Taubman to relinquish Pier Shops to lender

When the $200 million Pier Shops at Caesars opened in summer 2006, with stores and restaurants touting signature names such as Louis Vuitton, Gucci, and Buddakan, it was supposed to usher in a new era for Atlantic City as a high-end shopping and dining mecca.

But the city's foray into the luxury retail market - to fortify itself against growing gambling competition - hit a significant snag yesterday when shopping-mall heavyweight Taubman Centers Inc. announced it would no longer provide financial support for the Pier.

Taubman said it was no longer able to make payments on a $135 million mortgage. The company, which has 77 percent equity in the property, said it would continue to lease and manage the 282,000-square-foot mall if its lender agreed.

"In the past year, traffic has not met expectations due to a weakened economy and the challenges of the significant new gaming competition in Pennsylvania," Robert S. Taubman, chairman, president, and CEO of the Bloomfield Hills, Mich.-based real estate company said in a statement. "This is underscored by the recently released August gaming results."

Taubman was referring to last month's 16.3 percent decrease in gambling revenue among Atlantic City's 11 casinos - a record decline for August.

News of the Pier's problems was yet another blow to Atlantic City, which is reeling from the new competition, frozen credit markets, and a weak economy. Four of Atlantic City's 11 casinos are in or facing bankruptcy. A lender is currently threatening to take over Resorts Casino, located a few doors from the Pier.

High-end retail malls such as the Pier Shops were supposed to diversify the Atlantic City experience beyond gambling.

"With regard to destination marketing of Atlantic City, shopping consistently tops the list of 'things to do' while vacationing in Atlantic City," said Jeffrey Vasser, executive director of the Atlantic City Convention and Visitors Authority. "To that end, our shopping districts are an important part of our assets when marketing A.C., and add to the appeal of Atlantic City as a well-rounded destination resort."

Karen MacDonald, of Taubman, said all 83 shops and seven restaurants at the Pier would remain open while Taubman worked with its lender.

"This will have no immediate impact on employees, retailers, shoppers, or day-to-day business operations," she said.

Taubman is entering discussions with Centerline Servicing Inc., through its New York office, on reworking the Pier's debt load, a Taubman representative said. The $135 million loan originated in 2007 with Nomura Credit and Capital Inc., of New York, and was later securitized and sold off as a collateralized mortgage-backed security.

Taubman wants to write down the value of the mall by $106 million to $111 million, and the Pier's book value would drop to $52 million under the arrangement. Taubman already had invested $35 million of its own cash into the property.

Taubman also owns the Mall at Short Hills in Short Hills, N.J., and the Beverly Center in Los Angeles, both upscale shopping malls.

The Pier is expanding with the addition of One Atlantic, a 14,000-square-foot events venue on the fourth floor for weddings and parties, slated to open in early 2010.

When it debuted to great fanfare in June 2006, the Pier was touted as a glitzy jewel attached to Caesars on the 50-yard line of the famed Boardwalk. It was a higher-end version of the Quarter complex at the Tropicana, which debuted two years earlier.

The Pier spawned other casino malls, including the Waterfront Mall at Harrah's Resort, which debuted in 2007.