Building The Ark : Pinnacle Atlantic City
CEO Dan Lee has long lusted for the day that Pinnacle Entertainment would outgrow its racetrack and riverboat casino roots and put him back into the big game - Vegas. Setting sights on both Las Vegas and Atlantic City simultaneously, Pinnacle was one of the main suitors of Aztar, owners of the Vegas and Atlantic City Tropicanas, before being nudged out of the bidding process by fellow feeder market operator Columbia-Sussex. Like a spurned lover on the trail for revenge tail, Dan Lee and other Pinnacle executives toured the Sahara Las Vegas within days of realizing that they didn't have enough chips to buy Aztar. Nothing came of their brief dalliance with the north strip oasis. For the time being the only property in Las Vegas with a Pinnacle Entertainment sign out front would be their offices at 3800 Howard Hughes Parkway.
With Aztar takeover financing burning a hole in their pocket and a hunger for playing in the big show, Pinnacle turned its eyes to another property in Atlantic City during the summer of 2006. The rustic Sands Atlantic City, which limped along through numerous owners since its opening as "The Brighton" in 1980, was doomed by a lack of Boardwalk frontage and uncompetitive amenities in its paltry 600 room hotel tower. With the acquisition of the Traymore tract - long held by Park Place/Caesars to thwart a possible Sands resurgence - in May 2006 for $58.5M the Sands AC finally became a unified parcel, ripe for purchase and development. Bajillionaire financier Carl Icahn decided that closure and demolition would be the only way to move forward with the unified property, which included a purchase of a number of shops on the boardwalk as well ($2.5M).
Being primarily an investor instead of developer, Icahn cut bait when Dan Lee came knocking with a virtual suitcase filled with $272M dollars - $52M for the land, $225M for the concrete, carpet and casino chips. The deal was announced to the world on September 5th 2006. Pinnacle - without an Atlantic City gaming license - would become the new owners of the Sands Atlantic City in mid-November 2006.
Buying an operational casino is one thing, buying one without a license is another. Unlike other jurisdictions, which rubber stamp license applicants (particularly ones with deep pockets,) New Jersey has a very rigorous regulatory process that includes thorough investigations of all parties and numerous public hearings - about 12 months of meetings, paperwork and snooping around. With no chance at expediting the licensing process, Pinnacle had no choice but to have Icahn close the property before the keys were handed over. Very often, casinos engaged in ownership transition hire jurisdiction-approved fully licensed sub-contractors to run a casino in the interim. This happens regularly in Las Vegas, but never in Atlantic City, which I would guess is more because services as such have never been needed. Another possibility would have been to arrange a temporary partnership where the current owner would retain licensing and "ownership" as some kind of case was made to the NJ Casino Control Commission.
Hungry to build build build, Pinnacle had Icahn close the Sands and kick in some severance for employees taboot. Without hesitation, the Sands Atlantic City was expeditiously dismantled, with fixtures, furniture, copper wiring and everything else that wasn't welded to the frame peddled to any and all buyers at a massive garage sale.
Ever the cheepskates, (wink-nudge) Pinnacle used at least some of the proceeds of the Sands fire sale to pick up a chunk of neighboring properties (outlined in green), including the Post Office and two apartment buildings on the opposite side of Pacific Ave, the classic Poseidon Restaurant on the corner of Pacific and Martin Luther King, Ali's - a small grocery store and a massive vacant parcel adjacent to the Traymore site.
One piece of property - the Madison Hotel(orange) has been under a lease to various Sands AC owners, and used mostly as an overflow hotel. Dan Lee said that the lease is to last for about ten years upon conclusion the property will revert to the current owner with stipulations that it must be returned as they received it.
All told, Pinnacle Entertainment has amassed a little over 18 acres of land for the Pinnacle Atlantic City project and with creative uses of eminent domain laws, are eyeballing a bunch more (outlined in red).
One of these properties, the Park Lane Hotel sits directly across MLK next to the Madison, separated by a minute tract that was part of the original Sands sale. Park Lane, as and the four (maybe five) surrounding parcels - a parking lot, mid-rise apartment building, and a group of low level storefronts are all potentially targets of Pinnacle acquisition - either by negotiation and sale or through eminent domain / redevelopment procedures. Two other chunks of land that are partially engulfed by the Post Office / apartment block - a low level retail operation and a small vacant parking lot at the far end would complete a block of turf that would most likely become the Pinnacle AC parking structure and/or managed apartments.
The vacant parcel adjacent to the site of the former Traymore has three structures - an apartment building adjacent to the large Sands AC parking garage, a relatively new five-story Comfort Inn, and on the boards an aging 10 story hotel/apartment building and a slew of shops including the world famous Peanut World. Some of the owners of these individual shop plots have been solicited by Pinnacle, who claim they've lowballed them.
While it would be in Pinnacle's best interest to acquire all of the properties we've outlined in red, some of them could easily be built around. Pinnacle's recent announcement that the current credit market downturn may put the kibosh on the project does make me wonder if Dan Lee is crying wolf in the hopes that some of these occupants might just take any offer they can get. Atlantic City is known for demolishing buildings for unplanned future development. According to Atlantic City native Dr. David Schwartz, Director of the Center for Gaming Research at UNLV, "the rowhouse is Philadelphia's signature building. The skyscraper (or brownstone) is NYC's. In AC, we've got the vacant lot." Knowing Dan Lee's history of going to great lengths to assemble large parcels of highly sought after property from numerous sources - MGMMirage's massive City Center project is built on land that Lee culled together during his days working for Steve Wynn as CFO at Mirage Resorts - feigning a case of Casino Developus Interruptus in the name of landmass acquisition isn't completely far fetched.
If Pinnacle's AC pullout is a gigantic bluff and Pinnacle makes quick work of various land grabs, it sure makes up for Lee's childish kvetching about the potential for Bader Field going to his boss-turned-arch-nemesis Steve Wynn. Nicely played Dan, hope we didn't blow it for ya.
Whomever ends up with the Sands AC landmass, be it Pinnacle, Wynn Resorts or another developer, they've got a great plot of land to work their magic on as long as they have the patience or bankroll to pull the last few sticks, or peanuts, out of the mud.
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