* 7/12/24 - Crains - Bally's lands nearly $1B in casino financing in exchange for future ownership...........................
Buzz Sawyer
Bally's lands nearly $1B in casino financing in exchange for future ownership
Bally's has lined up $940 million in financing to build a massive casino and hotel complex along the Chicago River, a deal that hands future ownership of the property to a real estate investment trust but clears a major hurdle that sets the project on track for a 2026 debut.
The gambling giant said today in a statement that it has signed a term sheet for the construction funding from Wyomissing, Pa.-based Gaming & Leisure Properties that creates "a strategic alliance on the Chicago casino and hotel tower construction development." In a separate news release, GLPI also announced the deal and disclosed that it will own the entire property and lease it back to Bally's as the casino operator.
The announcement also included new renderings showing a redesigned casino building and a 34-story, 500-room hotel that has been restored to the project's design along the casino's southern edge. Underground infrastructure issues forced the company earlier this year to scrap its original plan for the tower along the property's northern edge.
Providence, R.I.-based Bally's announced the financing just days after it formally took control of the 30-acre Chicago Tribune Freedom Center printing plant site at 777 W. Chicago Ave. that will be redeveloped with the casino project. The company said its demolition contractor began this week with preparation to raze the building.
Landing the money to begin the project could help Bally's overcome skepticism from critics that doubted its financial capacity to take on the massive project. The company disclosed in March that it was staring down an $800 million "funding gap" it needed to close to begin work on the project.
That challenge appeared daunting at a time when many real estate developers are grappling with higher interest rates over the past two years and a tight lending environment that has hampered new construction, particularly for ambitious projects like the casino. Some skeptics also questioned how motivated Bally's would be to begin work as it operates a temporary casino that opened in September at the Medinah Temple building in River North.
An agreement that Bally's signed with the city of Chicago dictates that the permanent casino must open within three years of opening the temporary one, though it's unclear how strictly the city would enforce the deadline.
“With keys to the property in hand, the new financing secured, a site plan that exceeds the original, and demolition set to start this summer, let there be no doubt that Bally’s Chicago Casino and Hotel will soon rise up along the Chicago River,” Bally's President George Papanier said in the statement.
Securing the financing for the Chicago project came as part of a larger arrangement that will restructure other parts of Bally's portfolio. In addition to the $940 million in financing — which comes with an 8.5% initial interest rate — funding for the casino will also come from a $395 million sale-leaseback of Bally's casinos in Kansas City and Shreveport, La. to GLPI. Other project financing will come from a planned initial public offering tied to Bally's Chicago shares and cash flow from casino operations, according to GLPI.
Bally's hinted at a potential sale-leaseback structure for the Chicago project earlier this year, noting casino operators typically work with GLPI and similar funding partners that traditional commercial real estate developers don't. GLPI frequently provides construction financing for casino operators like Bally's and strikes deals to own assets that they lease back to the casino companies.
Bally's struck a similar deal to purchase the Freedom Center site. The company agreed to acquire the land through a 2022 sale-leaseback arrangement with Chicago-based investment firm Oak Street Real Estate Capital. Oak Street and its New York-based parent company, Blue Owl Capital, also committed to "fund up to an additional $300 million" for development of the casino project as part of the deal.
Under the new agreement with GLPI, the REIT will pay $250 million to acquire the land from Oak Street, according to the GLPI statement. A new ground lease between the casino ownership and the land ownership will have an initial 15-year term and 8% cash yield, the company said.
“We are delighted to partner again with Bally’s on this series of highly attractive transactions that will benefit our shareholders and represent a win-win for both parties," GLPI Chairman and CEO Peter Carlino said in the statement.
It's unclear whether the deal with GLPI requires further review from the Illinois Gaming Board, which granted Bally's a license for the permanent casino in October. The gambling regulator, however, may already be familiar with GLPI. The company has relationships with other Illinois casinos in Alton, Rock Island, Rockford, Joliet and East St. Louis, according to the company's website.
A spokeswoman for the Illinois Gaming Board did not immediately respond to a request for comment.
The return of a hotel tower comes after consternation around the design change earlier this year, which Bally's chalked up to "unforeseen infrastructure issues." City water pipes below the Freedom Center prevented construction of the planned 37-story, 500-room hotel along Chicago Avenue north of the casino.
Bally's subsequently got the city's Department of Planning & Development to approve a redesigned project that instead included a three-story, 100-room hotel atop the casino complex's northeast corner and a separate 400-room hotel at a different location on the site that was yet to be determined.
That change fanned the flames of public criticism that have grown since former Mayor Lori Lightfoot announced in May 2022 that Bally's won a bidding process to develop the casino. Downtown aldermen are among those that have said the Bally's selection lacked proper input from City Council and alleged Bally's had received preferential treatment in the bidding process from the Lightfoot administration. The process has drawn inquiries from the U.S. attorney's office and Chicago's inspector general.
The newest design of the casino building with the hotel tower is still subject to approval from city planning officials.
“The City is pleased with this development concerning the financing and construction of Bally's Permanent Chicago Casino,” Mayor Brandon Johnson said in a statement issued after the Bally's and GLPI announcements. “We look forward to reviewing the updated plans and proceeding through the review process with the Department of Planning and Development."
Bally's said the casino complex is slated to include a 3,000-seat theater, six restaurants, a food hall and cafes and a 2-acre public park. The design includes a roughly 2,000-foot-long riverwalk running south from Chicago Avenue.