Hotel bets going bust in Atlantic City
Hotel bets going bust in Atlantic City
18 AUGUST 2014 7:36 AM
The former East Coast gambling mecca has fallen on tough times, with three high-profile casino-hotels scheduled to close in the coming weeks.
ATLANTIC CITY, New Jersey—The bets keep going bust in Atlantic City, where as many as three high-profile casino-hotels are scheduled to close in the coming weeks. 
The most recent domino to fall was the $2.4-billion Revel Casino Hotel, which will shutter its doors at 11 a.m. on 1 September after two bankruptcy bouts since opening in May 2012. The property’s owners originally would have closed the property Monday had the state Division of Gaming Enforcement not denied their request, according to reports.
The property will join Caesars Entertainment’s 1,329-room Showboat (scheduled to close 31 August) and the 906-room Trump Plaza (16 September). The 809-room Atlantic Club already closed in January. 
Atlantic City’s hotel occupancy has struggled for the past few years. The market has failed to repeat 2008’s recent high of 53.8%, finishing the first half of 2014 at 41.6%, according to data from STR, the parent company of Hotel News Now. 
Average daily rate has suffered as well, hovering below the pre-recession tally of $125.30 in 2008. The most recent year-to-date figure was $109.34. 
The bad news might continue to pile up, but sources in the market say not to count out Atlantic City just yet. 
Diversification key to success 
The Great Recession took its toll on gambling destinations throughout the U.S. But while Las Vegas rode the upcycle to new market highs, Atlantic City’s recovery was thwarted by several other factors:
  • the approval of legal gambling in Connecticut, New York, Maryland, Delaware and Pennsylvania, which is providing stiff competition for business;
  • Hurricane Sandy, which devastated the East Coast in 2012; and  
  • an unusually brutal winter in 2013-2014, which kept visitors at home. 
“Atlantic City has had its challenges in the recent past,” said Emily Sze, assistant VP in the gaming division at HVS. “As gaming has advanced through the northeast, Atlantic City has seen a lot of closures.” 
Another hurdle is the market’s lack of diversification. 
“People know Atlantic City as a gaming destination, but don’t know it as anything else,” said Jeff Guaracino, chief strategy officer for The Atlantic City Alliance, a non-profit created in 2011 by legislation enacted to rebrand and drive tourism dollars back to Atlantic City. 
In partnership with the Casino Reinvestment Development Authority, the two entities are charged with rebranding the city as a diversified destination to attract more transient leisure and group business, including city-wide conventions. 
Helping those efforts is the new $126-million conference center at the Harrah’s Resort, which will open in 2015. The center is one of the largest in the northeast with 125,000 square feet of meeting space and two ballrooms each with 50,000 square feet of space. 
Guaracino said only 6% of the city’s overall rooms are booked due to meetings, but the long-term goal is to see 25% or more. 
The ACA and CRDA have $700 million derived from state gaming revenue to invest over five years in road and city improvements; marketing/rebranding campaigns in high-ticket advertising markets such as New York City; and gaming amenity improvements. 
In 2012, the Steel Pier, which had been a major draw for the city since 1898, underwent a $100-million makeover. The organizations also are drawing huge crowds with free midweek events, such as a recent concert from country music artist Blake Shelton, which drew an estimated 100,000 people. An upcoming air show is expected to draw 500,000. 
Diversification seems to be working at the Borgata Hotel Casino & Spa, owned by Boyd Gaming and MGM Resorts International. 
“We’re a different kind of property, as we have gaming, food and beverage and the hotel product,” said Joe Lupo, senior VP of operations at the Borgata.
Significant capital expenditure doesn’t hurt. Lupo said the company invests $25 million a year in capital improvements, including the opening of the Borgata Water Club in 2008 and a just-completed a $50-million room renovation. 
Lupo said the typical hotel/casino a decade ago might have 90% of revenues from gaming. The Borgata sees 70% from gaming, with 30% revenue from its other offerings. 
Part of a plan 
“I think we will see a healthier market when the other resorts close,” Lupo said. “The money that was being spent there will funnel to healthier properties.” 
Sze said that market correction already is taking hold.
“Given the evidence of market closures, it appears there is an oversupply of hotel rooms in Atlantic City, but is also appears the market is starting to correct itself,” she said. “The remaining casinos will have to work with the remaining supply and demand to make it healthier.”
According to reports released by the New Jersey Office of the Attorney General, Borgata showed an increase of revenue by 1.6% in the first quarter of this year. The Golden Nugget and Tropicana Casino & Resorts also showed first-quarter revenue increases. 
Guaracino said behind the news of the closures, many people don’t note that two hotels, the TRYP by Windham and the Madison Hotel, opened this year. The Claridge Hotel (purchased from Caesars Entertainment by TJM Properties) will reopen soon.
“There is a plan,” he said. “It is obviously taking some time.”

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