Plans for the redevelopment of a New York racetrack/casino stalled last week amid reports that Delaware North Cos., the winning bidder, couldn’t raise the $370 million necessary to get the project started. But R. Donahue Peebles, chief executive of Peebles Development Corp. (No. 18 on the B.E. Industrial/Service 100 list with $245 million in revenues), which partnered with Delaware North on the deal, says not to count them out.
In an exclusive interview, Peebles claims that although New York state may elect to begin the bidding process anew to develop the Aqueduct Racetrack, his team has $100 million in cash and the best deal on the table. This is despite the need to restructure the terms and the other two competing bidders — SL Green Realty Corp. and Capital Play Ltd. — possibly waiting in the wings. Here’s what Peebles had to say:
BlackEnterprise.com: New York Gov. David Paterson awarded you all the contract in October 2008, and now it appears it may not be completed. What happened?
R. Donahue Peebles: The proposal was made about a year and half ago — almost two years ago — before I got involved. Delaware North was going to operate a casino there for slots and they were going to pay the state a licensing fee of $370 million. They were going to pay that licensing fee in four quarterly payments. And so in essence, it was an installment plan from day one and that was going to be about $92 million every quarter. Obviously the economic climate during that time changed.
The credit crunch made borrowing a lot harder of course. How did you get involved?
Part of the Delaware North proposal was also that they would develop a signature property and partner with a developer to build a world class gaming facility and amenities such as a hotel, restaurants, entertainment, and the like. When they submitted the bid, they didn’t have that partner, and they came and approached us. And ultimately we came together and joined forces with them this past summer. Our role was to oversee the construction, the design, the concept, and execution of the gaming facility and ultimately the construction of the amenities package.
Then the capital markets changed.
During the time period between when Delaware North did and the time of the award, the financial markets had obviously changed. The debt markets had frozen up — which is no secret. That’s happened around the country. The plan for Delaware North was that $270 million [of that $370 million] was going to be debt, so Morgan Stanley advised that [credit] should free up in six to nine months.
Was this the point when Delaware North sought to restructure the deal?
Delaware North proposed giving the state $100 million immediately, which was the equity that the team was always going to put up. The Peebles Corp. was going to put up its money, as well, by March 31. We would refinance and the balance would be paid within three years. We would build phase one with 1,200 slots and that would open up by the end of this year. Then the remaining facility would open within seven to eight months, essentially bringing us to August or September 2010 for the full facility to be operational.
We would have three years from March 31 of this year to pay the balance of the $270 million. And during that period, until the $270 [million] was paid, the state would get all of the profits from the gaming operation — so obviously it would be paying down debt significantly. And it would be likely that they would be paid from the operations within that three-year period anyway. The state initially had agreed to accept that. But the legal counsel to the governor ruled that it was enough of a change in our proposal to warrant litigation from the other two finalists. So in an effort to avoid litigation, they’re required to re-bid it out.
Delaware North offered $170 million more than the next highest bidder anyway. If they don’t believe that the governor has the authority to accept our revision then they will go back out and do a re-bid and the deadline would be March 31. By April 6, they will make a selection. So it’s a very short process. We firmly believe that we’ll have the best proposal again and win it again.
Some of the news reports say this deal is dead in the water.
These stories have gotten to the point where they’ve gotten so ridiculous that I made a decision not to talk to anybody. And I urged Delaware North not to as well. They just issued a news release and that was it. For what it’s worth, I haven’t spoken to any media. I’ve talked to no one about this. You’re the only interview I’ve done, and the only one I’m going to do. I have a [several] interests here. One, I want Gov. Paterson to succeed. Two, I’m a property owner and own a home in New York state, and I know the state needs the money. And three, I’m confident we can build a world-class facility and pay them the most money for it.
Credit Crunch Scuttles Aqueduct Racetrack Deal for Peebles, McKissack