ATLANTIC CITY — Wall Street giant Morgan Stanley is bailing out of the $2.5 billion Revel casino and will put its ownership of the troubled project up for sale, the company disclosed Thursday in a federal securities filing.

Morgan Stanley’s board of directors has voted “to proceed with a plan of disposal” for Revel Entertainment Group LLC, a wholly owned subsidiary that is developing the Boardwalk megaresort.

“The company will consider various alternatives to effect the full disposition of Revel, which may include a direct sale to a third party or an auction process,” Morgan Stanley said in the Securities and Exchange Commission filing.

The filing also stated that Morgan Stanley has invested about $1.2 billion in the casino and will suffer “a substantial loss” by selling its stake. Morgan Stanley, an investment bank, has been the project’s sole financial backer up to this point.

Linda M. Kassekert, chair of the New Jersey Casino Control Commission, said she is disappointed with Morgan Stanley’s pullout from Atlantic City but added that she remains optimistic about Revel’s future.

“We are hopeful it will be an outstanding property and a suitable buyer will be found,” she said. “Atlantic City has had plenty of setbacks, but Las Vegas has also had a lot of setbacks when you look at all of the projects that haven’t been finished there.”

State Sen. Jim Whelan, D-Atlantic, expressed frustration with Morgan Stanley. However, Whelan said Revel Chief Executive Officer Kevin DeSanctis assured him that he would push to get the project finished.

“He’s going to preserve it,” Whelan said of DeSanctis. “If Morgan Stanley doesn’t finish it, somebody else will. That’s my hope, and that’s what Kevin is going to work toward. But this certainly complicates things.”

Revel may be the last casino built in the slumping Atlantic City market for years to come. The project is regarded as the best hope for reviving Atlantic City as it struggles with the sluggish economy and fierce competition from slot parlors in Pennsylvania, New York and Delaware.

“I want to be optimistic that the tide is starting to turn and that Atlantic City will continue to prosper once we come out of this recession,” Kassekert said.

Morgan Stanley’s sale follows news earlier this week that Revel is close to lining up $1 billion in financing from a Chinese bank to complete the project. The New Jersey Division of Gaming Enforcement said in a petition with the Casino Control Commission that Revel’s deal with the Export-Import Bank of China appears imminent.

“Revel remains fully engaged in discussions with potential lenders on securing the remaining capital required to complete the interior fit-out of the property and the completion of the construction phase of the project,” company spokesman Richard Land said in a statement Thursday evening that followed Morgan Stanley’s filing. “We look forward to providing more specific details on the status once there is a development.”

Morgan Stanley’s decision to leave Atlantic City is the latest blow for the Revel casino. Revel halted construction on the interior of the casino-hotel complex last year to stretch out what money it had on hand. Work has continued on the exterior of the Las Vegas-style casino and the 1,900-room hotel tower.

“For Revel, it means they have made substantial progress of the development of what will truly be a unique and premier resort,” Land said.

Originally scheduled to open in 2010, the casino’s completion date was later pushed back to 2011 and it now appears it won’t be until 2012 at the earliest. Revel said it will take about 20 months to finish the project once the financing is obtained and construction resumes on the interior.

The ocean-themed casino is highlighted by a 47-story hotel tower that soars 710 feet over the Boardwalk, making it Atlantic City’s tallest building. Other amenities will include a private beach, seven swimming pools, a 5,000-seat theater, upscale retail shops and 20 restaurants. Its glass-cloaked, curvy facade appears sculpted by waves.

Morgan Stanley’s involvement with the project began in 2006, when it paid $74 million to buy the development site, next to Showboat Casino Hotel at the northeast end of the strip of Boardwalk casinos. Revel, a gaming company with no prior experience in developing casinos, was selected by Morgan Stanley in 2006 to design, build and operate the casino. Revel also holds a small ownership stake in the project.

At the same time it is negotiating the financing deal with the Chinese bank, Revel is pursuing a $300 million tax break from the state. If approved by state officials, Revel would be reimbursed up to 75 percent of the casino’s sales and room taxes for 20 years. Critics led by casino labor union Local 54 of UNITE-HERE oppose the tax break, saying it would be unfair to Atlantic City’s existing gaming halls.

Revel also has applied to Atlantic City to use $50 million of its property taxes for public improvements — including street repairs and upgrades to the Boardwalk — in the area surrounding the casino.

Contact Donald Wittkowski:
609-272-7258
DWittkowski@pressofac.com