Will Morgan Stanley And Revel Casino Symbolize Era Of Wall Street Greed And Profligacy?

Jun. 8.12 | About: Morgan Stanley (MS)

The $2.6 billion Revel Casino and Resorts made headlines recently when Beyonce Knowles gave a series of performances there during May 2012. Revel was the talk of the boardwalk as it hosted Mrs. Knowles' much anticipated return from a five month hiatus after giving birth to daughter, Blue Ivy Carter, in January 2012. The performances were attended by a virtual "who's who" of the entertainment industry (Jay Z, Kelly Rowland, Maria Bello, Jennifer Hudson, Selita Ebanks, and Michael K. Williams) and politics (First Lady Michelle Obama, and New Jersey Governor Chris Christie). To ensure her return was a triumphant one, Mrs. Knowles pulled out all the stops. She created a video, Making of Beyonce at Revel, giving fans a behind the scenes look at planning the show and the work out sessions required to get her body back into tip top shape. After running on the treadmill eating lettuce, she lost 60 pounds in four months. And by all accounts the effort was well worth it. Governor Christie called the performance "Great" while others called it "Spellbinding" and "Fierce." However, in 2010 Revel made headlines for a starkly different reason; after the casino and resort ran into trouble amid the financial crisis, Morgan Stanley, the casino's developer, decided to walk about from project.

Revel Casino Symbol of Wall Street Greed and Profligacy?

Revel was originally the brainchild of Morgan Stanley (NYSE:MS) and its Msref real estate fund. After the financial crisis materialized, the project stalled. In his upcoming book, Shock Exchange … How Inner City Kids From Brooklyn Predicted The Great Recession And The Pain Ahead, Ralph Baker, Executive Director of the New York Shock Exchange, describes the circuitous route Revel took prior to its completion.

Since the early 1990s Morgan Stanley has been one of the biggest buyers of commercial real estate, completing almost $175 billion in deals through private equity funds it manages. Its funds ran into trouble with acquisitions at the height of the real estate bubble, ranging from office buildings in South Korea and Germany, to an Atlantic City casino … In 2010 Morgan Stanley took a 98% write-down of its $1.2 billion investment in a proposed $2.6 billion Atlantic City Casino [Revel]. Because of the downturn in Atlantic City, Morgan Stanley decided it was better to sell its stake in the property than to 'throw good money after bad.' The project was also a public relations nightmare for the white shoe investment bank. Morgan Stanley had received tax rebates pursuant to the project, drawing the ire of New Jersey residents who viewed them as another example of corporate cronyism. Labor unions derided the casino, claiming that instead of creating new jobs, it would create a shell game of taking business and jobs from other casinos. Morgan Stanley purchased the land in 2006 and hired an operator to run the casino. It then tried to sell an equity stake in the property, to no avail … Morgan Stanley sold its stake in the half-built casino to an investor group led by the chairman and CEO of Revel Entertainment.

Instead of taking the billions in management fees its real estate funds have earned over the years - Morgan Stanley earns about $200 million in such fees annually - the company simply begged off. Revel is symbolic of the past decade of undue speculation President Obama and the Occupy Wall Street protestors have railed against. Lehman, Bear Stearns, and Goldman Sachs all ran into trouble by borrowing billions to make bets on real estate and credit default swaps that diverged from their core competencies - advisory and capital-raising. When those investments went sour, rendering said investment banks unable to repay its borrowings, it was "somebody else's fault."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Mr. Baker is the Executive Director of the New York Shock Exchange, a travel basketball team based in Brooklyn, NY that also teaches kids how to pick stocks.