Experts at Urban Redevelopment Set to Open First Casino in Maryland

In the early 1970s, the city of Baltimore, like many American cities of the day, was concerned about urban decay. Many of its most affluent and influential citizens were leaving for the suburbs, abandoning the poor and destitute gathered around a decaying city core. For Baltimore, the answer was to redevelop its waterfront as a tourist attraction, creating what we now call a “multi-use” area of shops, bars and restaurants, hotels, and upscale housing in a safe and clean environment. The company the city turned to was a homegrown real estate developer, the Cordish Company.

“Most people didn’t even know there was a waterfront in Baltimore,” says David Cordish, who was running the business founded by his grandfather in 1910. “Baltimore city, back in the ’70s, was a disaster. There is no other way to sugarcoat it. We hadn’t had a new hotel built in 40 years, and five had closed. We hadn’t had a new office building in the same amount of time. So a public-private partnership was formed and the program was to start from the waterfront, which at that time was abandoned piers and banana boats.”

Cordish and the city worked together in a partnership that developed
the “Inner Harbor,” a revival of an area that had consisted of abandoned warehouses, collapsing piers and sunken vessels.

“The first thing we did,” explains Cordish, “was to install bulkheads in the entire area and develop a master plan. We brought in people who would develop different plots and fill in where there were no developers.”

The turning point was luring the National Aquarium, expanding the “public” portion of the equation to the federal government.

The results completely transformed Baltimore, changing its image from a gritty, run-down Eastern port to a hip tourism destination. The opening of the original retro baseball stadium, Camden Yards, a decade later spread the development across a wide swath of downtown, creating a template that countless other cities have copied over the years.

For Cordish, it attracted national attention at the highest level. He was hired by President Jimmy Carter to chair a federal program, the Urban Development Action Grants, which would fuel the development of other afflicted cities with an $800 million budget. The appointment continued through the administration of Ronald Reagan, and Cordish became something of a rock star in development circles.

“I had taken a leave of absence for that time,” he says. “When I got back, the phones didn’t stop. And it would be mayors, governors, senators, redevelopment directors who called us to ask for help.”

Today, the Cordish Company is a vibrant mix of development expertise, with divisions covering gaming and lodging, shopping centers, entertainment and mixed use, residential and student housing, sports-anchored developments, office complexes and much more. And despite his 70-odd years, Cordish says his team is young.

“My sons are all heading a division and most of our executives are in their
40s,” he says. “So they understand the culture today and how to best develop for success.”

Unlike other shopping center and entertainment developers, Cordish owns some of the retail and dining outlets, particularly the “Live!” venues that feature dining and entertainment. Cordish says that division employs more than 10,000 people.

“It gives us an understanding of what our tenants are facing,” he says. “It gives us quality control, and it allows you to fill in amenities where the marketplace, for whatever reason, might not understand. So, if we want to have a 2,000-seat live performance hall, and there’s nobody in the tenant world interested, we just do it ourselves. And that’s what led us into the gaming. It’s the perfect complement to gaming. And we know how to do it, we know how to operate it.”


THE CORDISH TREATMENT
Just some of the cities that have benefited from the Cordish magic are Louisville, Kansas City, Philadelphia, Omaha, St. Louis and Houston. There are many others.

The Cordish formula was to blend retail and dining with entertainment, creating an excitement and a center of attention within each of the cities.

But it wasn’t until the company got involved with the Seminole tribe of Florida that Cordish experienced a “revelation.” The company developed and built the two Hard Rock casinos, one in Tampa and the other in Hollywood, that duplicated the Cordish formula of dining, retail and entertainment, but added the gaming element.

Joe Weinberg is president of the gaming and lodging division for Cordish.
He says that the Hard Rock developments weren’t that much of a departure from what the company did normally.

“Looking at gaming as one component of an overall resort entertainment district,” says Weinberg, “was something that really came naturally to us, and something we were uniquely qualified for, because we had more expertise than most in those areas, for many decades.”

The Seminole experience opened Cordish’s eyes to gaming and its potential in this business.

“With our naiveté coming into the gaming business,” says Weinberg, “the
Seminole Hard Rocks have become the most profitable gaming enterprise in the United States—more profitable than Caesars or MGM or Wynn or Sands. So, that definitely gave us a little bit of confidence in our perspective on the industry, that there was something to it.”

Following the Seminole projects, Cordish was contracted to build and manage
Indiana Live!, a racino at Indianapolis Downs. (The casino recently changed its name to Indiana Grand, since Cordish owns the “Live!” brand.) Weinberg says the company learned another lesson there: it’s better to be owners than managers.

“The project was quite successful, on an operating basis,” he says, “both in terms of the margins, and one of the highest wins per unit in the entire Midwest. But the facility had taken on too much debt, unrelated to the actual casino itself, and so subsequently got into some issues with the amount of debt it was carrying.”

Cordish explains that the debt was a result of a $250 million license fee charged by the state, the highest in gaming history.

“Market surveys had said we would have 47 percent of the market, and
Hoosier racetrack (also home to a casino) to the north, which is in a very nice area, more population, would have 53 percent,” explains Cordish. “But once we opened, it was reversed. We got 53 percent and they have 47. So that’s six points, because of what we did, how we built and designed that property. Our win per day was excellent—well up into the 300s. But it can’t sustain where you spend $250 million for a license.”

The split from the owners of the racetrack and casino was ugly, and is still getting resolved.

“What I learned is I’d better look more closely, because their problem becomes your problem,” he says.

Taking the lessons learned in Florida and Indiana, Cordish bid on a state-owned casino at Kansas Speedway.

“We beat out companies like Las Vegas Sands, Mohegan Sun, Pinnacle and Golden Gaming,” boasts Cordish. “Not bad for a small company.”

But in the planning process, Cordish was approached by officials of Penn National Gaming, who made him an offer he couldn’t refuse.

“They’re great Americans, and we wish them well,” he laughs. “They’ve done a nice job with the whole thing, and we couldn’t be happier for everybody involved.”

Ironically, Penn National became Cordish’s competitor in an area where he’s very well-known—Maryland.

In a state where a company can own only one casino, Penn National won the state’s first license, for a casino in Perryville, near the Delaware border alongside busy I-95. But the company later reached an agreement with Magna Entertainment, the owner of the Laurel Park in Pimlico racetracks. And, since Cordish had already won the license for the Anne Arundel County area, Penn was blocked from establishing gaming operations at Laurel Park. The company then erected a series of legal challenges, including a referendum, which Cordish won.

EXPANDED OPTIONS
Cordish says expansion of the company is on the agenda, but it has to be the right situation. He’s eyeing the situation in Massachusetts but has not committed to any group or location.

Cordish is candid about one area and one specific property where he would be interested.

In Atlantic City, the Cordish Company built probably what has been the most successful development of the last 10 years, the Walk outlet mall. Despite many skeptics, the Walk has become one of the most successful outlet malls on the East Coast.

“It’s also a perfect example of what we do as a company,” says Weinberg, “and how we have a little bit different perspective on these developments, both gaming and non-gaming. Atlantic City is a market where everybody said non-gaming would never work. Before we got there, there were three public real estate companies that had started and never got out of the gates on that project. But because of our understanding of these markets and how you design the right product for the right market, we were the first ones to look at that Walk project and say, ‘Let’s build the city that should exist in Atlantic City.’ Everyone before us was looking at building a mall.

“We wanted to take advantage of the street grid within Atlantic City. Nobody thought people would walk the streets in Atlantic City, because of safety reasons. But because we work in cities, we understood that safety is a factor of the numbers of people around you. The more people you have around, the safer the location is going to be. So by building that project within the street grid in Atlantic City, and putting the right product in place, it worked for Atlantic City. So we have an understanding from a design perspective, from a product perspective and an operational perspective of what belongs in what place. It’s a very unique perspective that we have on all of our projects.”

Cordish sees more opportunities there. Although the company sold the first three phases of the Walk to Tanger Outlets, Phase IV of the Walk—an entertainment and dining hub—holds promise because of its proximity to one of the city’s struggling casinos.

“There’s no reason to be coy about it,” he admits. “We’ve been interested in Atlantic City for a while.

“When the Tropicana filed its bankruptcy, and was, in effect, taken over by the state and the gaming commission, they did an RFP and we were selected. But Carl (Icahn) came in and scooped it up. He’s a friend of mine. I don’t begrudge him. He bought the debt. And so, in effect, our bid was canceled. But I only cite it to you to show you my interest.”

Cordish says he’s had discussions with the Trump organization about buying
Trump Plaza, but can’t yet come to an acceptable price. Cordish believes that if combined with the planning for Phase IV of the Walk, the Plaza could transform the center of the Boardwalk, giving him the casino he wants and making a direct connection to the Boardwalk for the Walk, which is now two blocks away.

“You can’t see the convention center from the Boardwalk, and vice versa.
You have a wall of casinos, which wouldn’t be so bad, but you have a wall of casinos backed by a wall of garages. And so you have a disconnect. And if I had the Plaza, I would open that up so that literally you could see it from the Pier at Caesars, which needs help. You could see and walk all the way from the Boardwalk, into the Walk, to the convention center. They would all hook up, and that would be enormous. It’s an idea that I want to do, but you need to have a willing buyer and a willing seller, and they own the property and they have their rights.”

Weinberg outlines how any Atlantic City project would have to work.

“We’ve looked long and hard at the Atlantic City market, and it’s something that at the right time we might consider, but for us the numbers have to work,” he explains. “We don’t do it for the ego. We’re not a public company; we don’t have to do it to show any growth. So we do projects that we think make sense financially, and to which we can bring a strategic advantage.”

The Cordish Company is also involved in another gambling mecca, Las Vegas. The company has an exclusive contract to come up with a plan to develop the part of the old Union Railroad yards into an arena with an entertainment complex. While the question of a new arena has been nagging Vegas for years, with many plans announced and later scrapped, Cordish believes it will happen.

“I think we can pull it off, and I think Las Vegas can have professional teams in a new arena,” he says. “I think it’s got the population, it’s got the visitors. So, you know, in today’s economy it isn’t the easiest thing. But I think it’ll happen.”

Weinberg says the Cordish principle of cooperating with cities that want an urban revival has worked great.

“We look at it as a partnership with the local and state governments where we develop,” he says. “So for us, it’s important that we have buy-in from all levels of government before you do a project. We like to sit down, and make sure that our vision is consistent with the vision of the local governments. And we outline exactly what it will take to get a project completed, because, from our perspective, to just talk about it, or to have it go on and on for years and not happen, doesn’t do anyone any good.”

Cordish is also interested in Massachusetts. He says the company would ideally partner with the developer of the one racetrack casino permitted in the state, but is still trying to find the right situation.

Cordish is nothing if not patient. And that patience extends to an area of the world made for a company that brings such a wide variety of tourism options to the table: Asia.

“We have a background in all elements of development, so we do urban mixed-use developments, we do hotels, office, retail, entertainment, dining,” says Weinberg. “We have a division that owns and operates restaurants and live music venues around the country, in addition to the gaming. So we’re able to look at a marketplace and analyze it and understand which components make the most sense in each market, and how to maximize both the consumer experience and our return on investment in these projects, because we understand what mix of uses to put in what locations.

“We are aggressively looking at international opportunities. I don’t think it’s any secret that a lot of the potential growth in our industry is overseas. And so we’re looking very hard at Asian markets and other markets around the world.”

Cordish says it would be a mistake to minimize or underestimate his company.

“We’re in the game to stay,” he says. “We think we’re well-equipped. There are only a few of our competitors that have money like we do, and we’re very liquid.”


Maryland Magic: Cordish to Debut One of the Nation’s Largest Casinos in Suburban Baltimore
If there’s one jurisdiction the Cordish Company knows better than any other, it’s its home base of Maryland. So when Maryland legalized gaming in 2008, it was a foregone conclusion that Cordish would bid for a license.

Most people assumed that since the company was born and raised in Baltimore, that Cordish would go after the license in the city. But with a 67 percent tax rate and a separate payment to the city of Baltimore on top of that, Cordish aimed at what the company considered the most lucrative license available, the one designated for Anne Arundel County.

Although there was no provision in the law for specific racetrack locations, Laurel Park Racecourse, a thoroughbred track located in Anne Arundel County, was thought by many to have the inside track on that license.

But no one knows Maryland politics—and markets—like David Cordish, the company’s chairman and CEO. Nestled next to Arundel Mills Mall, the most popular tourist attraction in the state (14 million visits annually), the site for Maryland Live! is also in the middle of one of the must affluent counties in the country, just south of Baltimore near the international airport. The market for the casino is virtually untapped, and extends in a cone-like shape towards suburban Washington.

Rob Norton, the president and general manager of Maryland Live!, believes it could be one of the most successful casinos in the country, with a total investment in excess of $500 million. It certainly will be one of the largest.

“We’ll open in June with 3,100 machines,” he says of the currently slots-only casino, which is permitted 4,750 games when fully open in the fall. “I can’t find another casino anywhere that opened with that many slots.” Of the five casinos in Maryland, two are currently open: Penn National Gaming’s Hollywood Perryville on I-95 just south of the Delaware border; and Ocean Downs racetrack, outside of Ocean City on the state’s Eastern Shore. (The other two locations are in Baltimore, where the partnership of Caesars Entertainment and Rock Gaming have apparently won a license, and Rocky Gap State Park in the far western corner of the state, with Lakes Entertainment taking control there.) Norton believes the casino most impacted, however, will be West Virginia’s
Charles Town, also owned by Penn National, in the eastern part of the state.

“I think Perryville will also be impacted, to some extent, and so will the Delaware properties, because they both pull from the Baltimore area as well,” Norton says. “But I think Charles Town pulls from both Baltimore and Washington, D.C., which are both segments of our target market.”

But with one of the highest tax rates in the United States, Maryland Live! will have to be creative when it comes to marketing and rewarding customers. Norton says the rewards program will be equivalent to the competition.

“We will have a reward structure,” he says, “but when you are operating in a 67 percent tax bracket, everything has to be reevaluated. The one thing that we do have going for us is that free play is not counted into gross revenue, similar to Pennsylvania. So although we don’t get a marketing subsidy from advertising like West Virginia or New York gives, we do have the ability to use free play and reward people based upon free play, because it’s not taxed, since it’s not part of gross revenue.”

But Norton says most casinos in the market operate on a level playing field.

“You have to remember who we’re competing with around here,” he explains.
“We’re competing against West Virginia, which has a tax rate in the mid-to-high 50s, as well as Pennsylvania and Delaware, which are both are in the mid-to-high 50s. So I think we’ll be fine, from a competitive point of view.”


THE NAME GAME
Norton says the name of the casino is the Cordish signature.

“The Live! brand really is a very powerful brand,” he says. “If you think about all the different Live! venues that exist around the country, here in Inner Harbor, at the Power Plant Live!, and Louisville Live!, they’re all over, and I think the real crux of the Live! brand is that it is just that: it is excitement, it is live.”

Even with the adjacent mall, Maryland Live! has a wide selection of non-gaming amenities. Like all Cordish developments, restaurants play a big role at Maryland Live! Bobby Flay brings Bobby’s Burger Palace as the property’s nod to the “celebrity chef” trend. Area favorites like the Eastern Shore’s Phillip’s Seafood and Baltimore steakhouse the Prime Rib are combined with one of America’s most popular family restaurants, the Cheesecake Factory. A Live! Market Buffet completes the lineup.

Since Cordish is all about entertainment, the facility features several lounges and the R Bar, a lounge that features electronic roulette as part of the attraction. The Ram’s Head Center Stage is a 500-seat theater that will present live music and comedy in the heart of the casino.

Norton says the company has more land to develop, but that currently a hotel is not needed, since there are 1,400 hotel rooms within minutes of Maryland Live! That said, Norton says there is a master plan for the property that includes hotels, convention and meeting space, and more. With a price tag in excess of $500 million and a high tax rate, some question whether there’s enough market and revenue to succeed. Norton says the company is comfortable with the finances.

“We put a lot of work and effort into the feasibility studies here,” he says.
“And I think all of our projections and forecasts are on the conservative side,
and the finances make absolute sense on the very conservative side. So I think
there’s a lot of potential upside because we didn’t overestimate what we could
earn here.”

 “I’m proud of the fact there’s no loan,” he says. “It’s almost ready to open and we haven’t borrowed anything. How many gaming companies can say that?”

Joe Weinberg, who oversees the project as president of the Cordish gaming and lodging division, says the construction process has gone smoothly—and quickly. “The Maryland Live! facility will have gone from start of construction to opening in 12 months,” he says. “So that’s 2 million square feet in 12 months, from soup to nuts. After going through all the political attempts to slow down the project through referendums and court cases, we will get it up and running in one year. So yes, we’re proud of what we’ve accomplished here.”

SLOT SENSE
One of the oddities of some of the high-tax gaming states is that the state government owns the slot machines. In Maryland, like some other states, state officials arrange the purchase of the machines. While this sounds like a disaster waiting to happen, Norton says that was not the case with Maryland Live!, but it was a different kind of operation than he was used to at his previous stops at Isle of Capri Casinos and MTR Gaming.

“It’s the first time I’ve operated in a state where they have purchased the machines, and the state was so actively involved in the procurement and selection,” he explains. “Obviously, you have to start with the fact that we’re the highest effective tax rate in the country. But in reality, after you get past that, the state’s actually very good to work with here. They’ve truly taken the partner approach, and I look forward to them continuing that attitude and that direction, because it makes the day-to-day operation, even in a high-tax jurisdiction, enjoyable.”

It turns out that rather than outright purchases, the state leased all of the
slots, giving it the opportunity to rotate to new machines and game themes as
they become available.

“We have selected machines from 12 different manufacturers in this
property,” he says. “We did have to get a couple licensed, but the state was
willing to work with us on manufacturers that were not licensed when we
started the process. So I honestly feel, at the end of this process, we have
probably the best slot floor in the country.”

The partnership with the state was very productive, says Norton, even
though the state technically decides what machines to buy.

“The final decision on purchases is the state’s decision,” he says. “However,
they leaned on our suggestions heavily. We ran a complete market assessment
and analysis, and presented that to the state with what we thought
was the best mix and why we thought it was the best mix. They agreed with
our assessment and went forward with making the selections based upon
that.”

While table games are currently not permitted in Maryland, Norton
says he knows where tables will go if a bill ever passes legalizing them. In
the meantime, he’s got a wide selection of electronic table games.

“We’re installing a full pit of Interblock games that have proven to be
popular with players,” he says. “Those games are using real decks of cards
and dice. It’s a technically a machine because the random number generation
is being driven through the shuffler and the dice.”

Technology, however, is part of the allure of Maryland Live!, says Norton.

“Look at the technology that we’re employing in the facility,” he says.
“The integrated media systems that we have can actually tie to the games
and bring the images up to the screens and be able to coordinate with actual
shows. The outside of the casino is simply a wall of video screens that is completely programmable. It’s all coming in here. Sometimes the electronics are just part of the décor. At Maryland Live!, it’s part of the event. So you know we’re going to deliver excitement to our customers.”


MARKET PENETRATION
With most Northeastern casinos, the core customers can be targeted by drawing a 20-30-mile circle around the facility. That’s not much different with Maryland Live!, but Norton believes his property can penetrate down into the affluent suburbs of Washington, D.C. With Charles Town being the closest casino, at about 50 miles, Norton is planning on marketing heavily to that market, whether it’s print, TV or sports sponsorships. It’s built into the property’s master plan that was based on the original legislation that limited casinos to five locations.

In April, however, the House and Senate considered a bill that would create a
sixth casino location, in Prince George’s County, an eastern suburb of Washington — an option that would upset all the projections made for Maryland Live! The Cordish Company is adamantly opposed to such a bill, saying another casino location isn’t fair to the companies that won bids under the stipulations of the original law.

“The Prince George’s bill is extremely unfair,” he insists, “particularly when
you consider that the state did a comprehensive study on where gaming should
go and how it should be introduced into the state of Maryland back a number of years ago. That legislative effort identified five locations that could co-exist without significant cannibalization of each other, and to truly maximize the state’s revenue. Even with that consideration, a tax rate of 67 percent was pretty daunting. So, the initial bidding process wasn’t a wild success.

“So at this point, to change the rules, after a company like the Cordish Company has put in such significant investment to build this facility, I think, first of all, is unfair. And secondly, I think could be detrimental to the state and to the gaming businesses. Ocean Downs, from what I understand, is already financially struggling. And Perryville isn’t exactly raking it in. Another license would be devastating to the entire industry.”

While the House approved the bill, the Senate never got a chance to vote on
it as the legislative session expired in early April. But there’s a chance it could be revived in a special session.

CORPORATE SIGNATURE
While Norton is appreciative of the companies that gave him the opportunity to advance his career, he’s most excited about working for Cordish.

“This is such a great company,” he says. “It’s truly a family company, and
they make everyone feel welcome. At the same time, it’s very competitive, because all the people who work here are competitive.”

In fact, the three senior executives at Cordish have all been collegiate All-
Americans—Cordish (lacrosse), Weinberg (basketball) and Norton (tennis).
When they get together at a company picnic, the challenges are laid down.
Operationally, Norton says the company turns on a dime.

“While I never wo