Pennsylvania, New York, Delaware, Connecticut and Maryland. While Atlantic City’s casino troubles began in early 2007, the
situation has worsened even further in 2014.
The Atlantic Club Casino Hotel, which opened in 1980, closed its doors in January and has been vacant ever since. For the
second time in the two years since it opened, the $2.4 billion glitzy, Las Vegas-inspired Revel casino and resort entered
bankruptcy in June. Revel is now up for auction and valued at less than $300 million. Also in June, Caesars Entertainment
Corp. announced plans to close the Showboat casino-hotel, which includes a rooftop swimming pool and House of Blues
nightclub, at the end of August. Just this month, Trump Plaza Hotel and Casino, which is located on the “50-yard line” of the
Boardwalk and features a Rain Forest Cafe, announced they expect to close around mid-September.
These recent closing announcements could bring the total casino count from twelve at the end of 2013 to eight by the end of
2014. If all four casinos close, Atlantic City faces a loss of about one-third of its casino-related property tax revenue—around
$75 million. It’s not just the local economy that is suffering. The surrounding counties and the state overall will experience
the burden of Atlantic City’s ongoing financial troubles. At their peak in 2006, casinos generated more than $500 million in
state taxes and fees. These revenues dropped to $238 million just three years later. The city’s gaming revenue has fallen to
$2.8 billion, a little more than half its 2006 peak of $5.2 billion.
Further complicating fiscal matters for the tax base of the region is the recent
ruling in favor of the Borgata Casino’s tax appeal with the city. In June, the
court awarded the casino an $88.25 million tax refund for payments made
from 2011-2013, along with a future assessment reduction. The refund will
have to be raised by the city selling municipal bonds. Keeping in step with
the Borgata, most casinos have filed, settled or have ongoing assessment
appeals pending at this time. All of the casino tax appeal cases will be
affected by the recent announcements of closures or asking sale prices for
those that remain open. These sale or asking prices are expected to be well
below current assessments, which will undoubtedly lead to lower future
assessments. In fiscal year 2013 alone, the city has had to borrow $143
million to cover the cost of successful appeals by Borgata and others.
Located at the southern end of the Boardwalk, the
famous Atlantic Club Casino Hotel was the first of four
recent casino casualties to hit Atlantic City.
Closings, consolidations, assessment reductions and such will deal a significant blow to the local, regional and state
economies. Atlantic City and its neighboring communities are estimated to have more than forty independently operated
hotels, which will all be affected by the current market. Locally, the “off the Boardwalk” hotels that usually reap the benefits
of guests choosing less expensive accommodations while being near the gambling venues will experience the crunch first.
According to Smith Travel Research (STR), year to date through May, the market’s hotels have already seen a
downturn in performance. Atlantic City’s occupancy declined by 5.1% to 39.9% and revenue per available room
edged down .3% to $42.76.
Restaurants, shopping venues and Boardwalk vendors are next to experience the effects of the downward spiraling economy.
Following the trend would be the casino supply chain. There are an estimated 12,000 to 15,000 registered casino vendors in
and around Atlantic County. As a result, warehousing, trucking, energy and related supply chain industries will see a decline
in business and revenue. This all leads to loss of jobs and people leaving the city. In fact, Atlantic City’s unemployment rate of
10.3 percent as of May is already significantly higher the national rate of 6.3 percent.
According to statistics compiled by UNLV, Atlantic City’s casino industry had 42,500 employees in 2006. By 2011, that number
was slashed to 33,000 employees. Trump Plaza itself issued more than 1,000 WARN notices last week and that number could
triple if the other casinos follow suit. In total, the four casinos account for more than 8,000 jobs, about a quarter of the
industry’s workforce. Atlantic City has a population of approximately 40,000. It is estimated that at least one-third of those
people have an economic link to the casino industry, whether as an employee or employee family member.
Although the talk of casino closures and unemployment statistics speak of fading fortune, the spirit of Atlantic City remains
intact. Rather than relying solely on the gaming industry for revenue, the changing landscape of Atlantic City offers a great
opportunity to diversify the economic base, which is a much more viable, long-term option for prosperity. Despite its
economic woes, the city still attracts 27 million visitors annually. The city recently won back the Miss America pageant, hosts
NCAA basketball conference tournaments at its Boardwalk Convention Hall and plans to continue the summer concert series
on the beach. This activity along with the area’s natural assets will continue to attract investors looking to take advantage of
the opportunity to be a part of Atlantic City’s transition and revitalization efforts.
The city hopes to transition the area to a family-friendly destination, while also attracting conventioneers. While it appears
that the former Atlantic Club is destined for the wrecking ball, there is already talk of converting the closed casinos into hotel
space only and converting the casino areas of the buildings into shopping malls, restaurants, a children’s museum and even a
satellite campus of a local college—anything to help generate tax revenue and rebuild the local economy. Further, given the
high quality of the Revel Casino’s construction characteristics, including an entrance facing the ocean, it could be converted
to high-end condominiums, a conversion that would bring along some much needed affluence to the area.
In the meantime and for the near term future, Atlantic City could be headed toward bankruptcy and will no doubt need
assistance from the State of New Jersey. The city will not be able to withstand the onslaught of revenue reductions in the
form of lost wage taxes and economic assistance needed by residents. It is imperative and there is precedent that assistance
will be coming from the state at least until these fiscal affairs can be put back in order.
If you have a comment or question with regard to the events in Atlantic City or the economic impact on your real estate
within the region, please contact Jack Nash at (610) 409-9835 or [email protected].