Known for suburban office parks, St. John Properties is in the market for a few used casinos.
Nothing too flashy, nothing on the scale of the Revel Atlantic City's 57-story glass tower, up for sale next month at a bankruptcy auction two years after the $2.4 billion project opened.
This is St. John Properties, after all. The commercial real estate operation based in Baltimore County's Milford Mill is known for its conservative approach, specializing for years in developing and managing flex office and warehouse buildings in suburban markets. More recently, it has pursued fresh ventures such as a shopping mall in Harrisburg, Pa. — bought out of bankruptcy for pennies on the dollar value of the loan — and residential communities in Maryland.
And now gambling. In the past few years, St. John quietly picked up a small casino in Central City, Colo., about 45 minutes west of Denver, and another near Reno, Nev., paying a fraction of what both were once worth.
The deals put St. John in the same game that drew in other Baltimore developers, including Cordish Cos., which developed Maryland Live in Hanover and two Florida casinos and aims to build more, and Caves Valley Partners, which is an investor in the Horseshoe Casino Baltimore, scheduled to open in late August.
St. John recently launched a gaming division, hiring an experienced Nevada-based casino executive to manage day-to-day operations and promoting a vice president at the home office to run the new unit as a St. John partner.
While the casino move might seem out of character for St. John, Christina M. Berzins, who heads the new division, said it's consistent with the 43-year-old company's established approach: "Find the right project, buy it right, add value and grow your customer base."
The company may have some interest in developing new casinos, but it will focus its efforts on buying existing casinos that are available for bargain prices, she said.
Edward St. John, founder and chairman of the company, said, "We'll be looking at casinos we like that are on the verge of bankruptcy or in bankruptcy, and turning them around and making money."
Berzins said St. John Properties — which lists total company investments of $2 billion —has put up $45 million to buy, renovate and furnish the two properties in the West that probably represent more than $215 million invested by previous owners.
St. John's move into gambling comes as the industry may be approaching a shakeout, especially on the East Coast, the result of a spurt of casino development that saw legalized gambling spread from Atlantic City, N.J., north to Connecticut and New York, west to Pennsylvania and Ohio, and south through Delaware and Maryland.
As a result, Atlantic City lost one of its 12 casinos this year and three more are expected to close by the fall, a downturn blamed on the proliferation of casinos elsewhere and the city's failure to reinvest and offer more attractions to lure visitors.
St. John is undaunted by all this, saying buying at bargain prices is the way to go.
"There's no way to not get a return," St. John said. "We're buying out of bankruptcy so cheap it's impossible not to make money."
Berzins said the two properties became available at deep discounts for different reasons.
The former Fortune Valley Hotel and Casino in Central City, Colo., was sold after its Indianapolis-based parent, Centaur LLC, filed for Chapter 11 bankruptcy protection in 2010. Published reports say the company was burdened by delays in gambling projects, high costs and the recession.
St. John went in 50-50 with a partner, Tom Celani of Luna Entertainment, and bought him out in 2012, spending about $10 million on the Western-style casino and 118-room hotel that was probably worth $95 million at one time, Berzins said. St. John then invested about another $10 million into extensive renovations, including new slot machines and table games, a steak house, food court, refurbished hotel rooms, a 300-seat entertainment venue and a 65-foot-long bar shaped like an electric guitar. It renamed the property Reserve Casino and Hotel.
"I hope they can make a go of it; it is a beautiful property," said Lois Rice, executive director of the Colorado Gaming Association, which represents casino owners.
She said Central City casinos have been hit hard by competition in the neighboring Black Hawk area, one of three sections of the state where all 38 Colorado casinos are located.
Technically, the St. John's Baltimore-based executives won't be the owner-operators of the Reserve until the casino license application is approved by Colorado regulators, which is expected to happen by year's end, Berzins said. In the meantime, St. John's new Nevada-based general manager, Rob Medeiros, formerly an executive at the Sands Regency in Reno, is the licensee.
St. John bought the Boomtown Casino Hotel just west of Reno from Pinnacle Entertainment in 2012, which was in the midst of buying Ameristar Casinos. A 50-year-old operation a couple miles east of the California line, the Boomtown was Pinnacle's last property in Nevada, Berzins said, and the company decided it "wasn't in their business plan any longer."
The Boomtown was in better shape than the Reserve, but St. John spent a few million dollars on improvements, including a new lobby, new slot machines, bathrooms, elevators and escalators. The 320-room hotel, just off an exit on Interstate 80, a major east-west highway, is part of a 70-acre property that includes a gas station and campground.
It was a steal for $12 million, said St. John, an even better "real estate play" than the Reserve. It's along the lines of the Harrisburg Mall deal in 2012, when St. John paid $7 million for a 1 million-square-foot property for which a Toronto bank was holding a $100 million loan, St. John said.
Local real estate observers note the risks of a company venturing outside its usual terrain, but they figure St. John won't take chances it cannot handle.
"It seems they're looking at taking a page from the Cordish Companies' playbook," said Robert Manekin, manager director and principal of Colliers International in Baltimore.
Financial analysts tend to frown on developers straying from their core business, Manekin said, and the annals of real estate are littered with stories of companies that did so and got burned. But if any company can manage it, it's St. John, he said.
"St. John executes in a disciplined style," he said. "They obviously see something" in the casino business, he said.
Cliff Rossi, a professor at the University of Maryland's Robert H. Smith School of Business, said St. John is taking a cautious approach, considering that the $45 million they've put into the two Western casinos so far represents about 2 percent of their total $2 billion investment in some 17 million square feet of commercial property.
"I think they're doing something that seems fairly prudent," said Rossi, who spent more than 20 years with banks and with Fannie Mae and Freddie Mac specializing in risk management. Were he back in the business, he said, "this is exactly the way I would want to do this."
Berzins said St. John is looking at two more casinos now, but she cannot say anything more about these prospects. She did confirm that they're not considering the Revel, the Trump Plaza — expected to close by fall if no buyer is found — or any other distressed property in Atlantic City
Not now, St. John said, but that's "not to say we wouldn't be looking at them tomorrow."