When this weather turns from nice to straight-up blissful in another month or so and you head downashore, specifically to Atlantic City, you’ll probably notice the shell of Revel casino casting a 710-foot shadow over the beach. Everyone’s heard of Revel. It debuted in May 2012 as Atlantic City’s future, the tallest and most luxurious of the beach town’s resorts. It once had the financial backing of Wall Street and the state of New Jersey.
Then it crashed.
Revel filed for bankruptcy less than a year after its opening and then again last June, closing its doors three months later in September, causing the loss of 3,000 jobs. Last October, a company placed a bid to buy Revel for $110 million, less than 5 percent of the casino’s $2.4 billion building price. And it seemed like we’d be seeing Revel, perhaps under a different name, as a fully-functioning resort and casino sooner rather than later.
Except that hasn’t happened. The casino still lacks an owner. And as of Friday, with Judge Gloria Burns declining a sale yet again, Revel is in flux. If you’ve had a tough time following all the details, it’s with good reason. As Temple Law professor Jonathan Lipson, an expert in bankruptcy law, says, “This is a very messy, very complicated case and a very unfortunate case.”
So, let Billy Penn explain why Revel casino remains an unused, unowned mess.
What happened in October? I thought this sucker got sold and I stopped paying attention.
Revel was not officially sold. Rather, Brookfield Asset Management, a Canadian company that owns a couple of other resorts and casinos, bid $110 million, and Revel’s advisers agreed to the sale. A week later, U.S. bankruptcy court Judge Gloria Burns ok’d the deal. Boom. Done. Except …
Brookfield backed out of the deal in November because of financial complications regarding Revel’s adjacent power plant. According to the Press of Atlantic City, Revel took out massive loans to pay for the construction of the plant and owed a crippling $1.5 million every month to pay back the debt. The deal was over.
Fortunately, this guy named Glenn Straub was ready to swoop in and buy the casino.
Who’s Glenn Straub?
Straub is a Florida developer who decided in September he wanted to buy Revel out of “sheer boredom.” But his original bid of $90 million and then $95.4 million got eclipsed by Brookfield’s $110 million bid. Straub was pretty pissed about losing the sale because — as he said in court — he was ready to bid $140 million and didn’t have enough time to get his finances in order, partially because he was delirious during the all-night auction at which Brookfield nailed down the winning bid.
Then Brookfield backed out, and the casino was supposed to be Straub’s for $95.4 million. That didn’t happen either, though.
Judge Burns ok’d the sale of Revel to Straub for $95.4 million in early January. By February 9, it was supposed to be final, but other complications soon unfolded.
IDEA Boardwalk, an entertainment group that spent millions on a bar and two nightclubs in Revel, joined other tenants such as restaurants and the power plant to try to block the sale. An appeals court approved the request in late January. They all have leases with the casino that have yet to expire. Straub didn’t want to honor them. February 9 came, and Straub didn’t close because of complications with those tenants. Then Revel officially backed out of the deal.
For a second time, a sale had been thrown out. But the two sides quickly got back together. Straub and Revel agreed in late February to a sales price of $82 million. To ensure things would go smoother this time, Straub even transferred $72 million (he had already deposited $10 million) into a Revel account, with the expectation the everything would be final March 31. Boom. Done. Except…
Good God, what happened this time?
Burns rejected the sale for $82 million on Friday. She said she couldn’t approve the sale because of the appeal of the $95.4 million sale from the entertainment group tenants. Revel probably won’t get sold until that conflict is resolved.
Is this prolonged ordeal normal for a massive bankrupt asset up for sale?
Uh, not really. We’ll let Lipson, the Temple law professor, explain. When properties are sold as part of Chapter 11 bankruptcies, he says, there are three parties: the buyer, the seller and its creditors (people who have a stake in the company) and the judge. The judge always wants the least worse outcome, i.e. a fair sale that will also lead to the “greatest recovery possible” for the creditors. Everybody wants this sucker over quickly, because the property isn’t making any money sitting empty — it’s actually losing value.
The big differences here are the outlying parties that have caused confusion. Revel’s agreements with the utility company and the entertainment company, the latter of which is not usual for a casino, have prevented the sale and alienated other possible buyers.
“It’s this terrible prisoners dilemma,” Lipson says of Revel and the tenants. “They hate each other but don’t want to kill each other.”
The Inquirer’s Harold Brubaker might have gotten the best quote to summarize the hopelessness of the situation, from Alan Woinski, chief executive of Gaming USA Corp.:
“The fact is, the property’s a loser. The location is a loser. The people who created the property were losers. They did things that just didn’t make any sense in gaming.”
It has to be bad for this sale to take forever, right?
It’s bad for Revel, but it’s actually worse for anyone who has a stake in Revel and for the Atlantic City economy. The longer this goes on, the more Revel’s value will depreciate. The price has already dropped from $110 million to $82 million in a few months. It’s also possible Straub could get tired of all these delayed sales and drop out. His attorney has said this is possible, even though Straub has already deposited $10 million for the property.
What else could Revel do to stop the bleeding?
Revel could choose not to sell the property. It has already made $11 million from Brookfield and $10 million from Straub from their deposits when they said they’d buy the property. They could try to reopen but obviously face the same problems, such as never turning a profit and owing the utility company over $1 million each month to pay its debt. The problem would be lawyers. Twenty-one million dollars is a lot of money, but Revel already owes its legal team around $16 million.
Another option, says Lipson, is Chapter 7 bankruptcy. Unlike Chapter 11, this would step would entail control of the sale shifting from Revel and its lawyers to a panel of New Jersey trustees. Their goal would be to sell it as quickly as possible, probably for something closer to $50 or $60 million rather than $82 million of the last proposed sale. But if the sale continues to fail, the property value could continue to drop to $50 or $60 million anyway. That’s why Chapter 7 bankruptcies are sometimes preferred. One of the problems with Chapter 7, again, would be lawyers. Since it filed for bankruptcy, Revel has taken $70 million in loans from Wells Fargo. Lipson says they have likely reached an agreement as to what Revel would owe Wells Fargo after the sale and while it might not be the full $70 million, it’s likely a very large amount. If Revel doesn’t fetch more than $70 million, there won’t be much money left to pay anyone, even its lawyers.
“If it’s converted to Chapter 7 probably the expectation of the lawyers is that they won’t get paid,” Lipson says. “That’s administrative insolvency — a company is so broke it can’t even pay to administer the case. Those are probably the two scariest words that can be uttered to a bankruptcy lawyer.”
Is anyone else interested besides Straub?
California developer Izek Shomof has bid $80 million to buy the casino, but the same complications with the utility company and the entertainment company exist, so we’ll see what happens with him.
If Revel ever does get sold to Straub, what will it become?
In the latest failed sale, Straub was planning on keeping it a resort/casino, with a few adjustments. Earlier, Straub talked about converting Revel into many different things, including a water park and a university for “geniuses.” That’s right, mere mortals would not be allowed to attend Revel University. Back in September, before the mess unfolded, Straub told The Press of Atlantic City he wanted to build a second tower and use Revel to attract “some of the smartest people in the world” to work on problems.
Maybe they’d even be up for the Herculean task of how to sell a cursed casino.