Jones Lang LaSalle


From Saltwater Taffy to Louis Vuitton
By TERRY PRISTIN

ATLANTIC CITY — The shops along this city's storied Boardwalk tend to be modest establishments with names like Sully's Pizza and 99¢ Everything.

But soon, Gucci, Louis Vuitton, Burberry and Salvatore Ferragamo — brands that evoke Fifth Avenue and Rodeo Drive rather than rolling chairs and saltwater taffy — will be added to the mix. These luxury boutiques are among about 85 shops and restaurants that have signed leases at the Pier at Caesars, the gambling resort's first upscale mall, a glossy structure of three and a half stories that looks like a pale green ship jutting into the ocean. Linked to the casino by a skybridge, the pier will also house the city's first wedding chapel.

The lead developer of the pier, which is scheduled to open in June, is Gordon Group Holdings, a privately owned company in Greenwich, Conn., founded by Sheldon Gordon. Mr. Gordon created the Forum Shops at Caesars in Las Vegas, a project that seemed daring when it was built in the early 1990's. But the Forum Shops, with its gigantic talking "Roman" statues, went on to be among the top-performing malls in the nation and is credited as the catalyst for the transformation of Las Vegas into a destination for shoppers as well as gamblers.

Gordon Group and its partner, the Taubman Company, a real estate investment trust based in Bloomfield Hills, Mich., say that Atlantic City is poised for a similar metamorphosis. "This town is shifting already," said Scott Gordon, the company's president and Sheldon's son, in a recent interview in the construction trailer next to the pier. "There's enough meat on the bone for someone not interested in gambling to come here."

The pier — which received $43 million from the state Casino Reinvestment Development Authority and a $100 million construction loan from Eurohypo, a German bank that invests heavily in American real estate — will be the third heavily subsidized shopping center to open here since 2003.

That year, the Cordish Company of Baltimore opened the Walk, an outlet center in a previously drug-infested neighborhood. Another shopping center, the Quarter at Tropicana, has branches of the Palm and P. F. Chang chain restaurants, and a Las Vegas-style blue ceiling with clouds.
Today, the city is awash with hotel, casino and retail expansion projects and condo developments, but Wall Street analysts say that the pier is a gamble. "I would call it fascinating, very interesting and very creative as retail goes," said Matthew L. Ostrower, a REIT analyst at Morgan Stanley, "but I would also call it high risk. They are in uncharted waters here."

Mr. Gordon concedes as much. Some of the most sought-after tenants — no more than a handful, he maintains — will not pay a set rent but will be charged initially according to the sales they generate. The developers will also absorb much of the expense of creating the stores, a cost known as tenant improvement, or T.I.

"We don't build cookie-cutter projects that make sense to a lot of people when they first see them," he said. "We like going into underdeveloped, underappreciated markets, and we know we need large T.I. before we go out and talk to tenants. We know that going to Gucci and asking them to go to a market like Atlantic City is a reach."

Though Atlantic City had almost as many visitors last year as Las Vegas did (35 million, as opposed to 38.6 million, according to each cities convention and visitors authorities), there are striking contrasts between them. About two-thirds of Atlantic City's visitors are day-trippers, while visitors to Las Vegas stay an average of 3.5 days. Tourism generates $36.7 billion for Las Vegas, but only $6.5 billion for Atlantic City.

Real estate prices in nearby suburbs have escalated, but Atlantic City (population 40,500) remains poor, with a median household income of $27,000, compared with $42,000 for the nation as a whole, according to the 2000 census. Only 10.4 percent of Atlantic City's residents are college graduates.

Mr. Ostrower said that Taubman, whose relationship with Gordon began more than two decades ago with their co-development of the Beverly Center in Los Angeles, has also hedged its risk. The partnership, announced last year, required Taubman to invest only $4 million at first. A second payment of about $20 million is not due until six months after the project opens. The final installment will equal 7 percent of the project's net operating income in 2007.
"This is the way you structure a deal if you are worried about how well the property is going to do," Mr. Ostrower said.

But Robert S. Taubman, the chief executive of Taubman, said that the Gordon Group sought this arrangement to "capture most of the value creation."

There have been bumps in the road, however. As the cost of the project escalated — Mr. Gordon said the price tag is now about $200 million — the Gordon Group ran short of capital and Taubman declined to move up its payment schedule, said two participants in the negotiations.

The problem was resolved recently when Gordon got a loan of about $20 million from the Starwood Capital Group. Originally built a century ago as an amusement park known as the Million-Dollar Pier, the pier was converted in 1950 into an inward-looking shopping mall with T-shirt shops and other low-end retail. When Caesars bought the mall in 1996, the Gordon Group managed it for a few years. In 2003, Gordon signed a 75-year ground lease with Caesars, now owned by Harrah's Entertainment.

But it was not until the Borgata Hotel Casino and Spa opened in the city's marina district that summer and became an instant success that the company determined that it made sense to go after high-end retail tenants, Mr. Gordon said.

The city's first luxury hotel, Borgata has attracted a younger, more affluent crowd. "It's difficult to get in there on the weekend unless you're a rated player," said Warren J. Marr, the director of the hospitality and leisure consulting practice at PricewaterhouseCoopers, referring to serious gamblers.

Richard B. Hodos, a principal at Madison HGCD, a retail real estate consulting and brokerage company in New York, was originally skeptical about the project but wound up advising a designer to open a store at the pier. (The name of the designer has not been made public because the lease has not been signed.) "I know of no one who goes to Atlantic City," he said. "But when we looked at the average expenditure in the casinos, and the profile of the high rollers, in some cases it exceeded what we find in Las Vegas."

While the concept for the pier was inspired by the Forum at Caesars, the design was not. Rather, the goal was to take full advantage of the site, echoing the wood flooring of the Boardwalk and opening up the building to panoramic shoreline views.

"This is a different kind of mystical and romantic experience, a walk off the edge of the earth," said David P. Manfredi, a partner in Elkus-Manfredi, the architects who developed the original concept for the building and designed the exterior. (The Rockwell Group designed the common spaces.)

As a nod to the electric signs that created a sensation when they were installed on the Atlantic City piers in the 1920's, the new mall will be festooned with L.E.D. screens. A water show set to music is meant to draw visitors to the end of the long and narrow pier, Mr. Manfredi said.
Talking statues, however, will be nowhere in sight. "We didn't want to create a kitschy project," Mr. Gordon said.