The $220 million, 675,000-square-foot Atlantic City Gateway project, as seen in this rendering, will create a new satellite campus for Stockton University and a new headquarters building for South Jersey Industries. It represents a major milestone in the effort to grow Atlantic City’s nongaming economy. — Courtesy: Courtesy: AC Devco/Elkus Manfredi Architects
By Joshua Burd
For years, Bart Blatstein was steadfast about not buying real estate in Atlantic City.
He had his reasons. For one thing, the iconic resort town evokes fond memories of his childhood that he preferred to keep intact, like many others who grew up around the Delaware Valley.
Add in the fact that he keeps a vacation home just few miles away in nearby Margate, which has served as an escape for the Philadelphia-based developer for more than a decade.
“My happy place is Margate,” Blatstein said, “and I had a promise to myself to not get involved, so that when I went to the Shore it was just relaxing and vacationing.”
But a few years ago, he said, “I just got pulled in.”
As someone who has made a career out of buying up distressed properties and revitalizing whole neighborhoods, most notably in Philadelphia, Blatstein could no longer ignore the opportunity in Atlantic City. In 2014, he acquired the former Caesars-owned Pier Shops complex. A year later, he purchased the shuttered Showboat casino hotel, which he has since reopened as a nongaming venue, and earlier this year he closed on several other Boardwalk-area properties nearby.
As to whether that means he sees upside in Atlantic City, he left no room for interpretation.
“Of course I see upside. This is what I do for a living,” Blatstein said. “And it’s incredible — the upside in Atlantic City is like nowhere else I’ve seen in my 40-year career.”
“Atlantic City is a great story,” he added. “It’s got a wonderful new chapter ahead of it.”
Blatstein, the CEO of Tower Investments, knows how critical it is to arrive early to a city that is poised for an economic rebound. But for a place that has been promised a comeback in recent years — only to see it never materialize — experts say Atlantic City is in uncharted yet promising territory that could help usher in a long-awaited recovery.
Land prices are at their lowest in decades, local and regional developers with proven track records are investing in the city and the first credible nongaming project in years is under construction, with the potential to bring thousands of students and professionals to the Boardwalk as soon as next year.
All told, there is enough positive momentum and private investment for Gov. Chris Christie to have proclaimed recently that Atlantic City may be turning a corner after a decade of despair.
“Private investors don’t put their money in for charitable reasons,” Christie said. “They may have charitable motivations that are part of it, but in the end their job is to do projects that are profitable.”
Atlantic City still faces a host of challenges. The casino industry only recently saw its first annual growth in gaming revenue after an unprecedented slide that began in 2007, as neighboring states legalized casino gaming and triggered the closure of five of New Jersey’s 12 gaming halls in less than three years.
What’s more, the local government has been mired in a financial crisis that resulted in a controversial state takeover last fall. Led by Christie ally Jeff Chiesa, a member of Chiesa Shahinian & Giantomasi, the city has settled with the Borgata Hotel Casino & Spa in a long-running property tax appeal case, but is still grappling with other appeals that could equate to hundreds of millions of dollars in revenue.
But for the month of April, public officials and business leaders had at least two major reasons to celebrate.
On April 5, Hard Rock International unveiled its plans to invest nearly $400 million in the former Trump Taj Mahal casino, following the news that the entertainment giant was acquiring the property in partnership with the Morris and Jingoli families.
A little more than two weeks later, many of those same dignitaries returned to the Boardwalk for another milestone: a ceremonial groundbreaking for a $220 million redevelopment project that will include a new headquarters office for South Jersey Industries and a new campus for Stockton University. The mixed-use project by AC Devco will bring more than 1,000 students, 200 employees from the utility company and hundreds more to the city’s Chelsea neighborhood by fall 2018, providing an infusion that could have an immediate ripple effect.
“On one of those rainy Februarys in Atlantic City, when it’s not the busiest, there will be 2,000 people coming and going,” AC Devco President Christopher Paladino said, noting that area property owners and investors are already responding. “We’re already seeing that economic energy happening.”
Joshua Levin, a commercial real estate broker who is based in the city, said in late April that his firm has fielded inquiries about properties that investors see as potential student housing or retail spaces. And while he couldn’t discuss specific transactions that were pending, he said there are properties that weren’t selling last year “that have gone under agreement and will be closing shortly based upon, we believe, the activity along Albany Avenue.”
That includes an 18-unit apartment building near Albany Avenue that has attracted an out-of-town buyer. What’s more, Levin said his firm has taken unsolicited calls for several properties owned by AC Devco that are not even being marketed for sale.
Levin, broker of record for Levin Commercial Real Estate, said he has certainly seen speculation in the city before, but noted that it’s the first time the resort is getting a major infusion of jobs and individuals that are not tied to casinos. And higher education is a proven catalyst that has “gone into a lot of bad areas in many major cities and turned it around.”
“We were living and dying by the sword, and when we were only the second municipality in the country that had gaming, we could do no wrong,” Levin said. “I think it was long overdue for diversifying and changing and bringing in other options.”
New opportunities are coming from both nongaming sectors and the contraction of the state’s casino market. Jack Plackter, a real estate attorney in Fox Rothschild’s Atlantic City office, said speculation has caused “wild fluctuation” in the cost of prime real estate in years past, with investors acquiring properties in hopes of building the next great casino.
For instance, in 2006, a group led by Pinnacle Entertainment Inc. paid $270 million for the former Sands Casino and an adjacent site at South Indiana Avenue, with plans to develop a $1.5 billion gaming hall. But the plan never materialized, prompting Pinnacle to sell the land to an investment group in 2013 for just under $30 million.
“Property in Atlantic City doesn’t have a lot of value unless somebody wants to use it for a casino,” said Plackter, who co-chairs the firm’s zoning and land use group. “You wouldn’t see fluctuations like that anywhere else and that’s why I say Atlantic City doesn’t function like a typical real estate market.”
The struggles of casinos and the loss of thousands of jobs have impacted the entire municipality. Total assessed value in the city is only a third of what it was about a decade ago, having shrunk to $6.4 billion from its peak of $20.6 billion.
But even though the new Hard Rock will bring another casino back into the market, Plackter said pricing has adjusted to the fact that the industry has right-sized. That means there is still opportunity to buy land at a good price and take a chance in a city that, for all of its issues, happens to have a flexible zoning environment.
“The problem is getting people to come here,” Plackter said. “Somebody has to go out and seize on this bit of optimism with Hard Rock and Stockton and say, ‘We’ve bottomed out and we’re coming around. Now is a great time to buy.’ ”
Savvy developers like Blatstein have the right idea, he said.
“You need people like that who see the opportunity, who understand that you make your profit the day you buy the real estate and now you can buy real estate in Atlantic City for very low dollars,” Plackter said. “So that with the right kind of person or a company with the right kind of capital, there could be significant money-making opportunities.”
It’s not the first time that property owners and investors have tried to benefit from an economic ripple effect in Atlantic City. Around five years ago, developers in the city’s Southeast Inlet section had high hopes of a real estate boom around the newly opened Revel Casino Hotel, but the failure of the $2.4 billion megaresort left many projects on the drawing board.
But changes in land pricing and optimism about a more diverse economy in the city have generated new opportunities. Late last year, Boraie Development broke ground on an $81 million, 250-unit residential complex in that very neighborhood. According to The Press of Atlantic City, the firm paid $1 million in 2013 to acquire the lot and an adjacent property from the Atlantic City Housing Authority.
But the project, located between Atlantic, Pacific, New Jersey and Connecticut avenues, will produce the largest new market-rate rental community in the city in decades. In the process, it will breathe new life into one piece of a neighborhood that had been cleared for redevelopment decades ago.
The project is taking place as new commercial entities find their way to Atlantic City. In November, a technology firm serving the air traffic control industry signed a lease for 14,360 square feet at an Atlantic City office building. The firm, Enroute Computer Solutions Inc., is relocating from Egg Harbor Township with the help of a $9.3 million tax credit from the state Economic Development Authority.
EDA President and Chief Operating Officer Tim Lizura, whose agency also approved incentives for the Boraie, Stockton and South Jersey Industries projects, said it speaks to the “multiple fronts” of investment taking place in Atlantic City. And while the resort is different from the other New Jersey cities that have seen new economic activity, there is at least one common thread when it comes to creating new opportunities.
“It’s taken 45 or 50 years, but the notion of being in a major city has become attractive again to many of the entities that have left,” Lizura said, noting that both Stockton and South Jersey Industries have roots in the city. “And I would suggest it’s the same thing for residents.”
But for all the promise of diversifying Atlantic City’s economy, investors still believe tourism and entertainment are as critical as ever. In mid-April, the EDA approved a $38.4 million tax incentive for a proposed $138 million, 110,000-square-foot entertainment complex, which would be anchored by a vertical “PolerCoaster” that rises 350 feet from the ground.
The complex would occupy the roughly 1.32-acre site that was once slated to house the Pinnacle casino. And an EDA analysis found that the project, which would attract a demographic of dedicated thrill ride enthusiasts, would generate new revenue that would not have otherwise come to Atlantic City.
It’s one of several new entertainment concepts that are in the pipeline for Atlantic City.
Blatstein’s firm, Tower Investments, acquired the former Showboat property for $23 million, a far cry from the more than $1 billion in assessed value that it had just a few years ago. He most recently has acquired more than five acres around the South Inlet neighborhood, including a former volleyball court and the Garden Pier property, although he said he wasn’t yet ready to discuss his plans. Aside from being a place in which to find good value, Blatstein said “the infrastructure in Atlantic City is there for a very large city,” pointing to utilities and transportation features such as a highway network, a bus terminal and an airport.
“It’s an amazing grouping of infrastructure that’s necessary for a city to thrive,” Blatstein said. “And it happens to be on the ocean.”
If there’s any doubt about the city’s ability to grow, Levin pointed to the millions of square feet of casino property that began to transform it more than 40 years ago. The resort went from “old, dilapidated hotels from the turn of the century and virtually no infrastructure” to billions of dollars’ worth of union-built properties and the physical environment needed to support them.
All it will take is for someone to “use their imagination” to take advantage of those existing assets.
“We can handle more cars than Disney World in Atlantic City,” Levin said. “So the infrastructure is not going away. … You just have to come up with the right use.”