The upcoming Bally’s Chicago casino has a new landlord. Bally’s Corp. ($BALY) announced it sold the land rights of its upcoming Illinois casino resort to an unidentified investor for $200 million.
The property investor will fund an additional $300 million in development costs bringing the total to $500 million.
Bally’s will enter into a sale-leaseback transaction with the real estate owner for the 30-acre Tribune Publishing site.
Bally’s new landlord
In a statement, Bally’s chairman Soo Kim had this to say:
“We are excited to be partnering with one of Chicago’s leading real estate private equity firms as we progress with building our $1.7 billion flagship property in the Chicago market.
We continue to demonstrate our commitment to delivering a world-class entertainment facility that supports Chicago’s economy and community.”
According to a statement, the rent is also subject to periodic Consumer Price Index (CPI) increases.
“The initial rental rate under the ground lease is calculated to yield the Investor an 8.5% annual capitalization rate, adjusting to a 7.0% annual capitalization rate upon the receipt by Bally’s of certain development entitlements and gaming approvals.”
Illinois casino sale-leaseback is standard practice
Sale-leaseback deals are standard in the gaming industry. Gaming companies can monetize land assets through these agreements and receive large, upfront sums of cash.
On the other hand, real estate firms benefit from long-term tenants that include gradually increasing rates.
The deal is a win-win for Bally’s. The company plans to begin construction soon on its $1.7 billion casino. Additionally, the deal leaves the window open for Bally’s to reacquire the land.
“Bally’s has the option to repurchase the Land from the Investor at a fixed capitalization rate during years four through eight of the lease term,” the statement reads.
“In addition, if certain milestones are not achieved or Bally’s defaults under the lease, the Investor may require Bally’s to reacquire the Land at a specified price.”
Bally’s initial term is 99 years with, ten separate 20-year renewal options.