Morgan Stanley Building a Ultra-Luxury Casino in Atlantic City

Andrew Calvo | September 3, 2007 | 0 Comments

Major investment firms such as Goldman Sachs, Morgan Stanley, Credit Suisse as well as other investment/hedge funds are starting to invest in industries outside of the financial industry. Real Estate for one, has become one of the most popular forms of investment by these firms, look at Blackstone, earlier this year they made the largest private equity purchases to date with the 46billion dollar purchase of Equity Office Properties, and then a few short months later purchasing Hilton Hotels for 26billion dollars. Companies that were once thought untouchable – especially by private capital – are being purchased more and more often – at very attractive numbers for their current shareholders. What does that mean? Private Equity firms, and investment banks do not make large purchases without doing their research. Sure there is a lot of discussion on Blackstone’s payout to their CEO, and the disappointment with their recent IPO – but one thing for sure, Real Estate is the best long term investment, much better than the financial markets, and even the treasury market.

Lately, a new type of “real estate” investment by these investment firms is in Casinos – an industry that was almost completely owned and run by organized crime and frequented by the worst of the worst – casinos have had an amazing resurgence over the past 4 decades or so. Proof of this is the growth of destinations like Las Vegas, and something a little closer to home - Atlantic City.

Atlantic City has been long dormant in regards to design, style, and attractions within their casinos, for years they seemingly had one goal, and one goal only – bring in as many people as possible on as many busses as possible, day in and day out; now, it’s a completely different ballgame. Atlantic City is trying to bring in as many people as possible, and have them stay for as many days as possible – shopping, going to shows, and eating at first rate restaurants – oh yea, and if you like to gamble – you can do that too.

Atlantic City’s wakeup call came in 2003 with the opening of the Borgata, the casino, the destination – that I consider the beginning of the new Atlantic City, the Borgata was the first Casino to bring a Las Vegas style to Atlantic City. The Borgata marketed itself as a hip, cool place, go for dinner at their 5 signature restaurants (now there are another 4), sit back, relax at their two bars (now make that 3) and dance the night away at their huge two story club called the Mixx (now, add their underground, low-ceilinged club – MurMur). At some point in 2006, the Borgata earned more money than all three Trump Casinos did combined. The Borgata also prompted top-down renovations of the Tropicana, Showboat, even Bally’s, Caesars, and now Harrah’s is finishing theirs. There is one theme that has become recurrent in all of those renovations – Las Vegas – and there is no stopping them now.

But back to the main point of this article, one Investment Firm – Morgan Stanley has taken a huge step – one that has surprised me – because they are the main investor in a company called Revel Entertainment. Revel’s intention is to build a multi-billion dollar resort on the oceanfront in Atlantic City – on land cleared just north of the Showboat on the boardwalk. Details are scarce, but from what I’ve been able to gather – its going to be a ultra-luxury casino catering to high-rollers, with a boutique hotel component, and on a lighter note – it will feature Atlantic City’s first wedding chapel within a casino. (I never knew that there is not a casino in AC which has a wedding chapel!) It shows a lot of faith in the casino industry by a major investment firm, demonstrating that a casino is a great long-term investment and the casino industry is a very legitimate business to be a part of.

Morgan Stanley is not the only company taking a chance – Credit Suisse was very close to providing funding and I believe an ownership stake in Trump Entertainment Resorts, back in late 2006 but that ended up falling through, and Carl Ichan, the famous billionaire financier purchased the decrepit Sand’s Casino in Atlantic City (no affiliation with Las Vegas Sands), and intends to also build an as yet un-named mega-resort with Pinnacle Entertainment. Currently the Sand’s property is being gutted and Atlantic City’s first large scale (you might even say Las Vegas-like) implosion is scheduled for later in 2007, complete with Grucci fireworks show.

When Starwood Capital was forming Starwood Hotels and Resorts in the mid-90′s, purchased ITT-Sheraton, which at the time included the Caesars Resorts Properties in both Las Vegas & Atlantic City (as well as the Caesar Pocono Resorts, a non-casino asset which became famous for their champagne glass hot-tubs, an asset which Starwood Hotels still owns). Starwood quickly divested the Casino part of their purchase, but it seems as though they are looking for more opportunities to get back into Casino ownership, last year Starwood Capital quietly purchased an interest in Twin River casino in Lincoln, Rhode Island, which is currently in the midst of a $200million dollar renovation project converting it from a primarily dog-track racing venue to a casino resort. I can definitely see Starwood making some additional Casino investments in the near future – but I’m not sure if they would be outright purchases or minority investments – I think that they would be more minority investments, but we’ll have to see. I can definitely see Starwood make a major casino investment within their Mammoth Mountain Resort in California, although I do not know the legalities of gambling in California, and I’d love to see Starwood make some type of investment in Atlantic City.

The opportunities are there.

Morgan Stanley sees it, Credit Suisse sees it, Carl Ichan sees it, even Starwood Capital sees it – who else will be next?

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