For Atlantic City, it's a grim reality that's growing stronger by the day.
Its glory days as an East Coast gambling mecca are long gone. At least two and maybe three of its casinos are closing this year. And the voices that have been calling for “right-sizing” its stock of gaming halls are being heard louder and clearer than ever before.
The question now: What number is the “right” number?
The question soon to come: What do state and city officials — and the private sector — do with the shuttered properties?
Both questions resurfaced late last month, while competition from neighboring jurisdictions continues to grow. On June 27, Caesars Entertainment Corp. said it would close Showboat Atlantic City Casino, one of its four properties in the resort, on Aug. 31. That followed the closure of the Atlantic Club in January and news that the beleaguered Revel Casino Hotel would close this summer if it can't find a buyer.
As for when the bleeding will stop in Atlantic City, “the real answer to that question is going to come from the market,” said Steven P. Perskie, a former regulator, judge and state lawmaker who authored the 1977 bill to legalize casino gaming in New Jersey.
“The market has its own rules,” said Perskie, now a Linwood-based attorney. “Regulators and economic planners … can sit around and be as smart as they need to be, but at the end of the day the market is going to make that determination.”
Wall Street analysts have tried to tackle that question in recent weeks. In a research note to investors, Andrew Zarnett of Deutsche Bank wrote, “Today, we believe Atlantic City can support only six, maybe seven casinos and, thus, more supply needs to come out of the market.”
It's a refrain going back several years, ever since citywide gaming revenue began falling from its 2006 peak of $5.2 billion. It was less than $2.9 billion in 2013 — part of a decline that was taking place even as the resort added to its stock with Revel in 2012.
“I've said it many times, it shouldn't have opened,” Zarnett said in an interview. “And it shouldn't have opened from purely the perspective that in a declining revenue market, the last thing you need is more supply.”
Israel Posner, executive director of Stockton College's Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism, said it's an oversupply issue that touches the entire mid-Atlantic region. And he notes that Atlantic City is not the only jurisdiction that's feeling at least a pinch: In 2013, Pennsylvania recorded its first decline in gaming revenue since casino gaming began there in 2006, even if it was a slight 1.4 percent.
And more casinos are on the way — in Pennsylvania, Maryland and New York.
“So you see pressure on the casino industry in the entire region,” Posner said.
But that does little to answer the question of what to do with a casino once it closes. Last month, Caesars said it hadn't determined what will become of the Showboat property and land, but that it intends to work with city and state officials as it evaluates alternative uses.
In May, Clearwater, Fla.-based TJM Properties purchased the shuttered Atlantic Club. The firm has said it plans to convert the 800-room property to a nongaming facility, though a company representative did not return requests for comment last week.
Posner said there are several scenarios for such a site, including a “condo hotel” in which the units are owned by residents but go into a hotel inventory when they're not being used. He also floated the idea of a hotel with multiple brands — a concept becoming more common elsewhere — in which operators offer a range of top-, mid- and low-tier room sizes and amenities in different sections of the building.
“I don't know that any of these are likely, but there are different kinds of possibilities,” Posner said.
The question is perhaps most glaring for Revel, a lavish megaresort that has only faltered and lost money since opening its doors. With the property now in its second round of bankruptcy proceedings, its owners have said it will close by mid-August if it can't find a buyer.
Zarnett, the Deutsche Bank analyst, said it can be sold, “but likely at pennies based on” the original $2.5 billion investment, according to his written report. He noted there are “always alternative uses for real estate, and real estate developers are pretty clever in terms of finding alternative uses.”
If things continue on their current trend, developers will have plenty of opportunities to experiment.
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