FinanceFinancial Advice and NewsIs There Good News for Hotels in Atlantic City?

Is There Good News for Hotels in Atlantic City?

Despite all the headlines about a number of casino hotels closing and the rapid downward spiral in gaming revenues in the last few years, analysts and representatives of Atlantic City’s hotel and tourism industry do see positive signs. For instance, there has been an upward swing in spending on non-gaming leisure, including entertainment and food, as well as growth in the number of conventions and groups. Investment in infrastructure has also increased, including a massive $125.8 million meeting and conference facility from Caesars Entertainment that will bring 125,000 square feet of new meeting space to Harrah’s Resort.

Liza Cartmell, CEO of the Atlantic City Alliance, a nonprofit organization funded by the city’s casino properties, noted a number of positive trends as the destination “transitions from being gaming-centric to being more general tourism and meetings-oriented.”

John Palmieri, executive director of the Casino Reinvestment Development Authority, said non-gaming revenues, including spending on hotels, entertainment, and food and beverage, have increased by more than $160 million in just the last two years and are now approaching $1 billion annually.

Historically, Atlantic City had limited room availability despite strong demand for meetings, Cartmell said. “Now, we have a sufficient number of rooms, even with the closings, and that boosts occupancy during the three seasons when we have trouble filling up midweek. During the summer, we have 95 percent occupancy through the week.”

Cartmell sees winning strategies for the remaining eight casino hotels, as well as for the properties that will no longer be functioning as gaming venues. She pointed to the Claridge, a former casino hotel that was sold to an investor last year. Its casino space is being gutted and replaced by a large art gallery (actually a floor full of art galleries), a children’s museum, and additional meeting space. Other casino hotels that are closing might be able to follow a similar model, she said.

To survive in a changing market, the remaining casino hotels are putting money back into their properties. “The gaming properties that are closing had not been active in keeping up with trends in food and, except for Showboat, were not big players in entertainment,” Cartmell said. “The remaining ones are investing heavily in those areas and in conventions. Tropicana has eight new food locations on the boardwalk, and Resorts opened Margaritaville right on the ocean. Several of them have undergone major room renovations or plan to do so imminently.”

Resorts Casino Hotel is very much on board with the Alliance’s outlook. “The potential closings would strengthen the remaining properties, which have the capacity to absorb these customers and have the amenities to continue to attract them to the Atlantic City market,” said Mark Giannantonio, president and CEO of Resorts Casino Hotel.

His property has been working on a major repositioning project for the past 18 months that includes enhancement of its hotel room product and food and beverage offerings, along with the addition of Margaritaville and Mohegan Sun’s oversight of management. And with the recent renovation of its meeting rooms and ballroom, plus plans to add new meeting rooms, the property is marketing itself as a full-service convention and meeting resort.

“We are working hard to develop all revenue streams, and the non-gaming business opportunities are particularly important,” Giannantonio said. “Entertainment is a focus in informing consumers that there is more to do here than gaming; we now offer the whole package.”

Meetings are at the heart of Atlantic City’s reinvention. “Meetings now represent only 6 percent of room nights, so there is huge opportunity to increase that,” Cartmell said. “A new organization called Meet AC, funded by an occupancy tax, will focus on that market and will be complementary to our efforts.”

And non-hospitality investors see a future in the destination as well. For instance, Bass Pro Shops, the hugely popular retail megastore chain, will be coming to Atlantic City, bringing its own significant drawing power.

Outside observers also see possible good outcomes for Atlantic City’s hotels. Srihari Rajagopalan, a debt analyst with UBS, said, “To some extent, closures are always good in an oversaturated market. Longer term, there needs to be some kind of repositioning so properties cater to conventions, and you are seeing that now from several of the companies operating in Atlantic City. In the last 12 months, room nights for conventions are up 26 percent, and that trend has to continue.”

An important date will be the sale in August of Revel, the two-year-old resort that cost $2.4 billion to build. The property has gone bankrupt for the second time and its fate, according to Rajagopalan, could be pivotal in the reimagining of Atlantic City.

Peter Tyson, vice president at PKF Consulting in Philadelphia, sees Atlantic City as similar to Las Vegas among gaming centers because they are both destination resorts. “To be successful, there has to be regional or national appeal because of food, entertainment, and retail. You need to be able to have fun there—or have a great meeting—even if you’re not a gambler.”