In what could be the first sign of a ripple effect from the financial condition of the new and expensive Revel Casino, Hard Rock International said Wednesday that it was ending plans to construct a $300 million casino-hotel in Atlantic City.
Those close to the project acknowledged that Revel's dismal performance in its first five months - the $2.4 billion casino is generating only about half of what it needs to stay solvent - would deter banks from providing the financing needed to get the Hard Rock, or any other casino, built in Atlantic City.
"Hard Rock remains a tremendous brand opportunity for Atlantic City, [but] market conditions in the resort make it very difficult to obtain any viable financing at the present time," said Curtis Bashaw, an investor in the Hard Rock project and a developer at the Jersey Shore.
Another person, who asked not to be identified because he was a member of the investment group, was even more emphatic regarding the undertow from the slumping Revel: Getting financing for new casino development in Atlantic City right now would be nearly impossible.
The Hard Rock casino was proposed for the southern end of the Boardwalk on land that once belonged to Bashaw and former gaming executive Wally Barr. It was to sit next to what is now the Atlantic Club, formerly the Atlantic City Hilton, on property bordered by Ventnor, Albany, and Hartford Avenues.
Revel and Hard Rock were being pitched two years ago as the new "bookends on the Boardwalk" that would draw a hipper, younger, and more affluent crowd to Atlantic City and spur its transformation into a destination resort.
AC Gateway L.L.C., the developer of the proposed Hard Rock project, blamed "current market conditions" for the decision, but stopped short of blaming Revel's performance.
"Hard Rock International has decided not to move forward with an application for a potential hotel-casino development in Atlantic City, due to current market conditions," the company said. "We have been evaluating Atlantic City as a prospective location for a hotel-casino development and have not eliminated this location for a future endeavor."
AC Gateway was granted a six-month extension from the New Jersey Casino Control Commission on getting its building permits March 14 - three weeks before Revel's April 2 opening. Wednesday was the deadline for it to submit a $1 million application fee with the state.
Hard Rock and other smaller casinos were viewed as part of a five-year revitalization plan for Atlantic City outlined by Gov. Christie and the New Jersey Legislature.
Lawmakers passed a measure last year to allow for smaller, boutique casino-hotels with fewer than 500 rooms in Atlantic City, to make it easier for investors to enter the market. The 1976 law that allowed gambling in Atlantic City had required that casino-hotels have a minimum of 500 rooms.
Hard Rock and New York-based Och-Ziff Real Estate - the managing partner of AC Gateway, which owns the property and includes Bashaw as a partner - announced in 2010 they would consider developing a Hard Rock casino if the law on number of rooms was changed.
Christie signed the measure into law in January. The Republican governor, who has championed an Atlantic City turnaround, declined comment on Hard Rock's about-face.
State Sen. James Whelan (D., Atlantic), who sponsored the boutique casino-hotel legislation, said he hoped the group reconsidered.
"I had conversations with Jim Allen [CEO of Hard Rock International], and he let me know they're not proceeding," he said. "It's disappointing but not surprising."
Andrew Zarnett, a gaming analyst with Deutsche Bank AG, who focuses on the bond market, said Atlantic City showed no signs of improving as newer casinos in Pennsylvania, New York, and Maryland continued to cut into its market share.
"It makes sense," Zarnett said of Hard Rock. "I think there has been visibility that the Atlantic City market has been deteriorating greatly the last six years. In a declining-demand environment, the last thing that the market needs is new supply."
For the first eight months of the year, the dozen A.C. casinos generated $2.2 billion in gambling revenue, down 4.6 percent from the same period in 2011, according to figures released Monday by the New Jersey Division of Gaming Enforcement. Revel, which received $300 million in state aid, has finished a disappointing eighth every month since opening. It reached the $20 million mark for gambling revenue last month for the first time, but was still short of the $25 million to $30 million a month that analysts say it needed to pay expenses and service debt. Revel recently asked lenders to double its credit line to $100 million to get it through the rest of the year and 2013.
Bob McDevitt, president of Unite Here Local 54, the union that represents 13,500 casino and hotel workers, said he wasn't surprised at Hard Rock's turnabout. McDevitt and the nonunion Revel have clashed from the start.
"We studied this thing [Revel] from every angle, and there was no way it could work," McDevitt said. "I think on the part of Hard Rock, it's a smart move because this summer has demonstrated this market has remained static and is not growing."
Hard Rock was to have been built in two phases and include a 54,800-square-foot gaming hall, a Hard Rock museum, and Hard Rock Cafe. The casino was expected to create 1,000 construction jobs and 500 to 1,000 permanent ones.
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