Touted as a game-changer that will bring the currently untapped corporate business meetings market to Atlantic City, Harrah's introduced plans for a modern Las Vegas-style conference center last year with hopes of starting construction in January.
Construction, however, has yet to begin on the $134 million project. Harrah's Atlantic City has not secured the bank loan it needs — a little more than a $54 million gap — to get the project started. High interest rates are to blame.
Meanwhile, it's clear that the state organizations that jumped to provide the project with financing are less than thrilled about the slow progress. In November, the Casino Reinvestment Development Authority agreed to contribute $46.2 million, about a third of the project's total cost. Harrah's will invest $34.7 million of its own financing and is seeking a loan for the remaining $54.2 million, state documents obtained through an Open Public Records Act request show.
The New Jersey Economic Development Authority will contribute another $24.1 million in tax breaks over 20 years. That money comes from the same state program that provided Revel with $261.4 million in tax credits over 20 years. The $2.4 billion property announced it would file for bankruptcy this week.
"I'm confident (Harrah's) will assemble the financing they need to put the project together, but we have been dealing with frustration in the movement to finalize the financing program for the project," CRDA Executive Director John Palmieri said.
Exceptionally high interest rates offered by banks have caused the delay, but Kevin Ortzman, senior vice president of Caesars, Showboat, and Bally's, insists movement will be made soon. Ortzman took over additional responsibilities at Harrah's following Don Marrandino's departure from Caesars Entertainment Corp. earlier this year. Caesars Entertainment is Harrah’s parent company.
"I'm cautiously optimistic that we'll be able to break ground in the early to mid-springtime. We're in our final negotiations with financing — just negotiating the final terms to make sure this is viable and continues with the transformation of Atlantic City," Ortzman told the CRDA board in a brief update on the project's status this week.
New Jersey Division of Gaming Enforcement Director Dave Rebuck said it was Caesars' plan for quick action on a project considered key to the Tourism District that led to the state's financial support, and Caesars needs to make good on its commitments.
"Other financing commitments to the conference center project were put into place to ensure there would not be any unnecessary delays," Rebuck said. "Supportive funding commitments were able to occur because of the proposed, aggressive timeline Caesars Entertainment provided, and they need to be held to it."
Caesars did not respond to requests for additional information on the status of the project.
Earlier this month, however, Ortzman told Rebuck that high interest rates likely caused by declining casino revenues caused the delay, according to emails obtained through an Open Public Records Act request.
It was Rebuck who last year — as CRDA approved project financing — pushed Caesars officials to publicly commit to starting contraction in January. At the time, Rebuck said his comments stemmed from a pattern of casinos making promises they have not been able to deliver.
"Lenders are requesting an unreasonable couple rate (interest rate north of 15 percent)," Ortzman wrote in an Feb. 1 email to Rebuck. "We continue to push back to lower the rate."
Atlantic City's gambling revenue fell by 13 percent in January — the latest in disappointing revenue figures that have lingered since Hurricane Sandy arrived in October prompting the longest casino closure in resort history. Most were closed for five days. Last month, gambling revenue at Caesars Entertainment Corp.'s four Atlantic City properties plunged 19 and 29 percent compared to January 2012. Harrah's, which took in $26.7 million, saw a nearly 23 percent decline, according to data released by the New Jersey Division of Gaming Enforcement.
Richard Barrington, a senior financial analyst with banking website MoneyRates.com, said a 15 percent interest rate is exceedingly high and suggests that a lender has concerns about the market or the specific property.
"It may be that, as the area goes, this is not such a bad project, but there's something about this that makes the lender nervous," Barrington said. "They might be looking at the market and saying that they don't believe in expansion in this market at this time."
Other casinos have recently received loans carrying lower interest rates. When Revel sought new loans last November, the initial interest rates on a term loan of $125 million was around 10 percent, and of a $125 million revolving credit loan was 8.5 percent, according to a report from the Division of Gaming Enforcement.
Palmieri said he has no doubt that the conference center will be built. He acknowledged that the interest rate offered to Harrah's is high, but noted that company's risk is offset by the financing provided by the state.
"Their exposure is reduced significantly," he said.
When Harrah's plans for the more than 200,000-square-foot addition were announced last year, some voiced concerns that the facility might take business away from the Atlantic City Convention Center and other casinos with meeting spaces. Harrah's was required to pay for a $35,000 feasibility study by a consultant selected by CRDA prior to the authority's financing award.
That study by Chicago-based consultant Charles Johnson stated that the Harrah's project would create new demand for corporate business meetings. Aside from the Convention Center and Boardwalk Hall, the city has another 908,530 square feet of meeting and event space, but those spaces primarily serve as entertainment venues with meetings as a secondary use.
Staff Writer Hoe Nguyen contributed to this report.
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