(Bloomberg) -- For months, casino industry veteran Peter Carlino pondered whether to back the massive gambling resort Bally’s Corp. had won approval to build in downtown Chicago.
Carlino, chief executive officer of Gaming & Leisure Properties Inc., liked the idea of financing the only casino in America’s third-largest city, but he had issues with the design. So he dispatched one of his staffers to engage with Bally’s on a top-to-bottom rethink of the property.
The strategy worked. In July, Bally’s announced that Wyomissing, Pennsylvania-based Gaming & Leisure will fund two-thirds of the project’s $1.8 billion cost, allowing the casino operator to stick with a planned opening in September 2026.
“There’s a great deal of enthusiasm both at the city but also within Bally’s itself, recognizing that this has gotten to be a very cool project,” Carlino said in an interview.
Gaming & Leisure pioneered the idea of real estate investment trusts in the gambling business when it spun off from casino operator Penn Entertainment Inc. in 2013. REITs typically acquire existing properties and collect rent from the operators under long-term leases. The portfolios of Gaming & Leisure and rival Vici Properties Inc. now include dozens of casinos. But with fewer properties left to buy, both have turned to developing new projects as a way of keeping their acquisition pipelines full.
For Chicago, Gaming & Leisure sent James Baum, the company’s senior vice president of design and construction, to study the resort, which will be located at a former Chicago Tribune printing plant, northwest of the city’s famous Loop. Gaming & Leisure hired architectural firm HKS Inc. to do a concept design for the project. Bally’s later asked HKS to take over the project.
With Gaming & Leisure’s backing, Bally’s scrapped plans for a 100-room hotel in the first phase and opted for a single 500-room tower. The new architects used a drone to scout where to situate the rooms, starting them several floors above street level to maximize views of the Chicago skyline and Lake Michigan.
The redesign allowed Bally’s to integrate parking into the building, so guests wouldn’t have to cross a street at night, and shortened a long walk to get to the casino. It also moved the banquet kitchen closer to the meeting space, so meals would be delivered quickly. Restaurants were moved to allow views of the river.
“You’ll never forget what city you’re in,” said Baum, a Chicago-area native. “A lot of these regional casinos, they’re so vanilla.”
Illinois passed legislation allowing for a single downtown casino in 2019. The project has always been considered something of challenge, given the robust competition from casinos surrounding the city and a tax rate that reaches as high as 75% for slot machines.
Many casino companies sat out the bidding, and the city got offers from only three operators, Bally’s, Hard Rock International and Rush Street Gaming. The city picked Providence, Rhode Island-based Bally’s in May 2022.
Concerns about the project grew after revenue from a temporary casino that Bally’s opened in September of last year fell short of city projections. Then in March, Bally’s largest stockholder, Soo Kim, the managing partner of the private equity firm Standard General LP, offered to take the company private in a debt-financed buyout.
“The market has been skeptical,” said Barry Jonas, an analyst with Truist Securities Inc. Now that Gaming & Leisure is so involved, “that puts a lot of folks at ease.”
As part of the financing for the Chicago casino, Gaming & Leisure acquired the real estate at the site for $250 million and will provide Bally’s with $940 million for construction at an 8.5% return. The REIT is also acquiring two Bally’s casinos — one in Kansas City, Missouri, and another in Shreveport, Louisiana — to help the casino operator fund the rest of the construction cost.
Christopher Jewett, a senior vice president for corporate development at Bally’s, said he believes the redesign will secure approvals from the city this year. The temporary casino has already added 100,000 names to a company database, faster than anticipated.
The revamp is intended to maximize profit through a better experience for customers — locals as well as out-of-towners coming for business or vacation. Chicago is banking on the casino delivering revenue to put into its severely underfunded police and fire pension funds.
“We’re confident in the ability to deliver here,” Jewett said in an interview. “This is a world class project that will stand above the rest.”
Carlino envisions other potential billion-dollar deals with Bally’s, including a casino in New York, on the site of a former Donald Trump-owned golf course, should the casino operator win a license there.
Gaming & Leisure’s CEO, who spent years building Penn before leaving for the REIT spinoff, is also eyeing a new Bally’s resort on the former site of the Tropicana in Las Vegas. It would be adjacent to a new baseball stadium the Athletics are building on the Strip.
“You kiss a lot of frogs,” Carlino said of his time evaluating casino deals. “Every now and then you hit a princess.”
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