Aug. 12, 2011--ATLANTIC CITY -- First, it lost the right to use the iconic Hilton name. Now, it seems no one wants to buy Atlantic City's smallest casino -- not even at a bargain price.

Unless a new owner comes to the rescue, gaming analysts predict the Atlantic City Hilton Casino Resort may not be able to hang on much longer.

Andrew Zarnett, who tracks the casino industry for Deutsche Bank, doubts the Hilton can be saved. The casino's multimillion-dollar losses and Atlantic City's shrinking marketplace likely will force it out of business, he believes.

"It can survive for a time, but not for a long time," Zarnett said bluntly.

Bradford Smith, a New Jersey gaming consultant and former chairman of the state Casino Control Commission, also thinks the Hilton's future is bleak unless a new buyer revitalizes it.

"It will take a lot of work," Smith said. "It is a difficult situation."

The Hilton has been unable to find a buyer since it went on the market months ago. Lenders led by the U.S. National Bank Association put foreclosure proceedings on hold in January after reaching agreement with Hilton owner Colony Capital LLC to sell the Boardwalk property.

The sale has been complicated by the recent decision by Hilton Hotels & Resorts to sever ties with the casino, meaning the Hilton brand will be stripped off the building. Hilton Hotels confirmed in June that it had ended a licensing agreement that allowed the casino to use the Hilton name. Hilton Hotels did not divulge the reason for the move other than to say that it wanted to "protect our name and identity."

For the time being, the Hilton moniker is off the slot machines, but remains on the casino hotel and its table games. It will have to come off those eventually. Already, the Hilton has begun referring to itself as "ACH" -- an acronym for Atlantic City Hilton -- on its website, show tickets and promotional literature. Calls to the casino are answered with the greeting "ACH."

When asked for clarification, casino spokeswoman Tina Belluscio said in an email that the Atlantic City Hilton Casino Resort remains the formal name until further notice.

Any buyer would face the expensive task of rebranding the casino. It will cost millions just to take down the old Hilton signs -- some have already been removed -- and install new ones that have the casino's new name.

"It is expensive to give a property a name change," said Michael J. Viscount Jr., an attorney with Fox Rothschild in Atlantic City who has been involved in bankruptcy cases for casinos and other hospitality industries. "You have to change every pen, every piece of paper, every website. The signage is an astronomical expense. If they don't change it, they would have to put a cover over it."

Analysts point to the recent sale of two other money-losing Atlantic City casinos as a benchmark for the Hilton's possible price tag.

Resorts Casino Hotel sold for $31.5 million in December, while Trump Marina Hotel Casino fetched $38 million when it was sold in May and rebranded as the Golden Nugget Atlantic City.

The Hilton was valued at $513 million when it was purchased by Colony Capital in 2005 as part of a $1.24 billion deal for four casinos in New Jersey, Mississippi and Indiana.

Even in the $30 million price range, the Hilton's buyer would be taking a huge gamble. The Hilton suffered an $18.9 million operating loss last year and was $7.3 million in the red through the first quarter this year, making it Atlantic City's worst-performing casino.

The buyer also would be saddled with the Hilton's financial liabilities. The Hilton is being shopped as a "stock sale," meaning the financial obligations will go with the casino hotel -- including the labor contracts, unfunded pension liabilities, payments to vendors, lawsuits, and any unpaid real estate taxes.

"It has to do with successor liability for the buyer," Viscount said. "If you're doing a stock sale, then, after the transaction is done, the old entity still exists and the liabilities go with it. The reason the seller wants to do a stock sale is because he wants to make a clean break and move on and never have to think about it again."

The sale process has been conducted in secret by investment bank Houlihan Lokey on behalf of the lenders. Michael Coster, a senior vice president at Houlihan Lokey who is overseeing the sale, declined to comment.

Lisa Baker, a public relations representative for Colony Capital, said the company would not comment on the sale and name change. Nicholas L. Ribis, Colony's partner who has served as the casino's vice chairman and chief executive officer, also declined comment.

The Hilton sale comes as Atlantic City continues to struggle with the fragile economy and stiff competition from surrounding states. Atlantic City's real estate values have plummeted during the economic slump.

Atlantic City gaming revenue has plunged 30 percent from a high of $5.2 billion in 2006 to $3.6 billion in 2010. It is down an additional 7 percent through the first six months of this year.

Of Atlantic City's 11 casino hotels, only the Golden Nugget and Trump Plaza Hotel and Casino are pulling in less gaming revenue than the Hilton. Through the first six months of 2011, the Hilton has grossed $74.1 million from its slot machines and gaming tables, down 8 percent compared to a year ago.

The Hilton's financial troubles became evident when it stopped paying its mortgage in July 2009. For a while, lenders tried forcing the Hilton into foreclosure. Then the decision was made to sell it.

The Hilton's fate may mirror that of former sister property Resorts Casino Hotel, which was once owned by Colony Capital. Lenders took charge of Resorts in 2009 after it defaulted on its mortgage. Resorts was rescued when gaming executive Dennis Gomes and New York real estate magnate Morris Bailey acquired the casino in December for $31.5 million, a fraction of the $140 million that Colony paid to buy it in 2001.

There is a huge difference, however, between the way the Resorts and Hilton sales are structured. Unlike the stock deal being pushed for the Hilton, the Resorts transaction was an "asset sale" that allowed Gomes and Bailey to buy the buildings, gaming equipment and property without inheriting the financial obligations of the former owners.

Other challenges confront the Hilton in addition to the search for a new buyer. Among them, the Hilton is limited by its somewhat remote location at the southern end of the Boardwalk casino district.

"The biggest concern I have is that you can't walk to another casino," said Hilton customer Doris Nacrelli, 83, of Ocean City. "The trip is one hell of a walk."

The Hilton completed a $20 million renovation last year that included four new restaurants and a remodeled gaming floor. Despite those improvements, the Hilton is hampered by its small amount of casino space and hotel rooms.

At just 75,416 square feet, the Hilton's gaming floor is the smallest in Atlantic City. The Hilton has 809 hotel rooms, the second-smallest number in the casino industry, figures compiled by the New Jersey Division of Gaming Enforcement show. The Hilton has room to grow on adjacent property it controls along Pacific Avenue, between Boston and Sovereign avenues.

Thirty years ago, the Hilton's predecessor was the casino that put some glitter on the Boardwalk. When the casino first opened in 1980, it was called the Golden Nugget, a glitzy resort owned by Las Vegas gaming mogul Steve Wynn. Known for its upscale surroundings and high rollers, the Golden Nugget was one of Atlantic City's most successful casinos.

When Wynn sold the casino in 1987 for $440 million, it began a succession of name changes and different owners. At one point it was known as Bally's Grand and later The Grand before Hilton Hotels Corp. took ownership in 1996. After Colony bought the property, the Hilton name remained on the casino through a licensing agreement with the hotel chain.

The luster of the Golden Nugget era has faded into history. Now, the place has a quaint feel to it. A small, landscaped park decorated with a white gazebo and old-fashioned lamp posts complements the outside of the building along Pacific Avenue. Yet some touches give hints of Golden Nugget-style opulence: Large, ornate chandeliers hang from a barrel-vaulted ceiling decorated in gold-hued glass.

Herb Silow, 68, of Hasbrouck Heights, Bergen County, said he catches a bus to Atlantic City five times a week to gamble at the Hilton. But even a loyal customer such as Silow was quick to criticize the Hilton.

"It's pretty dead," he said on a recent afternoon. "It's not exciting. There's no liveliness. No wonder they can't find a buyer."

Contact Donald Wittkowski:

609-272-7258

[email protected]

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