Hard Rock bets on Atlantic City

ATLANTIC CITY, NJ—A small but financially flush group of investors, led by Hard Rock International, is placing a multimillion-dollar bet that it can help change the economic course of this beleaguered seaside city by inking a definitive agreement to buy the shuttered Taj Mahal Hotel and Casino from billionaire entrepreneur Carl Icahn.

The group, which also includes the New Jersey-based Morris and Jingoli Families, is laying down $300 million to purchase, renovate and reconcept the 2,010-room property, once owned by Donald Trump, into the Hard Rock Hotel & Casino, which would mark the global brand’s entry into the Garden State’s lodging landscape when it opens in 2018.

“We have for many years looked at the Atlantic City market and have always been intrigued by its amazing success and, obviously, its decline in recent years. But even in its decline, it is still the second largest gaming market in the United States. So the question was is there an asset that would make sense from our brand perspective to [enter]that market to compete but also and, most importantly, grow the market,” said Hard Rock Chairman Jim Allen.

In addition to the Taj, where Hard Rock currently has a fully operational Hard Rock Cafe at the boardwalk level, the group eyed several other assets, such as the closed Trump Plaza & Casino and The Atlantic Club. However, Allen said, “They just did not meet the criteria of what our brand is all about from an entertainment standpoint and, frankly, the one thing that the Taj has—with the one exception being the Borgata—is its ‘bones’ are better than anything else in town.”

Built in 1990, the property, with its iconic onion-dome architecture, occupies 17 acres of boardwalk/beachfront real estate and in its heyday as the Trump Taj Mahal (the Trump name was removed last month), was billed as a lavish experience with luxury interiors and superior service geared toward capturing guests who wanted to live the luxe life, even if only for the weekend.

“The Taj certainly is a brand that people who frequent the Atlantic City market know, but the brand obviously has not done well for quite some time. So anything and everything to do with the Taj will be removed,” said Allen, noting Hard Rock is “always ranked as one of the most notable brands in the world. We had over 73 billion media impressions last year alone.”

While Allen noted the group is not near any public discussions around the scope of the project, e.g., design, interiors, space configurations, additional construction, etc., there’s no intent to tear down any of the buildings. “One tower, what they refer to as the Chairman’s Tower, is actually the newest tower in Atlantic City. Those rooms are the nicest rooms in Atlantic City and you really could reopen them tomorrow if you wanted.”

Allen indicated the timing of the deal—expected to close, although the chairman would not comment on when—is right. “The asset is built so well. There have been numerous opportunities for us to enter that market but we just did not feel there was an asset that had the quality the Taj has. Keep in mind that when it was constructed, it was the world’s most expensive hotel/casino at more than a billion dollars. Back in 1990 to have $1.2 billion placed in one facility was just unheard of… Clearly, when this building was designed and built, it was world-class caliber and that’s our interest in the building,” said Allen.

Enthusiasm around the hotel deal has reverberated in many sections of New Jersey.

According to Jeffrey Albrecht, chairman of nonprofit organization Meet AC and general manager of the Sheraton Atlantic City Convention Center Hotel, “Everyone from Atlantic City to Trenton is just tickled pink and delighted with this opportunity for Hard Rock to stake its claim in Atlantic City. [It] continues to show the strength, commitment and forward thinking of entrepreneurs and developers that Atlantic City still has a robust future.” He felt low-profile momentum began last year when MGM Resorts International bought out Boyd Gaming’s share of the Borgata, and saw this latest investment as part of the “phoenix-like revival” of the city.

Last year also was a watershed for AC. Near bankruptcy and mounting debt of an estimated half-billion dollars sparked by hotel and casino closings and subsequent loss of thousands of jobs and taxable income and assets, among other issues, Gov. Chris Christie received approval for a five-year state takeover of the city.

Commenting on the proposed deal, Gov. Christie called it, “Great news for New Jersey. There is no doubt that this purchase was encouraged by our efforts to stabilize the finances of the city government. Businesses now know that the years of irresponsible spending and taxing by the city government are over and they are ready to once again invest in Atlantic City. Not only will they create 3,000 jobs for Atlantic City, but they will engage in a needed total remodeling of the existing hotel and casino. We believe this is just one of many private-sector investments we can encourage to be made as we continue to revitalize Atlantic City.”

Hard Rock’s Allen acknowledged the city “certainly has had quite a few years of a lot of drama” between the city, the county, the state, the casinos and the CRDA (Casino Reinvestment Development Authority). “I do think the worst of that is behind us. There’s no doubt that there seems to be a leveling of the market. The market actually grew in 2016 by almost 2%. The internet gaming business seems to be now hitting stride and doing very well. The state takeover has assured that Atlantic City would not go into bankruptcy, so I think there are a lot of positive things that have happened. There’s major non-gaming construction happening in the city itself with the expansion of Stockton University—a major $300-million-plus project. There’s another project where South Jersey Gas, the utility for virtually all of the central and southern region of the state is moving into Atlantic City. So, there are a lot of positive things happening,” he said.

According to James (Jim) Wood, CEO of Meet AC, it’s  “very, very positive to see Hard Rock looking to get into the marketplace… It speaks well of what’s happening now in Atlantic City. We’re seeing a turnaround of sorts, especially when someone with the expertise of Hard Rock is looking to get into your marketplace. It’s very exciting news for us because it really means that we’re on the rebound and on the uptick.”

While nowhere near as robust as a decade ago, the revenue from gaming in Atlantic City was a reported $2.6 billion in 2016, with seven casinos still operating.

“The casino market is very strong,” said Wood. “The casinos have a unique style of marketing their properties and each casino property has a built-in customer base. So, from their standpoint, they’re doing very well.”

While there are standalone, non-gaming hotels, e.g., the Sheraton, Claridge, Courtyard by Marriott, Wood said gaming is “crucial” to the market.

“AC has been built around a gaming model since the advent of gaming [in AC]in the late-1970s. Is it crucial? Yes, because that it what AC is known for now. However, it is currently working on providing more non-gaming opportunities. What we’re seeing from an investment standpoint, even from the casino standpoint, is the addition of meeting space. We’re seeing Borgata adding meeting space. There’s the waterfront conference space at Harrah’s added 12,000 sq. ft.; the Claridge added 15,000 sq. ft.,” said Wood. “The gaming market is somewhat saturated on the East Coast and more diversification of the market is necessary for Atlantic City moving forward.”

The Meet AC CEO noted CRDA is responsible for the tourism district and is actively trying to grow it by bringing in additional, new non-gaming business.

Albrecht acknowledged while gaming is key, other aspects of Atlantic City still draw consumers.

“Like Vegas did 10 or 20 years ago, we are slowly changing. Three, four, five years ago all the casinos started to bring in top-notch chefs to open restaurants and we still have a flurry of people coming in just for the dining experiences,” said Albrecht.

“Tanger Outlets also opened up with 140 very nice stores, so there’s a lot of shopping, particularly from my hotel, the Sheraton next to the convention center. And, of course, the beach is free and attractive and beautiful. We’re also doing more concerts. So, obviously, we’d like to balance out the gaming/non-gaming revenues for the city like Vegas did,” said Albrecht.

He noted when other hotel/casinos closed in the market, his hotel’s leisure business fell off significantly. “People thought the city was going down,” he recalled. Now, from his perspective as the GM of the Sheraton, Albrecht is enthused about the proposed Taj Mahal deal, expecting the addition of the Hard Rock hotel will, like a rising tide, help float all businesses. “You’ve got a brand-new brand [hotel]that’s not in the market that brings some diversity and market attention,” he added.

Asked if he felt Hard Rock was pioneering and would create investment momentum for what many have classified as a moribund market, Allen said, “We have to be humble and we have to leave our ego at the door. But I just think if you look at the publicity that this story has generated, there’s been nothing like it in the past 10, 15 years, not just in Atlantic City, but frankly, in our industry. I think a lot of people are very excited about the more than 3,000 jobs we could create, the construction jobs. One thing you can’t take away: You have 50 million people within basically three hours’ drive of Atlantic City with one of the greatest beaches in the world right in front of it. If this becomes the springboard that creates excitement, then we’re happy to be a part of it.”

Albrecht, like Wood, sees the Hard Rock deal as more than just cautious optimism for the city.

“It’s a significant, turn-the-page, we’re-moving-forward event,” said Albrecht.

“It’s a celebration,” agreed Wood. “We’ve jumped to the top of the buildings and we’re screaming: ‘Hallelujah!’” HB