Developer Rolls Dice on Casino

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The Meruelo Group, a Downey investment and holding company owned by Alex Meruelo, is betting $120 million that it can turn around the struggling Trump Plaza Hotel and Casino in Atlantic City, N.J.

Meruelo has agreed to purchase the 906-room hotel and casino from Trump Entertainment Resorts Inc. for $20 million, which ranks as the lowest price ever for an Atlantic City casino.

The company plans to spend at least $100 million to reposition the 39-story building with upgrades to the interior and façade as well as the development of a strip of restaurants and shops that would connect the casino with the Boardwalk and a large outlet shopping mall blocks away. It will give the casino a new name and might add an Asian theme to the property, according to Xavier A. Gutierrez, president of Meruelo Group.

“We have an opportunity to come in, buy an iconic property and put it back to where it should be, which is as a centerpiece of Atlantic City,” he said. “It’s a continuation of the Meruelo Group acquisition strategy. We think right now is an opportunity to expand in this industry.”

It is the second casino and hotel acquisition for the company, which purchased the Grand Sierra Resort and Casino in Reno, Nev., in 2011, as it attempts to further expand into the gaming industry.

Restoring the troubled Atlantic City property might prove to be a Trump-size challenge. The gambling industry in the seaside city has suffered through the economic downturn, a trend compounded with the advent of legalized gaming in Pennsylvania and Maryland, which has increased competition for gamblers.

A recent Barclays Capital Inc. report found Atlantic City gaming revenues fell 13.2 percent in January year over year. Trump Plaza posted the largest decrease of all of the area’s casinos, with a nearly 41 percent drop, bringing in only $4.9 million in January.

Mark Capasso, executive director of the hospitality and gaming valuation group of Cushman & Wakefield Inc. in downtown Los Angeles, said this represents a challenge for Meruelo Group.

“It’s doing better than it was three years ago, like most industries, but Atlantic City is having the hardest time of any gaming market in the U.S. simply because there’s a lot more competition around it,” Capasso said. “I don’t see why Meruelo can’t turn Trump Plaza around, but it’s not like turning the page of a book. It’ll take work.”


Market challenge

Trump Plaza was built in 1984 for about $210 million by Donald Trump, who in the late 2000s began to step back from the casino business in Atlantic City and is no longer involved in operations at Trump Entertainment. That group has filed for bankruptcy protection three times, most recently in 2009, and has been selling off assets.

Trump Plaza, which has seen little in the way of capital improvements or upkeep in recent years, was one of only two casinos left in the Trump Entertainment portfolio. The company has said it would consider offers for its remaining casino, the Trump Taj Mahal Casino Resort.

Meruelo Group had been eyeing the Trump Plaza for a year before striking a deal earlier this month. The transaction is expected to close in May.

The record low sale price reflects both a property that has languished as well as the ailing Atlantic City casino market, where prices for gaming properties have been declining.

The Tropicana Casino was sold out of bankruptcy for $200 million after hitting the market at $1 billion in 2009; the Resorts Casino Hotel sold for $31.5 million in 2010; and Trump Entertainment sold its Trump Marina Hotel Casino, now the Golden Nugget, for $38 million in 2011.

Meruelo Group plans to completely renovate the Trump Plaza property so that it connects foot traffic among the Boardwalk; the casino; outdoor retail mall Tanger Outlets’ the Walk; and the Boardwalk Hall, a music and entertainment venue next to the casino. Right now, the connecting space is undeveloped, and Meruelo Group sees an opportunity to capture the foot traffic.

“We are considering the creation of a restaurant row or a retail row,” Gutierrez said. “You have this retail center (the Walk) that’s very successful and yet there’s no connection to the other major foot traffic that’s two blocks away. So there’s an interest in using that space, which is realistically the only major artery to connect the Walk to the Boardwalk.”

Improvements to the rooms and common space will begin immediately after closing to ready the hotel for the peak summer season. Larger-scale renovations will commence later.

“We are exploring a lot of ideas; an idea that’s been floated around is about making it an Asian-themed hotel and casino,” Gutierrez said, noting a growing contingent of Asian gamblers in the area.

It will change the name of the casino, though a new name has not yet been determined.

Turnaround experience

Chris Maling, a senior vice president at Colliers International in downtown Los Angeles who is familiar with Meruelo Group, said the buy-low-and-renovate strategy has worked for it in the past.

“Their experience and background is operating businesses, and that’s their approach to their real estate holdings,” he said. “With their strategic management and skill set, they have been very effective in maximizing returns. They can grow this gaming operation and hotel and then have the retail as an adjunct part of it and they can grow that investment side of the business.”

Indeed, Gutierrez said that his company plans to hold the casino long term. He declined to say how the company is funding the acquisition and redevelopment, but it is likely to use its own money for the purchase and to find financing for the renovation, according to brokers familiar with the company and these types of deals.

Alex Meruelo built his fortune with a Latino-focused pizza chain, La Pizza Loca, which he started in Huntington Park in 1986. It now has more than 50 stores, about 35 percent of which are franchised, in Los Angeles and Orange counties.

Meruelo and brothers Richard and Homero, children of Cuban emigrants, are all involved in the development business, though they operate independently – Richard in downtown Los Angeles and Homero in Miami.

His brothers’ operations suffered through the economic and real estate collapse. Richard was ousted from his company Meruelo Maddux Properties Inc. during the company’s 2011 bankruptcy reorganization and Homero had several properties foreclosed on. However, Alex Meruelo has managed to keep his business afloat and diversified.

The company’s investments span 24 industries, including a construction company; a real estate group that owns 40 retail, mixed-use and apartment properties; and a majority stake in Commercial Bank of California. It also owns the largest U.S. manufacturer and distributor of sushi for groceries, Fuji Food Products Inc., and an upscale chain of bakeries, Pacific Whey Café.

Meruelo Group expanded its reach into media with the 2011 purchase of Spanish-language television station KWHY (Channel 22) in Burbank. Alex Meruelo also tried but failed to buy National Basketball Association’s Atlanta Hawks in 2011.

The company is an opportunistic buyer, purchasing assets for low prices where it sees an opportunity to increase value.

It also purchased the underperforming Grand Sierra Resort, a 1,995-room hotel and casino in 2011, spending more than $25 million to turn the Reno hotel into a profitable endeavor.

That process inspired it to explore the gaming industry.

“Gaming has been an interest for us ever since Grand Sierra Resort,” Gutierrez said. “That’s the model we would like to replicate at the Trump Plaza. We went into a challenging market that had been undervalued and we focused on it, put investment into it and it gained market share. … It’s been a complete turnaround. It went from significant loss to profitability in a very short amount of time.”