Bally’s Corp. has closed a $500M sale-leaseback transaction with an investor to acquire and develop the future site of Bally’s Chicago in a move the company says will push the project forward without the need to tap capital markets.
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Bally’s said Monday an unnamed Chicago real estate private equity firm had purchased the 30-acre former Chicago Tribune publishing center, the site of the future $1.7B casino, hotel and entertainment complex, for $200M and agreed to fund $300M in casino development.
The Chicago Tribune identified the buyer as Oak Street Real Estate Capital, which specializes in sale-leasebacks and has $18.6B in assets under management, per its website.
Bally’s agreement with Oak Street includes an initial 99-year ground lease and 10 optional 20-year renewals thereafter for the site near the intersection of Chicago Avenue and Halsted Street, according to a release. In addition, as it hits specified construction milestones, Oak Street has agreed to fund $300M in development costs through the ground lease structure.
“This transaction is an important step in our development plan for Bally's Chicago as we continue to work towards opening the temporary casino in mid-2023,” Bally’s Chief Financial Officer Bobby Lavan said in a statement. “With this new real estate partnership, Bally's has ample liquidity on hand to fund Bally's Chicago without needing to access the capital markets.”
Bally’s said its initial rental rate would yield Oak Street an 8.5% annual capitalization rate, adjusting to 7% as the casino gains specific development entitlements and gaming approvals. The rent is subject to periodic consumer price index increases and Bally’s has the option to repurchase the land in years four through eight of the lease term, it said. If it should fail to reach pre-agreed upon milestones or default on the lease, Oak Street may also require Bally’s to repurchase the land.
Chicago’s first casino was approved by the city council in May, as was a temporary casino at the vacant Medinah Temple, a former Bloomingdale’s store at 600 North Wabash Ave., which will operate until the larger project is complete in 2026. The complex will include 3,400 slots, 170 table games, 10 food and beverage venues, a 500-room hotel tower with rooftop bar, a 65K SF entertainment center, a 20K SF exhibition space and an outdoor music venue.
Bally’s announcement Monday follows several other leaseback deals it has entered into this year.
In April, it sold two properties in Illinois and Colorado to Gaming & Leisure Properties Inc. in a $150M sale-leaseback deal. Just over two months later, it also sold the properties and buildings of its two Rhode Island casinos to the same company for $1B.
The sale-leaseback arrangement could give Mayor Lori Lightfoot, the city council and the Illinois Gaming Board some pause as it analyzes Bally's ability to finance the expansive project, Crain's Chicago reported. Crain's noted Bally's third-quarter earnings call indicated it had just $165M in cash and $3.4B-plus in debt.
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