Making the News

Press of Atlantic City

Originally Published:Monday, November 30, 2009

Lenders ready to take over Resorts Atlantic City

By Donald Wittkowski
Press of Atlantic City

ATLANTIC CITY - Merv Griffin, the celebrity CEO and "Jeopardy" game show creator, couldn't find the answer. Sol Kerzner, of Sun International Hotels fame, got burned. Tom Barrack, once dubbed "The World's Greatest Real Estate Investor" by Fortune magazine, faced possible foreclosure.

Despite promises to the contrary, all of them failed to turn Resorts Atlantic City into a top casino during their ownership over the years.

Now it's Mr. Lender's turn to try.

Representing yet another ownership switch in the casino's turbulent 31-year history, a group of lenders will take over Resorts this week, possibly as early as today. Paul M. O'Gara, a New Jersey attorney for the lenders, said final paperwork is being completed to transfer ownership.

"There's a ton of documents. This ain't a house," O'Gara joked of the complexities of such a transaction.

Resorts' new owner will be a newly formed company called RAC Atlantic City Holdings LLC. RAC is controlled by Wells Fargo Bank, acting on behalf of Credit Suisse First Boston Mortgage Securities Inc. Credit Suisse is the parent company of Column Financial Inc., the holder of Resorts' mortgage. The mortgage is being wiped out as part of the lender takeover.

The lenders replace Colony Capital LLC, the Barrack-led private real estate investment firm that bought Resorts in 2001 for the fire sale price of $140 million. Colony took over from Kerzner's Sun International Hotels, which had paid $301 million to buy Resorts from Griffin in 1996 and swallowed a huge loss in selling it. Griffin's ownership in the 1980s and '90s was marred by two bankruptcies.

Resorts was Atlantic City's first casino, opening on May 26, 1978. The casino set another first - though a dubious one - on Nov. 19, when the New Jersey Casino Control Commission gave approval for lenders to take charge after Resorts defaulted on its $360 million mortgage and was threatened with foreclosure. Never before in the city's history of legalized gambling had lenders become casino owners in this way.

Peter Hoelzle, president of RAC, could not be reached for comment Monday, but made it clear during the commission's Nov. 19 meeting that the lenders don't see Resorts as a long-term investment.

"We have no intention of operating the casino or the hotel well into the future," Hoelzle said of plans to sell Resorts as quickly as possible, once its finances are stabilized.

One possible buyer is Nicholas L. Ribis, Colony Capital's former partner who will now manage Resorts for the lenders. Ribis and Colony were unavailable for comment Monday. However, Ribis confirmed his interest in Resorts during the Nov. 19 commission meeting.

"I love Resorts and I intend to stay at Resorts as long as possible. If that includes an offer to buy it, that may happen," he said.

Michael Pollock, a casino analyst and consultant, said Resorts will need capital investment and some innovative thinking by management if it is to stage a turnaround under new ownership.

"It's going to take a combination of creativity and capital, both in heaping doses," said Pollock, managing director of the Linwood-based Spectrum Gaming Group.

Pollock noted that Resorts is facing enormous challenges stemming from the age of the property and its small size compared to other Atlantic City casinos. Resorts, created from the remains of a 1920s hotel called Haddon Hall, has been unable to keep pace with the bigger, younger and glitzier Boardwalk casinos

"From its earliest incarnation in 1978, it was never designed as a casino," Pollock said. "It is an old building that has long had problems with efficient operations, and that has been a daunting challenge."

Resorts, the city's second lowest-grossing casino, has suffered a nearly 17 percent drop in gaming revenue this year. The property has posted a $23.9 million loss in net income through the first three quarters this year.

The lender takeover has saved the casino for now. Despite its difficulties, Pollock predicted that Resorts will likely find a new buyer to replace the lenders.

"It depends on the price," Pollock said. "I have to believe there are buyers out there with sufficient long-term horizons and sufficient access to capital and sufficient creativity."

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