City slots applicant faces challenges in two states

A year ago, Canadian developer Michael Moldenhauer emerged from a meeting of the Maryland slots commission and declared that "our financing is in place" to build a $212 million slots parlor near downtown Baltimore that would be filled with 3,750 beeping, blinking, prize-paying video lottery terminals.

That commitment echoed his statements to officials in New Mexico, who chose him two years ago to develop a $50 million racetrack and casino in that state's northeastern corner.

So far, the Toronto homebuilder has failed to deliver on his promises in either state, officials say. Repeated delays and blown deadlines have prompted state gambling boards in Maryland and New Mexico to cut ties with him.

But Moldenhauer, 44, who brought no gambling industry experience to his bids for licenses in Baltimore and Raton, N.M., is not backing down. Insisting that he can still succeed, he is arguing his right to build and operate the casinos in administrative appeals that have yet to be heard and could take months to resolve.

In doing so, the soft-spoken Moldenhauer has frozen progress in two states where politicians see casino gambling as a key to building the tax base and boosting the local economy — and where they now want to move forward with other developers.

"He has the personality of a bulldog, so he just keeps moving forward. There's not much quit in him, but — nothing's happened," said David Norvell, chairman of the New Mexico Gaming Control Board, which revoked Moldenhauer's gambling license in May.

Moldenhauer denies that he has failed to deliver, or that his problems in Maryland and New Mexico are comparable. In a rare interview last week, he told The Baltimore Sun that "they're two completely different issues."

Moldenhauer does see one area of similarity: He says he has been wrongly pushed aside despite making real progress in both states.

In New Mexico, he says, he was six weeks away from opening a temporary casino when the gambling board revoked his license.

In Maryland, the state slots commission, which in February 2009 accepted Moldenhauer's initial application as valid, pulled the plug on his bid in December, even as he said he was finalizing a $50 million deal with an investment firm.

Despite the commission's move and current legal fights with the city and his former casino partners, Moldenhauer said he will not abandon his quest to build a casino in Baltimore, even if it takes another two years of litigation.

"We've invested millions of dollars, we've got the ability of doing it," he said last week from his office at Moldenhauer Developments, which primarily builds homes in the Toronto area. "We've worked extremely hard in creating the opportunity."

The Maryland Board of Contract Appeals has scheduled his appeal of the commission's denial for late September. Meanwhile, Moldenhauer has sued Baltimore for terminating the land deal that would have allowed his Celebration Casino to rise on city-owned land on Russell Street in the shadow of M&T Bank Stadium. The city has countersued.

Moldenhauer's Baltimore City Entertainment Group has been sued by several former members of his slots team, including an architect, a lawyer and a casino operator, who contend that he owes them a combined $930,000.

The Moldenhauer bid is not the only slots project in Maryland to hit snags. Three of the five approved sites still face hurdles nearly two years after the state's voters approved slots by referendum.

A casino project at Arundel Mills mall is on hold pending a referendum of Anne Arundel County voters, and the state commission is trying a second time to find an acceptable bidder for a 1,500-machine venue at Rocky Gap State Park in Western Maryland.

But two other projects are proving that it is possible to get slots done in Maryland. The Hollywood Casino Perryville, with 1,500 slot machines, plans a grand opening Sept. 30 in Cecil County, and a December launch is planned for slots at the Ocean Downs racetrack near Ocean City.

The Baltimore slots parlor is intended to enable the city to reach a long-sought goal: lowering property taxes, said Deputy Mayor Kaliope Parthemos.

Under state law, 95 percent of the city's slots revenue is to be used to reduce property taxes or build schools, Parthemos said. City officials have projected that slots would enable a 3 percent cut in the city's property tax rate, which is more than double the rate in nearby counties.

"The city doesn't have many options when it comes to generating new sources of revenue," she said.

Moldenhauer contends that his Baltimore project remains viable.

"We want to get a facility open, the city wants the tax dollars and the state needs the tax dollars," he said. "Unless there is some other agenda, why would the parties not be doing everything in their power to sit at the table?"

But Moldenhauer, whose group submitted the only bid for the Baltimore site in February 2009, said the slots commission refuses to meet with him.

"I see no value whatsoever in holding such a meeting as you propose," slots commission chairman Donald C. Fry wrote in May to one of Moldenhauer's lawyers.

Fry quoted from the commission's December statement explaining its rejection of Moldenhauer's application. At the time, the panel said it had been "more than patient" with the Baltimore City Entertainment Group and had "considerable doubt that additional time will produce a complete proposal" — including a $19.5 million license fee that the casino group had promised to pay but never did. (BCEG paid $3 million with its initial application, but that was for 500 slot machines, not 3,750.)

Days before the rejection, members of Moldenhauer's group obtained a commitment for $50 million from New York-based York Capital Management. In return, BCEG would have had to give up control, and York would have needed 45 to 60 days before making a firm commitment.

But the slots commission, mindful that Moldenhauer had missed previous self-imposed deadlines, decided it would not wait and denied the BCEG proposal.

Fry said last week that the commission could rebid the Baltimore slots license even before Moldenhauer's appeal is heard in September. He said the panel is confident that its decision will be upheld and that it could select a new group once that process ends.

His only hesitation in issuing a fresh request for proposals during the appeal is that prospective bidders might be scared away by the lack of resolution to BCEG's case.

"We're virtually ready to reissue it almost immediately," Fry said. "A number of groups have contacted us and indicated they are very interested in bidding on the Baltimore City situation whenever the opportunity presents itself." He did not name any potential bidders.

Fry wants potential bidders to know that the high-visibility Russell Street site is still available for a casino. The vacant lot was not among the parcels originally advertised for a casino. The lot that was advertised — a Ravens parking lot a couple of blocks off Russell — might have made Baltimore less attractive to gambling interests.

Parthemos said the city is poised to request new proposals for the slots site as soon as the Moldenhauer case is resolved. Echoing Fry, she said the city hopes the process would be streamlined and attract more bidders.

Terms would likely resemble those of the previous agreement, which called for the city to receive 2.99 percent of gross gambling revenue. The city would have received about $8 million the first year and at least $15 million annually after the third year.

Plans for the site are complicated by a longstanding deal between developer Samuel Polakoff and the city to build a "sportsplex" with Ravens linebacker Ray Lewis as a partner.

Moldenhauer had exclusive rights to negotiate with Polakoff for the land, but no money changed hands, according to sources with knowledge of the deal. City officials and Polakoff remain in discussions about the site.

Parthemos said the city would not automatically disregard a new bid for the property from Moldenhauer.

"If he were to withdraw his pending lawsuit against the city, the sooner the city could move forward and he could bid along with anyone else," she said.

But Moldenhauer doubts that the slots commission would choose him if there were other bidders.

"From a common-sense standpoint," he said, "what do you think the likelihood is [of me] being a successful applicant the second time around?"

To secure the Russell Street site last year, Moldenhauer's group first struck a private deal with Polakoff's firm, Cormony Development. His group then signed a deal with the city in October. Terms called for the casino operator to pay the city $13.7 million for about 13 acres by the casino and to lease the casino site on Russell for rent equal to 2.99 percent of gambling revenue.

This is the deal the city canceled in June, saying BCEG had met "none of the critical conditions" for the deal to go forward. In asking a judge to expedite the competing lawsuits, City Solicitor George Nilson said that "the financial implications of this suit for the city are extraordinary."

In addition to the millions of dollars in annual rent, BCEG's purchase of the city-owned parcels would yield at least $3 million a year in new property taxes, he said. Eventually, city projections show, the casino would let the city trim 7 cents off its property tax rate, saving the owner of a $100,000 home $70 a year.

By June 21, BCEG was to have received the slots license, settled on the property, closed on financing for a parking lot and given the city a $5 million down payment.

Several months earlier, the city had sent letters asking BCEG if it could still meet the deadline having been denied the slots license, Nilson said in an interview.

"They brushed off that correspondence," he said.

The city was prepared to sue BCEG, but lawyers for the group asked the city to hold off so "we could work something out," Nilson said. The city and the group agreed to meet in late July and part ways.

But within weeks — and, Nilson says, without warning — BCEG filed a lawsuit alleging that the city had violated nearly every clause of the original contract and demanding $100 million in damages.

"They just went off and sued us and didn't tell us," Nilson said. "It spoke volumes about the way they were dealing with us."

The city then filed a counterclaim that denied the allegations in BCEG's lawsuit — allegations that Nilson likened to "throwing everything up against the kitchen wall and seeing what would stick."

Even if Moldenhauer were to prevail in his appeal and lawsuits, it is unclear who would make up his slots group. Most of the key members of BCEG have sued him over unpaid fees.

Moldenhauer conceded that "the makeup of BCEG with respect to the historical players still needs a resolution."

Though Moldenhauer set his sights on New Mexico long before Maryland, the two projects have at times followed parallel tracks, with signs of trouble emerging in New Mexico shortly before the Maryland slots commission rejected his bid here.

"When Maryland started to have some issues," Moldenhauer said, "clearly it had some impact and created problems in New Mexico as well. And vice versa."

The gambling ventures marked a departure from Moldenhauer's background as a real estate developer. He has described his company as a "pretty significant player in the in-fill development market in the Greater Toronto area." Municipal planning officials near Toronto say he's mostly done higher-end projects involving the construction of dozens of houses.

Moldenhauer says he wanted to pursue a gambling deal in New Mexico even before the state said it would allow a sixth and final racetrack casino, known as a "racino."

In August 2008 the New Mexico racing commission, presented with three competing bids, chose Moldenhauer's proposal for a track-casino complex in the small city of Raton. Excited supporters let out a loud "yee-haw," according to news accounts.

Last week, Raton Mayor Jesse James Johnson said, "I am holding out hope and faith. Everything I've seen shows that they're still trying to make it happen."

Others have given up on the project, which was designed to have 600 slot machines.

"I do believe it's back to square one," said Pat Bingham, head of the New Mexico Horsemen's Association.

When the Gaming Control Board granted Moldenhauer a license in June 2009, Norvell, its chairman, congratulated him but warned him not to "leave Raton flapping in the northeastern New Mexico breeze."

When the board revoked Moldenhauer's gambling license in May, it noted that he had initially promised to open by September 2009, then by Jan. 31 and then by late April. Only a tent for a temporary casino has been built, Norvell said.

"But there's nothing in it," he said. "Nothing has been done on the racetrack."

The board also noted Moldenhauer's failure to prove that he had the funding to finish construction of the complex. In another sign of trouble, the building contractor filed a lien contending that he and subcontractors were owed $845,000.

Separately, the racing commission appeared ready last month to pull Moldenhauer's racing license. His lawyer invoked a procedural rule that delayed action.

Moldenhauer has blamed project delays on factors such as a stop-work order issued by the state because of problems with building permits. He is scheduled to appeal the loss of his New Mexico gambling license later this month.

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