Monthly Archives: January 2011

Revel CEO plans to lead management buyout of Morgan Stanley’s ownership stake

By DONALD WITTKOWSKI, Staff Writer | 0 comments

ATLANTIC CITY — The developer of the Revel casino plans to take control of the project from Wall Street investment bank Morgan Stanley in a final push to complete the $2.5 billion megaresort.

Kevin DeSanctis, chief executive officer of Revel Entertainment Group, said he will lead a management buyout of Morgan Stanley’s ownership stake in the half-built casino as part of a new financing plan being pitched to investors.

Terms of the buyout were not divulged. Morgan Stanley’s departure will end what has been a disastrous investment in Revel by the financial giant. The company has lost nearly $1.2 billion as the casino’s chief financial backer and currently values its stake at just $40 million.

Morgan Stanley is preparing to leave at the same time that Revel and its financial adviser, JPMorgan Chase & Co., are shopping a nearly $1.15 billion funding plan to save the Boardwalk casino. Financing consists of three loans of $700 million, $295 million and $150 million.

DeSanctis described the loans as a funding package, with each piece dependent on the other. He said the most critical chunk is a so-called mezzanine loan for $295 million because it includes the new ownership structure headed by DeSanctis and other investors.

“It’s a broad group of investors,” DeSanctis said, declining to disclose any names.

DeSanctis gave bankers an overview of the financing plan during a meeting Tuesday at the Waldorf Astoria Hotel in New York. Banks now have a few weeks to decide whether they will take part in the casino’s funding.

“The reality is, these deals need to close within a few weeks in order to be successful. No deal can drag on for too long,” DeSanctis said Wednesday in an interview with The Press of Atlantic City.

As a concession to lenders, Revel now plans to open just 1,100 hotel rooms. The hotel’s sleek, 47-story tower has a capacity of 1,900 rooms. However, investors are concerned that there may not be enough demand for 1,900 rooms when the casino first opens, so Revel will start with just 1,100, DeSanctis explained. More rooms would be brought online as demand grows, he added.

For months, Revel has been pursuing about $1 billion to complete the casino’s construction. At one point, it flirted with a $1 billion deal with the Export-Import Bank of China. The project suffered a severe setback last April when Morgan Stanley, the majority owner since 2006, announced it was bailing out and would put its stake up for sale.

Revel has proposed a series of financing deals without success, but DeSanctis expressed confidence in the latest plan.

“We’ve been at this for quite a while,” he said. “With each deal you have a little more perspective. I think at this point in time we’re feeling reasonably optimistic that we can get it done.”

The loan package replaces another financing scheme just two months ago that called for two high-yield bond offerings of $800 million and $472 million. DeSanctis said there are “multiple elements” that make the loans more attractive to investors than bonds, but he would not elaborate.

“These are very complex transactions,” he said. “It’s important for people to understand that there is no sound bite to explain the deal. The deal will be successful or not.”

Revel’s quest for financing has been made even more difficult by the sluggish economy and intense competition from Pennsylvania’s casinos. With Atlantic City now mired in a four-year revenue slump, investors have been reluctant to gamble on risky casino projects.

Gov. Chris Christie has been personally involved in high-level talks with Wall Street to ignite investor interest in Revel. Christie has stressed that Revel is a centerpiece of his plans to revive Atlantic City, including the creation of a new state-run Tourism District to oversee the casino zone, beaches and Boardwalk.

“I think it’s fair to say that the governor has been incredibly supportive,” DeSanctis said. “We are very appreciative for all of his help.”

Revel would use the new financing to resume construction on the casino hotel’s interior, which came to a halt in January 2009 when money shortages began to plague the project.

“Assuming the transaction is successful, we would put people back to work very quickly and would expect to open in the second quarter of 2012,” DeSanctis said of the completion date.

About 2,000 construction jobs and another 5,000 full-time positions will be created by Revel, making it one of the biggest private employers in southern New Jersey. Labor officials are eager to put their members to work at Revel after a prolonged construction drought in Atlantic City.

“I would say that about three-quarters of the trades haven’t worked there yet. Most of those trades are running at about 40 percent unemployment,” said Will Pauls, president of the South Jersey Building Trades Council, which represents 40,000 workers and 17 trade unions.

Pauls said carpenters, electricians and plumbers will be among the army of union workers who will get jobs once Revel resumes construction on the building’s interior.

“When you start putting thousands of people back to work, that’s good for the economy of South Jersey,” he said.

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New Jersey Assembly, Senate approve Atlantic City tourism district

Posted: Monday, January 10, 2011 11:00 pm | Updated: 6:25 pm, Tue Jan 11, 2011. Press of Atlantic City

TRENTON — Gov. Chris Christie saw his ambitious plans to reform Atlantic City’s casino and tourism industries reach final legislative approval Monday, setting up a possible remaking of the city as a premiere destination resort.
Lawmakers in the state Assembly and Senate held emergency votes Monday night and approved two bills allowing the state to take over various services in designated sections of the city in an effort to jump-start the resort’s ailing tourism economy.

The bills, pending an expected approval from Gov. Chris Christie, will carve out a tourism district within Atlantic City to be run by the Casino Reinvestment Development Authority, and repeal major regulations currently imposed on the city’s 11 casinos. Many casino regulatory powers would be transferred from the Casino Control Commission to the state Division of Gaming Enforcement.
“From a legislative perspective, this is probably the most significant thing to happen to Atlantic City since gambling was approved,” said state Sen. Jim Whelan, D-Atlantic.
The bills call for a public-private partnership with casino involvement to devise and fund an Atlantic City marketing plan. They also call for the casinos to continue to subsidize racetrack purses, at least for three years unless a separate proposal allowing Internet gaming in New Jersey becomes law and helps fund the purses.

There was no word of when Christie might sign the bills.
The bill to create a tourism district passed by 71-5 in the Assembly, where the casino deregulation bill passed by 67-9. The Senate approved the tourism district bill 36-1 and approved deregulation 32-3.
Monday’s votes end a grueling legislative process that began when Christie, a Republican, first visited Atlantic City in July to announce his broad plan to overhaul the way Atlantic City does business. Since then, political squabbling, opposition from the city and seemingly endless amendments have dominated daily developments.
Legislators even made amendments Monday just before the votes, requiring procedural moves to allow both houses to vote on the bills immediately after amending them. The amendments spelled out boundaries for the tourism district and included a clause forcing the CRDA to cover any shortfall of deregulatory savings slated to be sent to the horseracing industry.

The district will include major tourism areas such as the Boardwalk and beach; the Marina District; The Walk; and Bader Field, a former municipal airport currently owned by the city. The CRDA will be given 90 days after the bill is enacted to alter the boundaries, which would require a two-thirds vote by the authority’s board.

Mayor Lorenzo Langford adamantly opposed the Marina and Bader Field sections being absorbed by the district. The mayor attended Monday’s Assembly session for much of the day, but left to attend to other city business as the legislative process dragged on into the night.
“I have no expectations. I’m guardedly optimistic,” Langford said early Monday.

It was unclear whether the mayor had changed his feeling on the tourism district bill, which he vehemently opposed during a news conference late last month that featured threats of a federal lawsuit if his concerns were not addressed. Langford did not return several calls seeking comment after the votes Monday.
Assemblyman John Burzichelli, D-Salem, Gloucester, Cumberland, updated Langford throughout the day with brief visits to the Assembly’s gallery, where the mayor sat waiting for hours.
“All of my conversations with the mayor have been constructive,” Burzichelli said after the Assembly’s approval. “I told him, ‘I think you did pretty well here.’ I think he still has some reservations.”
Despite the outline of the district’s boundaries, Langford did appear to score victories regarding two concerns he voiced recently. One involved the city’s authority over planning and zoning in the district, which will now be a collaborative effort between the city and the CRDA. He also opposed language related to the district’s law enforcement, which was clarified Monday to appoint a state commander that oversees public safety policy in the zone, but coordinates those efforts with the mayor and city police officials.
Monday’s amendments also include:

– Stripping new and reappointed CRDA members of pension and health benefits, but not salaries.
– Sending proceeds of any potential sale of the Atlantic City International Airport to the eight counties that make up southern New Jersey.
– Subjecting Atlantic City Convention & Visitors Authority employees to layoffs if their jobs are duplicated by the CRDA, which will absorb the authority.
– Restoring the governor’s power to appoint the Casino Control Commission chair.
– Allowing former CCC employees to get first dibs at jobs they performed that were transferred to the Division of Gaming Enforcement.
– Calling for the CCC or DGE to rule on potential conflicts of interest within 30 days if a laid-off employee accepts work with a casino entity.
– Lessening licensing requirements imposed on some casino investors.
Compromise emerged as a main theme Monday, with most legislators acknowledging there are parts they liked, and others that made them cringe.

Assemblyman Vince Polistina, R-Atlantic, was the most outspoken Monday with his disagreements over the bills, including what they contained and how they were formed. Polistina spoke on the Assembly floor just before the vote, blasting Whelan, whom he is expected to challenge in the upcoming Senate race.
“He settled to get something done, instead of getting something done right,” said Polistina, who was interrupted briefly by Assembly Majority Leader Joseph Cryan, D-Union, who interjected with, “Can we stay on the bill?”

In the end, Polistina voted to approve the bill and was added as a primary sponsor, along with his colleague, Assemblyman John Amodeo, R-Atlantic.
Whelan applauded the bipartisan support, but questioned why Polistina supported the bill only after he became a sponsor.
“He was very critical of these bills before,” he said. “He even voted against them in committee.”
But Polistina and Amodeo took credit for several of Monday’s amendments, which they previously had lobbied for, including the specific district boundaries and halting pension and health benefit payments to new and reappointed CRDA members.
That amendment indicates that even CRDA members, who will see their agency’s power expand dramatically, also had to compromise.
“If you’re waiting for a perfect bill, you’ll never get it,” said James Kehoe, chairman of the CRDA.
Kehoe refused to say whether he fought privately against the amendment, but said he endorsed the bills as a whole and predicted they would help reverse Atlantic City’s downward spiral.
“With this legislation and the completion of Revel,” he said, “Atlantic City is going to have a completed renaissance.”

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What happens next?
One of several things could happen following Monday’s legislative passage of the Atlantic City gaming bills:
– Gov. Chris Christie could sign the bills into law and enact them as passed. 
– The governor could enact the bills but veto specific lines he might not like. Those sections would not become law unless two-thirds of both houses of the Legislature vote to override the line-item veto.
– Christie could veto one or both bills outright, which is not expected. The bills would become law only if two-thirds of the Senate and Assembly vote to override the governor.

2010 Profile of Home Buyers and Sellers: Subregional Profiles

 See how buyers in the mid Atlantic Region compare to the Pacific and Mountain Region, with this detailed PowerPoint, broken down by region and demographics. Data comes from the 2010 Profile of Home Buyers and Sellers.

2011 Forecast Update: Construction Spending, Mortgage Purchase Applications, Jobless Claims, Unemployment

Monday, January 3, 2010:
Construction Spending

••Construction spending increased in November by 0.4 percent, for the third consecutive month, but is still 6 percent below the November 2009 level.
•• Construction spending is being driven by public non‐residential spending which increased by 3.3 percent from November 2009. In contrast, private non‐residential and private residential spending decreased by 16.5 percent and 5.3 percent respectively over the same time frame.
•• The market for new construction is still suffering from excess supply, and the construction taking place is largely government office space. ISM’s manufacturing index increased by 0.7 percent in December to 57.0. An index value in excess of 50 suggests both manufacturing and overall economic expansion.
•• The increase was largely attributable to an increase in new orders and production, which increased by 7.6 percent and 10.4 percent to 60.9 and 60.7 respectively.
•• The manufacturing index is closely linked to GDP growth, and the strengthening of the manufacturing sector portends positive overall economic growth.

Tuesday, January 4, 2010:
Factory Orders

•• The Census released new data on factory orders this morning which rose 0.7 percent between October and November. This increase was stronger than expected and reflected improved demand for both durable and non-durable goods. Strength in fabricated and primary metals along with computers and electronics led the report higher. Industrial machinery and volatile aircraft orders fell sharply. Non-durable goods rose a healthy 1.7 percent, while orders for capital goods excluding aircraft rose 1.1 percent.
•• Shipments of goods rose, while unfilled orders and total inventories eased suggesting the need for orders in the future.
•• November’s strong reading for factory orders indicates that businesses are investing again and buying capital goods. This trend is important as it suggests confidence on the part of business that will drive the expansion of the economy and hiring. Job growth is key for the health of the housing market.

Wednesday, January 5, 2010:
Mortgage Purchase, Refinancing Applications, Payrolls

•• Purchase applications fell 0.8 percent the week of December 31, following a 3.1 percent gain in the prior week
•• Refinancing applications increased 3.9 percent last week following a 7.2 percent drop the week prior.
•• The average 30-year mortgage has risen nearly to five percent, up nine basis points to 4.93 percent.
•• ADP released their survey data this morning from U.S. businesses. Results of the survey show an increase in private payrolls of 297,000 for December. This follows a gain of 92,000 in November. The gain for December is three times higher than many economists have predicted for the month.
•• The service-providing sector rose by 270,000 in December–the largest monthly increase in the history of the report.
•• Medium sized businesses, those with fewer than 500 and more than 50 employees increased the most at 144,000 workers. Small businesses, those with fewer than 50 employees added 117,000 workers in December.
Thursday, January 6, 2010:
Jobless Claims

•• The number of workers filing jobless claims increased slightly in the week ending January 1, by about 18,000 to 409,000. However, the 4-week average of new claims, which smooths rather volatile weekly data shows a continued decrease in new claims, falling by 3,500 to 410,750. Last week’s drop in new claims to below 400,000 was the first since July 2008. Falling below 400,000 suggests more jobs are being created than being lost.
•• The number of continuing claims also fell by a significant 47,000. The largest increase in claims was in California, following layoffs in the transportation, construction, service, and manufacturing industries. Florida saw the largest drop in claims following better job market in construction, trade, and service industries and in agriculture.
•• The job market has solidly turned the corner for the better. Monthly net job gains of 200,000 or more are possible based on recent trends, translating into at least 2 million new jobs this year. The unemployment rate could fall to 9 percent by year end.

Friday, January 7, 2010:

•• The unemployment rate unexpectedly fell dramatically from 9.8 to 9.4 percent in December. In the same month, payroll jobs rose by only 103,000, though this included growth of 5,900 in the real estate industry. The leisure and hospitality, and health care industries saw the biggest job gains in the month while the construction, local government, and membership associations and organizations saw the largest declines in employment.
•• The difference between the picture from the unemployment rate and the number of payroll jobs can be explained by looking at the data. The Employment Situation Summary released monthly is based on data from two separate surveys, the Household Survey and the Establishment Survey, which covers businesses. Household Survey data is used to compute the unemployment rate while payroll jobs from the Establishment Survey are considered a better indicator of the change in the number of jobs. These series differ in part because the Establishment Survey does not cover the self-employed, unpaid family workers, agricultural workers, and private household workers.
•• The December Household Survey showed better growth in jobs than the Establishment Survey though it also showed that the number of individuals not participating in the labor force continues to climb. These two factors explain the decrease in the unemployment rate. The survey showed an increase in the number of employed of 297,000 and a decrease in the number of unemployed of 556,000. At the same time, those not participating in the labor force increased by 434,000, the difference between the change in employed and unemployed plus some population growth. The labor force participation rate of 64.3 percent is the lowest rate since 1984. As the labor market improves, discouraged workers and other non-participants in the labor force may jump back in. For this reason, the unemployment rate may tick up in the future even as the number of jobs improves.
This is one in a series of commentaries by the Research staff of the National Association of REALTORS®.

Welcome to 2011…