Mon Aug 18, 2014 6:13pm EDT
(Corrects to show Chatham exited Revel equity investment in paragraph 20)
By Daniel Kelley and Hilary Russ
Aug 16 (Reuters) - When the $2.4 billion Revel Casino opened its doors in 2012, the curvy blue-glass tower was hailed as the wave of the future for Atlantic City, New Jersey.
But only two years later, with the announcement that it will close next month while in bankruptcy for the second time, the gleaming, 52-story gambling palace is looking very much like a white elephant stranded on Atlantic City's beachfront.
"You don't expect to see a two-year-old property close," said Alan Woinski, president of Gaming USA, an industry consultancy and newsletter publisher. But "all the things that doom a property were in there."
Rather than heralding a new era, Atlantic City's newest gaming house has become an embarrassment for the now-fading resort city, where three other casinos are shutting down, leaving eight to cater to gamblers.
That said, the Revel's dilemma is also one of its own making. Its sleek, dramatic design was supposed to be its prime attraction, but critics say the structure was too grandiose, and its cavernous gaming floor often feels dead. By most accounts, the Las Vegas buzz that the Revel's backers hoped to recreate is conspicuously missing.
Those same flaws are now likely to work against an eventual sale of the property, which has no other obvious uses than as a casino. Even conversion to condos seems impractical in a city that is losing thousands of jobs and has a reputation for high crime.
The latest turn of events comes after years of hard luck for the project. Since its inception just before the financial crisis, the Revel has encountered huge cost overruns. Its out-of-the-way location at the edge of the city was a turn-off. Early on a plane crash killed some executives, delaying construction.
By the time it opened in April 2012, Revel was already struggling with its debt burden and the broader challenges facing Atlantic City as casinos opened in nearby states, according to bankruptcy court documents filed last month.
Gaming revenue for Atlantic City, which once held a lucrative East Coast gambling monopoly, has dropped from a peak of $5.2 billion in 2006 to $2.8 billion in 2013, according to New Jersey gaming regulators.
Now community leaders, real estate professionals and gaming experts have been left to wonder: what comes next for the Revel?
"We really don't know," said Liza Cartmell, president of the Atlantic City Alliance, the New Jersey city's tourism marketing organization.
Observers have begun to ponder the Revel's future as a hotel without casino gambling, or as condos. But they say any fix will cost a buyer tens of millions, if not hundreds of millions of dollars, to put kitchens in its 1,400 rooms and do something - anything - with the restaurants and gaming floor on the lower levels of the tower.
And then there are those who still hold out hope that a buyer will come in with a low-ball offer and continue to operate it as a casino.
That, too, could be expensive, requiring cash for rebranding, cash to build a customer base, and cash to fix serious design flaws in the casino itself.
"It's like a church built for Easter Sunday," said Rob Heller, president and CEO of Spectrum Gaming Capital, an investment banking and advisory firm focused on the casino industry.
In a worse-case scenario, Revel could liquidate in its current bankruptcy if it can't find a buyer.
At this stage, it is difficult to say what might happen to an investment that initial backer Morgan Stanley abandoned in 2010, taking a $1.2 billion loss.
New investors were then wooed in part by a promise from New Jersey for $261 million in future tax rebates and a strong show of support by Gov. Chris Christie, who lauded the project "the model for the future" of Atlantic City.
Christie has called a 'summit' on Sept. 8 to chart a direction for the struggling gambling center.
After the Revel's first bankruptcy in 2013, lenders including hedge funds took ownership. A unit of New Jersey hedge fund adviser Chatham Asset Management controlled 27 percent of Revel AC Inc, but exited its equity investment early this summer, a Chatham spokeswoman said. Los Angeles-based hedge fund manager Canyon Capital Advisors owns 16 percent, according to bankruptcy documents.
NEW ERA POSTPONED
Revel's design features ocean views from every hotel room, rooftop gardens, and dance clubs with which it hoped to lure a younger crowd with Vegas-style elan.
Early plans to build two hotel towers, each with 1,900 rooms, were scrapped for the construction of a single one with 1,400 rooms. Public spaces, however, were scaled to a 3,800-room property, giving the gaming floors an empty feeling.
Then there is, in the words of University of Nevada Las Vegas gaming expert David Schwartz, "the escalator of death." a long, steep conveyance that carries gamblers from the ground floor to the casino's second-floor gaming hall. Some critics have compared it to the escalators in the London Underground, only with nothing but air underneath.
Schwartz, who admits to a fear of heights, said that breaking up escalators is "Casino Design 101."
One of Revel's biggest problem is its location at the far northern end of Atlantic City, said Paul Steelman, an Atlantic City native and Las Vegas-based casino architect
"A person driving needs to pass many alternative locations," Steelman said. "Revel is the last casino in a long line of alternatives."
While many have held out hope that Revel could be converted to a non-casino use, Steelman has his doubts. Casinos are designed to be casinos, and the expense of operating the building make other uses difficult.
"To convert these rooms to residential uses would be difficult, but I also believe real estate taxes would be prohibitive," Steelman said. "There really is no alternate use." (Reporting by Daniel Kelley in Philadelphia and Hilary Russ in New York; Editing by Frank McGurty and James Dalgleish)
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