Sun International hedges bets on Resorts Casino Hotel

Wednesday, May 6, 1998 | 4:02 a.m.

The announcement marks the latest hitch in a long-awaited "second wave" of casino construction that has instead degenerated into corporate feuds, lawsuits and delays.

But casino industry observers said Wednesday that Sun's move made sense and was not indicative of a larger ill.

The Bahamas-based casino company, which bought the Boardwalk landmark in 1996 and initially planned a $500 million expansion, said in September it would instead spend $150 million on the project.

On Tuesday, Sun President Butch Kerzner said the company now plans to spend only $15 million to renovate Resorts' 500 hotel rooms and make "modest cosmetic improvements" to the casino floor and lobbies.

Sun had planned to break ground late last year for The Beach Club, which was to include a new 600-room hotel tower, a re-themed casino, renovations to rooms and remodeled public areas.

But the company decided the costs would have outstripped the $150 million budget, Kerzner said.

"When you add up the construction costs being in excess of $150 million and probably in excess of $200 million, and add in the (loss of business due to) construction disruption, it's not a prudent use of capital," Kerzner said.

Because the renovations now planned will not significantly alter the hotel's appearance, it will retain the Resorts name, Kerzner said.

Two years ago, Atlantic City was the hottest location in the gambling industry.

When Mirage Resorts Inc. announced its plan to build here, several other companies followed suit. Circus Circus Enterprises Inc., Boyd Gaming Corp. MGM Grand Inc. and ITT Corp. all unveiled plans for casino projects.

But lawsuits over Mirage's land deal, opposition to a planned $330 million road-and-tunnel connector and other land disputes have stalled development.

Boyd and Circus Circus are suing Mirage for backing out of its agreement to share a 150-acre parcel. ITT Corp., which was purchased by Starwood Hotels & Resorts, canceled its plans for a $500 million Planet Hollywood casino and MGM is still struggling to assemble the needed land for its development.

"Sun's scaling back has to do with making sure the Atlantic City market's as firm as they believe it is," said Andrew Zarnett, a casino industry analyst for Ladenburg, Thalmann & Co. Inc. He also said Sun wants to focus on a large construction project at Atlantis, its Bahamas casino,

Bradford S. Smith, chairman of the state Casino Control Commission, called the move a wise one.

"A month ago, I looked at their plans for the new tower and renovation. I couldn't figure out from looking at it exactly how they were going to do that and maintain their revenue stream. I think what they're doing now is rethinking how they're going to go about recreating that property," Smith said.

Michael Pollock, an author who now writes a newsletter about the Atlantic City casino market, says the city remains attractive to developers because its location makes it accessible to millions of people in the East.

"Atlantic City has a lot of things going for it, but it's not Las Vegas when it comes to amassing land, getting permits and making sure the transportation in and out is there," he said.