Stockton Should Scrap Plans for Annex at Closed Casino, Provost Says

Tara Nurin | May 1, 2015 | Education
University official tries to help Senate budget committee peel back layers of complicated deal to buy bankrupt casino for classrooms and dorm

Harvey Kesselman, executive vice president, provost, and acting president of Stockton University.
Two days after taking over as Stockton University’s acting president, Executive Vice President and Provost Harvey Kesselman told state senators at a budget committee hearing yesterday that Stockton should abandon its attempt to open an annex in Atlantic City’s empty Showboat casino hotel.

While Kesselman was testifying in Trenton, the Press Of Atlantic City reported that Atlantic City’s city council issued an ultimatum that seeks to force the owners of Trump Taj Mahal, who’re keeping Stockton from converting Showboat into a residential and academic facility, to negotiate with the university within the next 24 hours.

Kesselman stepped in at the last minute to testify for former president Herman Saatkamp, who’d been scheduled to appear to answer questions about his controversial purchase of the former casino. But Saatkamp left his position abruptly this week — four months before a previously announced resignation and one day after faculty formally issued a no-confidence vote against him. Saatkamp cited health issues as the reason for his sudden departure.

Saatkamp bought Showboat from Caesars Entertainment in December to fulfill his long-standing goal to establish a major presence in Atlantic City, 13 miles from the university’s main campus in Galloway. It was revealed in March that Saatkamp and the school’s board of trustees proceeded with the purchase despite learning, possibly the day before, of a legal covenant that barred Showboat’s use as anything but a high-end casino hotel. The approximately 100-year covenant was signed in 1988 between Trump Taj, which is located next to Showboat, and the company that owned Showboat at the time.

Since buying Showboat for between $17 million and $18.5 million, Kesselman says he believes the public university has spent somewhere in the vicinity of $400,000 per month on carrying costs, power, and security for the building. The billionaire real estate developer who bought the Revel casino, located directly on the other side of Trump Taj, has placed $26 million into an escrow account to buy Showboat within 90 days if Stockton can’t resolve the covenant and decides to sell it. But according to the Press of Atlantic City, which has reviewed the agreement between Stockton and new Revel owner Glenn Straub, Straub gets all of his money back if he decides to walk away.

At yesterday’s budget hearing, legislators wanted to know why Saatkamp had bought Showboat in spite of the covenant and whether he knew that Caesars was planning to declare bankruptcy at both of its remaining Atlantic City properties, which it did 30 days after closing on Showboat. This question bears particular relevance because in its contract with Stockton, Caesars agreed to pay any legal costs the university might incur fighting the deed restriction. But now Caesars can’t pay for anything without a bankruptcy judge’s approval.

Legislators acknowledged that Kesselman had only been on the job two days before testifying, and they asked the well-respected provost to return with more answers after he repeatedly told them he hadn’t been privy to any of the discussions about the terms of the purchase. He agreed, provided they call him before July 1, when he leaves for a job as president of the University of Southern Maine.

Kesselman did respond critically, however, to multiple questions, about his feelings toward actions taken by Saatkamp and the school’s board of trustees, which approved the transaction less than one week after members first learned about the opportunity to buy Showboat in a closed meeting. (Two trustees have since left the board.)

An edited excerpt of the conversation between Kesselman and budget committee chairman Paul Sarlo (D-Bergen) sounded like this:

Sarlo: Do you think it was a wise decision (to buy Showboat even though) at the time of closing there was no clear title given?

Kesselman: I think a more prudent decision could have occurred.

Sarlo: Were they aware Caesars was going to file for bankruptcy 30 days after (the two parties) closed (on Showboat)?

Kesselman: There were rumors that that could certainly take place.

Sarlo: If you’d been in the position of president, would you have continued on with this transaction?

Kesselman: No, I would not have.

Sarlo noted that public universities in New Jersey are required to obtain approval from the state comptroller before they engage in real estate transactions above $10 million, which Saatkamp did not do either when he bought the Showboat from Caesars or when he agreed to sell it to Straub. Kesselman said he only learned of that regulation 48 hours prior to testifying.

[related]Sarlo responded, “There are so many more unanswered questions. Why this transaction occurred, who’s involved, who thought it was a good idea. We need a plan quickly. We need to stop the bleeding of students’ money.”

Stockton officials have said that the money came from an investment fund and not from public coffers. They’ve also assured students that their tuition would not be affected.

But Kesselman conceded, “Certainly it hurts us. Our goal is to get out from under this as quickly as possible. As quickly as possible.”

He said that he hadn’t yet met Straub but planned to do so imminently.

He added, “I believe so it’s in the best interest of Stockton to sell to Mr. Straub but not to give up on Atlantic City.”

When asked if he would prefer to lease space from Straub, as has been discussed, or start over somewhere else, he answered, “Probably at a different facility.”

If Straub does proceed to buy the building and lease space to Stockton, he expects to siphon electricity from Showboat’s cogeneration plant to power Revel, at least for the next few years. However, Sarlo pointed out another snag for Straub: he’d need permission from the New Jersey Board of Public Utilities.

Meanwhile, The Press of Atlantic City reported that at a special meeting called by Atlantic City’s governing body yesterday morning, council members instructed Taj attorneys to begin negotiating with Stockton over the covenant.

Stockton CEO for External Affairs Sharon Schulman told NJ Spotlight two weeks ago that there had been meetings between the parties, but Atlantic City Mayor Don Guardian told reporters in Trenton yesterday that he wasn’t aware any had taken place. Guardian and members of council are extremely supportive of Stockton’s efforts to reuse Showboat and potentially spearhead the revitalization of the neighborhood around it.

Council members also postponed votes until May 6 to rezone the Showboat for academic use and appoint Stockton as conditional redeveloper of the surrounding blocks. Such a move would presumably override the covenant, though it’s expected that Taj would fight the move in court.

Schulman said in an email, “I think City Council is trying to be judicious and impartial. They’re trying to take action that will move this further along.”

A call to Taj was not returned. However, a local newspaper reported that council members said they tabled the vote at Kesselman’s request.

Speaking to Kesselman and the audience at the concurrent hearing in Trenton, Senator Jim Whelan (D-Atlantic City) added to the already complicated narrative by announcing that back in December, Caesars waited until the day before closing on Showboat to tell Stockton that it had asked the bankrupt Taj to waive the covenant. It’s not clear whether Stockton officials knew about it before then.

Whelan also said that the Showboat sales contract asserted, “Trump Taj will consider waiving the covenant but will require bankruptcy court approval.” Representatives for Taj have never acknowledged such a condition, and in fact told Stockton in March that it would be enforcing the terms of the covenant.

Lawmakers reiterated that in its contract with Stockton, Caesars also included a clause that would prevent Showboat from being used as a casino for the next 10 years. However, it’s not likely this stipulation would supersede the 1988 covenant in court.

Concluding his testimony, Kesselman told legislators, “This was a Stockton mistake and we will own it.”

He told NJ Spotlight after the hearing that legislators had questioned him appropriately.

“We should be able to provide answers to those questions,” he said.