The New Jersey Economic Development Authority approved on Tuesday a financing plan with $261 million of tax incentives to help revive the stalled Revel casino project in Atlantic City.
Construction on the 53-story glass-enclosed gambling oasis stopped in 2009. State officials are hoping the gambling and entertainment resort will help boost Atlantic City tourism. Gross gambling revenue at its 11 casinos dropped by $378 million, or 9.6%, in 2010, to $3.56 billion, according to the New Jersey Casino Control Commission.
Officials estimate remaining costs on the Revel project to total $2.97 billion, according to an EDA board memorandum.
The board authorized on Tuesday tax reimbursements of up to $261 million for Revel Entertainment Group LLC, the developer of the casino project. Revel will be eligible for those tax reimbursements once it completes phase one of the development in the summer of 2012. Phase one is expected to cost $1.48 billion and includes 1,090 hotel rooms, 12 restaurants, two theaters, and 160,000 square feet of convention/meeting space, according to the board memo.
The authority calculates the $261 million of tax reimbursements — which is an economic redevelopment and growth grant, or ERG — will offer borrowing capacity of $125 million. Revel will use the borrowed proceeds to upgrade and enhance public areas and infrastructure, including reconstruction of Atlantic City’s famed boardwalk, transportation needs, and beach access.
“The applicant will undertake these infrastructure improvements and will seek to monetize the ERG stream, resulting in $125 million of principal borrowing (from a yet-unnamed entity) with interest and financing fees totaling $270 million,” the memo reads.
Revel will receive a 75% reimbursement per year on its corporate and sales taxes, and hotel occupancy fees, until the casino developer reaches the $261 million reimbursement limit. Revel has 20 years to obtain the $261 million, though the development may achieve that maximum amount before the 20 years are up, said authority spokeswoman Laura Jones.
New Jersey plans to regain the tax reimbursements it will hand over to Revel. Once the casino receives $261 million of tax reimbursements, it will need to repay the state 20% of its annual profits in “success reimbursement payments.”
The board approved on Tuesday a new stipulation that all future ERG financings of $50 million or more will need to include the “success reimbursement payments” to the state.
Officials anticipate the Revel casino and hotel will generate 5,400 construction jobs and 5,500 permanent full-time jobs once the development is completed in early 2015. The project will offer 4,758 full-time jobs in the summer of 2012, when the largest construction phase will end.
Gov. Chris Christie touted the Revel financing deal Tuesday as he signed into law a plan to revitalize Atlantic City and bring more visitors to the gambling center.
“We don’t expect this or other casinos to instantly turn around their fortunes, but we do have very positive feelings and expectations about what a completed Revel project will mean for the new casino tourism district and for Atlantic City as a whole,” said Christie spokesman Michael Drewniak. “This is a long-term reimbursement mechanism and a way to get the Revel casino finished sooner rather than later.”
Along with the EDA financing, JPMorgan is working on a $1.15 billion debt restructuring that will remove Morgan Stanley as a project owner. Morgan Stanley spent about $1.2 billion on the development before walking away last year.
JPMorgan is the lead arranger in bringing together a syndicate of lending institutions that will offer an $850 million first-position loan and a $305 million second loan in return for a 90% or 85% ownership in the project. Morgan Stanley will receive $30 million. Revel will have a 10% or 15% ownership stake.
