Downstate casino bids by New York developers like SL Green and Vornado could be a lifeline as the companies’ traditional business is struggling. SL Green’s share values are the lowest they’ve been in ten years. For Vornado, it’s a 20-year low. They’ve become favorite targets for short-sellers as New York City offices sit empty.
SL Green’s stock is down 65% in the past year and 78% since the start of the COVID-19 pandemic. Meanwhile, Vornado’s stock is down 62% in the past year and 80% since the pandemic.
Office occupancies have stalled at around 50% of pre-pandemic levels. The biggest office clients used to be tech companies, which leased larger spaces in anticipation of growth. That has changed, as many tech employees now work from home.
New leases have typically been for smaller spaces or shorter times. And short sellers are compounding the stock issues, particularly for SL Green.
The stock prices reflect the need for diversification. While competitors are looking at residential buildings, SL Green and Vornado are aiming higher.
Both companies have put in ambitious bids for a downstate casino in Manhattan. A winning bid would be a high-risk bet with enormous revenue potential. Last year, the New York Gaming Commission announced it would issue three downstate casino licenses. SL Green jumped on board right away, while Vornado was hesitant at first but entered the race later.
A casino bid is a high-risk, high-reward scenario. The companies face stiff competition for licenses and resistance from local residents and organizations.
Details On The Casino Bids
Both companies have big plans in iconic NYC locations. SL Green teamed up with Caesars Entertainment, one of the largest and most recognizable gaming companies, for a Times Square casino.
The partners call the location perfect for a casino. The project would bring billions in profit for the city and state while boosting the local economy. The bid got backing from many celebrities, including Jay-Z and his Roc Nation company. The entrepreneur and rapper recently wrote an open letter asking NYC residents to support the proposal and “honor the city of dreams.”
Vornado is looking to transform the Penn Station area. The company’s development of five office buildings is part of the city’s General Project Plan (GPP) to improve the neighborhood. The future NYC casino would be built at the site of the historic Hotel Pennsylvania. The hotel is set to be demolished later this year.
While Vornado hasn’t confirmed its casino partner yet, reports suggest it would be Neil Bluhm. He is the founder of Rush Street Gaming, the parent company of BetRivers Casino.
Diversifying Into Casinos Could Pay Off Big
With the office space sector’s future unclear, many commercial real estate companies are looking to other areas to compensate for lost revenue.
In 2021, Empire State Realty Trust, an owner of office towers, including the Empire State Building, entered the multifamily sector for the first time. Boston Properties, one of the largest office landlords in the nation, plans over 2,000 residential units along the East Coast. Even Vornado’s casino projects include over 1,000 residential units. Other casino bids also plan residential units, including Soloviev’s Freedom Plaza, which would have two residential towers.
A casino could be the solution for the winning bidder. According to the world’s largest commercial real estate company, CBRE, New York’s annual casino revenue potential is $2 billion, with profits of up to $600 million. That could be a game changer for real estate companies.
Both SL Green and Vornado CEOs mentioned casinos on their recent earnings calls. They said that a Manhattan casino is something they will aggressively pursue. However, they must win their bids in a crowded field.
Casino Bids Face An Uphill Battle
Going into the NYC casino bidding war was an uphill battle to begin with. There are 11 casino bids, but two might be ahead of the rest. Many expect the two existing “racinos,” Resorts World New York in Queens and Empire City Casino in Yonkers, to get two licenses. The racinos have many of the requirements already in place.
If that proves to be the case, that leaves nine bidders and only one remaining license.
Whoever gets the license will spend at least $1 billion, including a minimum of $500 million for the license itself. But if CBRE’s estimates are correct, the winner could recover that investment in a matter of years.
With that much money on the line, it takes more than submitting an application. Lobbyists and consultants are hard at work and earning millions from bidders seeking to get ahead of the competition.
That includes a reported $2.7 million from Genting Group, owner of Resorts New York. Reports also suggest that lobbyists have connections with multiple bids, creating a complicated political game. Some proposals also try to convince officials with plans of enhancing the surrounding areas with green space, transportation, and infrastructure improvements.
Local Organizations And Residents Don’t Want Casinos
There is also major pushback from residents and local businesses. In the last earnings call, SL Green CEO Marc Holliday said the bid has local support. However, a coalition of Broadway theater owners, producers, and local organizations oppose the Times Square casino. The alliance is urging state officials to reject the bid. They say a future casino would break the Broadway ecosystem and take away earnings from theaters, restaurants, and local shops.
Vornado is facing backlash from community organizations and tenants facing eviction. In October, local residents and organizations filed a lawsuit against Empire State Development, the government agency in charge of GPP. The plaintiffs claim the agency failed to answer basic public questions and was unfairly influenced by Vornado. The lawsuit aims to annul the agency’s approval of the development plan.
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