Welcome back to Property Lines, a column by veteran real estate reporter Alexei Barrionuevo. Each week on Tuesday, Barrionuevo will report on housing trends, real estate deals, and major business moves right here on Curbed.
The glassy Revel is one of four Atlantic City casinos that shuttered last year. Photo by John Moore / Getty Images
Take a drive through Atlantic City these days and your eyes tell you a lot about this struggling mecca to East Coast gambling. Whole streets of row homes are dark at night and clearly abandoned. The famed boardwalk is a depressing mix of homeless people, police in cruisers and on bikes, women soliciting massages, and agitated drug addicts.
Foreclosures have ballooned and the numbers are getting worse as the city teeters on the brink of bankruptcy. The closure of four large casinos last year, putting some 8,000 people out of work, are only adding to the pain. Nationally, foreclosure auctions reached their lowest level in 10 years in November, but Atlantic City posted the country's highest foreclosure rate for the fifth consecutive month. One in every 307 Atlantic City homes had a foreclosure filing, more than four times the national average, according to RealtyTrac. Today, you can buy a three-bedroom home there for $15,000.
Across the country in Las Vegas, the world's most famous gambling destination, the situation is different. Home prices are inching back up and the number of foreclosures, once stratospheric, has fallen precipitously from 2013 levels. Why have the two recoveries been so different?
New foreclosure filings by year for Atlantic City and Las Vegas. Charts courtesy RealtyTrac for Curbed.
One big reason: After the housing crash, Las Vegas hotel owners adapted their scene to de-emphasize their reliance on gambling, something Atlantic City wasn't able to pull off. The hotel owners in Sin City jumped on the booming interest in electronic dance musica genre known as "EDM"and built $100 million temples to DJ-producers like Calvin Harris, Tiësto, and Kaskade.
Some would argue that Vegas has natural advantages over Atlantic Cityless severe winters, international fly-in tourists, and sheer scale. All that's true, but Vegas also has a history of identifying a trend, seizing on it, and riding it until it bleeds.
Vegas hotels like the MGM Grand, Wynn, and Caesar's ushered in state-of-the-art clubs like Hakkasan, XS, and Omniaeach of which reportedly cost $100 million or more to buildand rented VIP tables with bottle service at levels never before seen anywhere in the world. Rather than leasing their nightlife from other companies, as they had in the past, companies like Wynn began to own it themselves. "Nightclub whales" became as important as traditional "casino whales" to hotels' bottom lines. Bidding wars ensued for superstar DJs, who were signed to multi-million dollars contracts that pay them a few hundred thousand to spin a three-hour pool party.
On the opening night of Hakkasan in 2013, one client purchased the exclusive $500,000 champagne package (called the "Dynastie," it comes with nine bottles of bubbly, of varying sizes), and spent a little extra to tip the wait staff, boosting his total bill to $600,000.
"Twenty years ago it was all about the casino," said Zar Zanganeh, a high-end broker in Las Vegas. "Now you have bachelor parties, guys that are in their 20s and 30s who will come in from New York City and spend $20,000 in one night and they don't even gamble. It is just bottle service and hanging out, and going to the club."
Revenues from a slew of mega-clubs over the past decade has boosted Las Vegas revenues more than any other non-gambling category; the average spend per visitor is up by 60 percent, according to David G. Schwartz, the director of University of Las Vegas's Center for Gaming Research.
A few Atlantic City hotel-casinos have also flirted with DJ culture. Borgata and the Pool After Dark at Harrah's have paid top-dollar for some DJs, like Tiësto, to spin from time to time. But they didn't establish nearly as many of the long-term DJ "residencies" that created international drawing power for the clubs in Vegas. The biggest DJs with residencies today at Harrah's, for example, are celebutante Paris Hilton and Pauly D, famous for being on MTV's "Jersey Shore." Of course, Atlantic City clubs may not be able to afford the top DJs; they command club fees of $200,000 or more to spin, and the economics only work if clubs can sell VIP tables for thousands, if not tens of thousands, of dollars.
The Trump Taj Mahal on the Atlantic City boardwalk almost closed in late 2014, but remains open. Photo by Alexei Barrionuevo.
As a gambling destination, Atlantic City faced competition from neighboring states, as cities in Pennsylvania, Connecticut, and Delaware opened up smaller casinos of their own the past few years. Visits to Atlantic City fell, stressing gambling revenues, until four casinosShowboat, Revel, The Atlantic Club, and Trump Plazaclosed last year.
The shuttered casinos put 8,000 people out of work, and real estate values on the boardwalk plummeted, threatening the city itself with bankruptcy. "The casinos filed for tax appeals. Atlantic City owes them all this money and they can't pay it," said Alan Woinski, CEO of Gaming USA, which publishes newsletters about the casino and gaming industries.
To make matters worse, during this same period Superstorm Sandy slammed the Jersey coast, inundating many of the low-lying row homes in Atlantic City. Unable to afford their mortgages and taxes, many homeowners simply walked away, beginning a cycle of rampant foreclosures.
The sun sets on the Showboat and Revel, two of the four Atlantic City casinos that closed last year. Photo by Alexei Barrionuevo.
Compounding problems is the long foreclosure timeline in New Jerseythe longest in the country. It takes 1,177 days to complete a foreclosure in New Jersey, up 11 percent from a year ago, according to RealtyTrac. That's nearly twice as long as the national average of 630 days, and well more than the 683 days it takes in Nevada, a state with one of the shortest foreclosure life-cycles.
"That is one of the things that has really helped in Las Vegas," said Ginny Walker, a spokeswoman for RealtyTrac. "There aren't people that have been stuck in the foreclosure process for years on end like we are seeing in New Jersey."
The heavy foreclosure activity has kept real estate agent Edward Augsberger pretty busy. He lists foreclosure properties for Fannie Mae and Freddie Mac, and he spends many of his days working with "preservation teams" to lock up and winterize homes around Atlantic City for banks to take over. Homes left idle for too long become eventual targets for criminals, some of whom try to break in looking for copper wire to trade for drugs, he said.
Investors are swooping in to scoop up the distressed properties for pennies on the dollar. They will soon turn into rentals for former homeowners who were laid off by the casinos, Augsberger said.
"The numbers keep getting worse," he said. He recently looked back at about 60 homes that had sold in the past six months. Some 60 percent that had sold for under $100,000 were distressed, as were at least 80 percent of homes listed at under $25,000.
Today, with banks skeptical about paying much of anything to renovate the foreclosed homes, you can buy a home for a song in Atlantic City. Augsberger said he recently valued a three-bedroom, one-bathroom home for $15,000; it sold for more than $200,000 less than a decade before, he said. In Las Vegas, $15,000 won't get you a table to see a big-name DJ on most nights. And it certainly won't buy you more than a little champagne at Hakkasan.
"I don't know what the answer is for Atlantic City anymore," Augsberger said, "but they have to adapt."
The Atlantic City boardwalk last week. Photo by Alexei Barrionuevo.
· Property Lines [Curbed]