Billionaire strengthens Barden's hand

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Chicago billionaire Neil Bluhm amassed his fortune by wheeling and dealing for hotels, resorts, malls and shopping centers. But lately he has developed a growing infatuation with another type of real estate -- casinos.

For much of the last decade, Mr. Bluhm has been steadily building his gambling holdings, from management of two Niagara Falls casinos to development of the Riverwalk casino and hotel scheduled to open in Vicksburg, Miss., in October.

And if a proposed deal with Don Barden is completed and approved by the state gaming control board, Mr. Bluhm will have a stake in casinos in Pennsylvania's two largest cities, Pittsburgh and Philadelphia.

Mr. Barden has agreed to surrender control of the $780 million North Shore casino to Mr. Bluhm's Walton Street Capital Fund 6 and a group of other investors.

In exchange for a $120 million equity investment, Walton Street Capital and the other investors will own 75 percent of the riverfront casino, while Mr. Barden's share will drop from nearly 100 percent to 25 percent.

Mr. Bluhm also is chairman of HSP Gaming, which won the state license to build the SugarHouse Casino in Philadelphia, a development in limbo because of neighborhood opposition.

Gambling experts and analysts said Mr. Bluhm's involvement in the Pittsburgh casino can mean nothing but good things, particularly for a project that was shut down indefinitely June 30 after Mr. Barden failed to come up with $10 million to pay contractors for work completed in April.

Mr. Bluhm and Walton Street Capital, with $13 billion in gross assets, bring a financial heft to the development that Mr. Barden, a relatively small player in the gambling industry, lacked. The change in ownership also could give more confidence to lenders who are putting up more than $600 million to complete the construction.

"I think it basically reinvigorates the whole process and puts a stamp of reality on it, since there has been so much uncertainty over this for the past few months," said Joseph Weinert, senior vice president of Spectrum Gaming Group, an industry consultant.

'Impressive record'

Mr. Weinert said Mr. Bluhm is a "bit of an unknown" in the gambling industry because of his relatively small holdings. But Gregg Klein, high yield analyst for BNP Paribas Group, said that shouldn't be a detriment, adding Mr. Bluhm has a "very impressive track record" as a businessman.

"If he gets the go-ahead in Pittsburgh, he will finish the job and do it well," he said. "For the actual project, this is a big positive for getting a casino open in Pittsburgh."

In Niagara Falls, Mr. Bluhm co-founded and chairs Falls Management Co., which operates the Niagara Fallsview Casino Resort and Casino Niagara on behalf of the government.

The company also designed and built the Fallsview resort, which includes a 200,000 square-foot casino with 3,000 slot machines and 150 table games, a 30-story, 368-room luxury hotel with views of Niagara Falls, a 1,500-seat performing arts center, retail shops, restaurants, spa and a 3,000-space parking garage.

"It's a beautiful casino. It's huge. It's larger than any casino in Atlantic City and compares with the largest in Vegas," said Ivan Sack, former editor of the Canadian Gaming News and an industry analyst.

Mr. Sack said the casino, which opened in 2004, cost more than $1 billion to build. Based on that construction, he added, Pittsburgh "will have a very good product. I have no reason to see otherwise."

Mr. Weinert said Fallsview would "fit nicely with some of the major properties on the Las Vegas strip."

"I'm sure plans for a first-class property in Pittsburgh are unchanged by Bluhm's involvement. When you've got a monopoly in town, you're not going to come in and disappoint the city's stakeholders. There are a lot of people in Pittsburgh who have a stake in this," he said.

Fallsview has run into some difficulties because of border issues relating to the Sept. 11, 2001, terrorist attacks, an increase in the Canadian dollar versus U.S. dollar, and a government-imposed smoking ban that has driven some players to U.S. casinos, Mr. Sack said.

But he added those were issues beyond the control of Falls Management, which he described as a "quite reputable" operator. The problems don't "reflect on their ability to operate. They're operating in a tough environment. When you've got lemons, you've got to make lemonade, you know," he said.

In Vicksburg, Mr. Bluhm is co-founder and chair of High River Gaming. The proposed Riverwalk property, valued at more than $100 million, will include 800 slot machines, 20 table games and 80 hotel rooms as well as two restaurants and a 300-plus-space parking garage.

The $720 million SugarHouse Casino on the Delaware River would feature 3,000 slot machines, bars and lounges, and parking for 3,000 cars. Mr. Bluhm also has an interest in competing for a tenth Illinois casino license that recently became available after protracted litigation. He even has a site selected in Des Plaines.

Focus on urban markets

Greg Carlin, who oversees the Bluhm gambling interests, said Mr. Bluhm sees the industry in part as an extension of real estate development. He said casinos have a real estate component to them and have proven to be moneymakers.

"If done properly, you can generate decent returns on your capital. That's what we're trying to do," he said.

Mr. Carlin said Mr. Bluhm and his companies have chosen to focus most of their attention on urban markets, particularly in light of high fuel prices and soaring air fares.

People still want to be entertained, but are looking to stay closer to home, he said. Since urban markets are more compact and more populated, they could be a better value.

"They've been helped by the economy because people don't want to drive long distances," he said.

Mr. Carlin said casinos in urban markets like Philadelphia, St. Louis, New Orleans and Detroit have posted gaming revenues gains ranging from 4.9 percent to 33.2 percent so far this year while revenues in Atlantic City and Las Vegas have declined.

Despite potential stakes in both the Pittsburgh and Philadelphia casinos, Mr. Bluhm insisted last week that he won't run afoul with state gambling law provisions that bar the owner of one casino from having more than a one-third interest in another. He said his personal shares in each of the projects will be less than one percent.

Walton Street Capital Fund 6 will be the lead in the Pittsburgh casino. Other investors include members of Mr. Bluhm's family and Ira Lubert of Lubert Adler, a Philadelphia-based private equity fund.

Still, Mr. Klein, the analyst, questioned whether problems could materialize.

"You go through the gaming bill and start to wonder how can this guy do both. But SugarHouse is so delayed, he might be thinking, let's go to the one at hand," he said.

Mr. Weinert and Frank Fantini, publisher of Fantini's Gaming Report, a daily investor-oriented publication on the gambling industry, didn't see dual ownership as a problem. They pointed out that Harrah's Entertainment operates a number of casinos in Atlantic City.

"If Harrah's can control more than one third of the Atlantic City market without any negative impact there, I don't see how someone with hands in two casinos in Pennsylvania can possibly be a problem," Mr. Weinert said.

Mayor Luke Ravenstahl and Allegheny County Chief Executive Dan Onorato have expressed concern about the impact the ownership change could have on the timeline for casino construction and funding for the arena.

Mr. Bluhm and Mr. Barden said last week it would affect neither. Walton Street Capital said it intends to honor the commitments made by Mr. Barden and the casino is still on track to open in May 2009.

The change in ownership would have to be approved by the gaming board, which could hold a special meeting this week if all financing is finalized.


Mark Belko can be reached at mbelko@post-gazette.com or 412-263-1262.


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