Here’s something that I never saw coming.. Pinnacle Entertainment, the company that purchased the Sands Hotel in Atlantic City, demolished it and is intending on building a $1.5 billion dollar casino hotel on its site may drop out of Atlantic City! Not only that, but instead of beginning construction at the end of 2008, and opening in either 2011, or 2012 – they are delaying the construction until late 2009 – at which time they are hoping the credit markets improve.

That says a lot for both Pinnacle, as well as the current credit markets, heres why:

Even though all of the mortgage industry mess, the credit markets tanking and the overall economy slowing – one thing that has not shown any signs of slowing is the Atlantic City construction market. With the opening of the Water Club by Borgata, the announcement of MGM Grand Atlantic City, Revel Entertainment’s beginning construction on Revel, the interest in the Tropicana now that it’s available for sale, as well as the interest in development on Bader Field, it seemed as though Atlantic City was immune to this economic slowdown. Not only that, but all of these companies realize that any slowdown is only temporary – meaning, if you can stick it out for a few years (convenient if your just building now, since by the time the construction is completed – the economic situation will probably be completely different). So now would be an excellent time to build – money is cheap (rates are low) and building in a downtime works for you in two ways – provides jobs when people need them, and then once the construction is over, the economy should be rising again.

So why would a company looking to build in Atlantic City have issues? Simple – they never had the money or experience to pull it off to start with.

Revel and Pinnacle announced their intentions to build in Atlantic City very very close to one another, if thats the case – why isn’t Pinnacle already building like Revel is? Ok, so Pinnacle did have to properly close down the Sands operation as well as prepare the site for demolition, and then clear it when it was imploded – whereas Revel already had a clear building site. But wouldn’t you expect Pinnacle to have been working on architectural drawings, renderings, and figuring out on paper what they can build, where they can build it, etc? Apparently, they are just getting down to that now! While Revel is already starting to lay steel on their site!

You may ask – well MGM, Revel and the like are not immune to the credit markets either – so why are they not having difficulty? Simple – they already have their financing in order, they have good backers, and this type of project – while big – is not too big to handle. Believe it or not, the MGM Atlantic City would be one of MGM’s mid-sized projects, the Revel Entertainment project is being backed by Morgan Stanley.

I’m a little disappointed in Pinnacle – it seems as though this project was being conceived using mainly the banks money. That is pretty much why the mortgage industry is currently in its mess today – people overextended themselves using the banks money and now are not able to pay back what they borrowed. It looks like Pinnacle was headed in the same direction – whereas MGM, Revel and other companies have better financing and experience in this type of work. Not only that, but I’m also very very surprised that they have not even settled on a design for the property yet. What is taking them so long?! It almost sounds to me as though the project was scaled back numerous times because of rising construction costs and credit market changes, but, once again – it does say a lot for Pinnacle.

I don’t think they can handle this type of a project – all of their past casino projects have never been on the scale of this Atlantic City project, and they have not done any projects on the East Coast – mostly everything was done in the midwest, where its a completely different climate in both construction costs, local economy and of course what amenities the project contains.

No matter what happens, Atlantic City will see a major development on that property – be it from Pinnacle, or from another developer who comes along. It’s too valuable to sit there for too long and Atlantic City wants to see it developed just as much as Pinnacle wants to develop it.

andrew@alconic-inc.com