It’s the millstone that Revel Casino Hotel couldn’t shed in bankruptcy: a power plant.
As Brookfield US Holdings LLC takes over the beachfront property, energy challenges abound.
It wasn’t just Revel’s monthly utility bill, about $1.25 million on average, that weighed the business down; it was also the cost of building the casino’s personal power plant — the gleaming Inlet District Energy Center, which sits adjacent to the shuttered resort.
Revel’s decision to create its own electricity could have paid dividends in the long run, said Douglas Carney, an assistant clinical professor in Drexel University’s construction management program. But there was no long run. The business stayed open less than three years, closing in September after failing to turn a profit.
Now, as Brookfield takes over, it may have a chance to cut a new deal that will reduce the facility’s steep energy costs.
Dan Lockwood, a spokesman for South Jersey Industries, said in a statement that it’s “too premature to know” if that will happen.
Building a plant, rather than connecting to an existing power grid, can yield cheaper electricity for a large property over time, said Carney, who was the lead architect of the Regency Hotel in Atlantic City. “What you trade that off against is the relatively high capital costs,” he said.
After spending about $42 million to build the plant, cash-starved Revel turned to ACR Energy Partners LLC to finish the job.
ACR did that with about $158 million in financing, some of which was also used to repay Revel’s initial investment. Municipal bonds issued by the state Economic Development Authority covered about 75 percent of construction costs. A roughly $40 million equity investment by ACR covered the rest.
Through the plant, ACR effectively became Revel’s sole energy supplier, providing electricity, hot water and chilled water to the casino hotel. Revel became the sole customer of ACR, which is a subsidiary of a joint venture between DCO Energy LLC and Marina Energy LLC. Marina is part of Folsom-based South Jersey Industries.
Under Revel’s 20-year energy deal with ACR, Revel agreed to pay back the construction costs with interest — 11.67 percent annually for the bonds, and 15 to 18 percent for ACR’s equity investment.
That meant Revel was saddled with more than $1.5 million in monthly power-plant financing fees before it paid one cent for any actual energy used.
The fees have been a bane for Revel and contributed to the severe cash crunch the casino-hotel experienced in the lead-up to its first bankruptcy, a financial adviser to Revel told a federal judge in June.
Brookfield US Holdings, which won the property in a bankruptcy auction, may have the opportunity to strike a new energy deal with ACR as a result of Revel’s most recent Chapter 11 filing.
“As part of this process, ACR will discuss all energy contract matters with Brookfield. All discussions will be confidential as are all discussions concerning contracts,” said Lockwood, spokesman for South Jersey Industries. Brookfield declined comment.
Carney, of Drexel, said if Revel had gone another route, and connected to Atlantic City Electric’s grid, it may have demanded less up-front capital than building a plant but still would have cost tens of millions of dollars.
The Revel estate is huge and, at 6.2 million square feet, it’s going to be pricey to power regardless of where the energy comes from, Carney said. The Comcast Center, Philadelphia’s tallest building, is 1.25 million square feet.
“It is an incredibly large building,” Carney said of Revel. “Massive is not an overstatement.”
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