Brookfield Asset Management is dropping its plan to buy Atlantic City's Revel Hotel Casino for $110 million, company spokesman Andrew Willis said Wednesday.
The deal fell apart over how much Brookfield would have to pay in fixed costs to the owners of the $129 million utility plant next door that chills water for air-conditioning, provides hot water, and distributes electricity to the $2.4 billion Revel, sources said.
The sale of Revel, which closed Sept. 2, putting more than 3,000 people of out of work, was expected to be completed by the end of this year. It was not clear when Brookfield, which intended to operate it as a casino, would have reopened it.
Protesting casino workers focused on preventing the closure of the Taj Mahal reacted with dismay when told about the Revel deal's end. "I think it's horrible, terrible for the people," said Harrah's waiter Al Tubertini. "The people need to look to 20 years for the future of the city, not just 20 minutes."
Atlantic City Mayor Don Guardian said, "I am sorry to hear that the Brookfield transaction was not completed."
The exit of Brookfield, if final and not part of a rugged negotiating strategy, would not just set back the restructuring of Atlantic City, but would also cost the Toronto investment company its deposit of at least $10 million.
However, Glenn Straub, the runner-up in the bankruptcy auction that ended Oct. 1, remains in the mix as the backup bidder approved by U.S. Bankruptcy Judge Gloria M. Burns. The judge will now likely have to preside over a new sale hearing, but it was not clear when that would happen.
Straub's final bid, before Brookfield was declared the winner, was $95.4 million. The Florida investor, who spoke at one point of turning Revel into an elite university, has been pursuing an appeal of the sale to Brookfield, arguing that Revel's lawyers did not follow proper auction procedures.
Burns said at the October hearing, during which she approved the sale to Brookfield, that overturning the auction would require proof that there was collusion that reduced the amount of money available to pay creditors.
"It's not about your client," Burns told Straub's attorney, Stuart J. Moskovitz. "It's about the estate."
Straub said Wednesday that he was still interested in purchasing Revel. "We didn't go through all this procedure to make $3 million," he said, referring the breakup fee he would have earned if the sale to Brookfield had been completed. Straub jump-started the process of selling Revel in early September when he agreed to pay $90 million for the property.
Wednesday's development was reported first by the Atlantic City Press.
Working out a deal with ACR Energy Partners L.L.C., which borrowed $118.6 million in the municipal bond market to build Revel's utility plant, has been central to Revel's bankruptcy and clearly had the potential to be a stumbling block in any sale.
That $118.6 million in bond debt made it unscathed through Revel's first bankruptcy last year, which wiped out $1.23 billion in Wall Street debt.
Revel is the only customer of ACR, which is a joint venture of South Jersey Industries Inc. of Folsom and DCO Energy L.L.C. of Mays Landing, N.J.
Revel started building the power plant in September 2008, but the casino's original owners ran out of money and halted all construction in June 2010. When ACR took over the utility project in 2011, it recognized that Revel was a risky proposition and demanded a 15 percent return on its equity in the first five years and 18 percent after that.
In all, Revel's agreement with ACR called for fixed debt and equity payments to ACR totaling $20.1 million annually, plus $4 million annually for operations and maintenance.
By contrast, Borgata, including the Water Club - with twice as many hotel rooms and a larger casino floor - had fixed payments of $11.7 million last year for its utility plant.
Without a deal to cut the fixed costs of the energy plant, Brookfield apparently decided the deal wasn't tenable.