Business

3 casino options for Cedar Rapids try their luck

License applications due Monday to Iowa Racing and Gaming Commission

A rendering of the proposed Cedar Crossing Central Casino at night.
A rendering of the proposed Cedar Crossing Central Casino at night.
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CEDAR RAPIDS — Investors rebuffed for a Cedar Rapids casino license in 2014 are back with a plan to reintroduce the initial Cedar Crossing proposal as well as pitch the option of a new Cedar Crossing Central concept with a giant skydeck over railroad tracks to the DoubleTree Hotel and U.S. Cellular Center.

The two options will be introduced in a new bid for a Linn County gaming license to the Iowa Racing and Gaming Commission, investor Steve Gray and partner Brent Stevens, chairman of Los Angeles-based Peninsula Pacific, told The Gazette

“When we think about the good and meaningful broad community support, we feel pretty good about this project and believe things have changed enough over the last three years to have a reasonable chance of success with the Racing and Gaming Commission,” said Gray, head of the Cedar Rapids Development Group of local investors behind the proposal.

While the Cedar Crossing plan offers two distinct choices, there are no guarantees either — or a previously released downtown “boutique” casino proposal from Wild Rose Entertainment — will fly with the commission.

The deadline for submitting new license applications is 3 p.m. Monday, but the commission is not expected to make a decision until late fall.

Wild Rose, which has three casinos in Iowa, and local developers Steve Emerson and Hunter Parks triggered the application process after pitching a downtown casino and office project last September.

Here’s what the commission is likely to see in the applications:

- Wild Rose Entertainment: A $40 million casino with 600 to 700 slot machines and 15 to 20 table games, but no additional amenities such as dining or a bar, and a projected $42 million in annual revenue. It would employ 200 to 225 people. The casino would be on the second floor of a four-story mixed-use structure with a skywalk, kitty-corner to the DoubleTree along First Avenue and the Fourth Street SE rail corridor.

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- Cedar Crossing on the River: A $165 million complex with 840 slot machines and 22 table games, multiple restaurants, a bar, a retail area and entertainment space. The site is along First Avenue W and First Street SW on 8 acres of vacant city-owned land. The plan calls for 355 permanent jobs, 1,283 short-term construction jobs and annual revenue of $83.8 million. This concept is nearly identical to what was rejected in 2014, including incorporating a portion of the flood control system.

Proposed location for Cedar Crossing on the River

- Cedar Crossing Central: A $105 million investment with 550 slot machines and 15 table games, dining and beverage service and annual revenue of $63 million, The facility would replace the Five Seasons Parking Ramp with new parking, gaming floor and a landing hovering above the railroad tracks to the DoubleTree and U.S. Cellular Center between First Avenue E, A Avenue NE and Fifth Street NE. The plan estimates 231 permanent jobs and 601 short-term jobs during construction.

Proposed location for Cedar Crossing Central

At least 3 percent of gambling revenue from any proposal is required by law to be distributed to community projects through a local nonprofit board, which also would hold the license. An application costs $25,000, plus a fee of $30,000 as a deposit for criminal background checks. An additional fee of $20 million is payable over five years if a license is granted.

A key aspect of the Cedar Crossing Central proposal is its impact on the Five Seasons Parking Ramp. The garage, which officials say needs replacing in the near future, would be demolished and replaced with the casino and parking being incorporated. The city would continue to own the land, while the development group owns the space. Backers say it could save the city millions on a necessary infrastructure project.

Another issue is the busy — and noisy — railway through downtown.

Stevens, who has been involved with three Iowa casino projects including launching Diamond Jo in Dubuque, said he has assurances the railroad would allow the structure, and sought to minimize the noise disruptions. Cedar Rapids has a deal with Union Pacific to enact a “quiet zone” in that area possibly by the end of the year.

Union Pacific has not been contacted about a structure over the Fourth Street SE corridor railroad tracks, said Calli Hite, a company spokeswoman, but didn’t rule it out.

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“Union Pacific engineering and real estate experts would review the proposal to ensure it meets established standards, such as vertical and horizontal clearances and real estate requirements,” Hite said.

Gray said he had always intended to bring forth another casino proposal but moved the schedule ahead by a year because of the recent Wild Rose proposal.

“We had never planned to go away. It was all a matter of when we were going to reinvigorate our effort,” Gray said. “Since Wild Rose hijacked the process and is jumping ahead of 100 local investors who spent a lot of time and spent a lot of money and made a lot of commitments, we need to respond.”

Officials from Wild Rose declined an interview, but provided a written statement.

“Our proposal reflects the priorities and guidance of the Iowa Racing and Gaming Commission, and it is designed to complement the growing downtown Cedar Rapids entertainment district, while providing a valuable source of new revenue for Linn County,” said Tom Timmons, Wild Rose president and chief operating officer.

Gray reported “100 percent” buy-in on the Cedar Crossing proposals from the previous investor group, and said they would be fully reimbursed if approved.

Gray led an expensive and combative but successful public referendum campaign to open the door to gaming in Linn County. With the original Cedar Crossing plan driving the debate, voters supported gaming by a 61-39 margin in March 2013. The referendum expires in 2021.

As part of the deal to develop a casino on city land and lead the referendum, the city of Cedar Rapids and Linn County signed a memorandum of understanding to support a casino license application only from the Cedar Rapids Development Group. The agreement runs through 2017 with the county and 2019 with Cedar Rapids.

Cedar Rapids Mayor Ron Corbett said he expects the City Council to pass a resolution of support for the Cedar Rapids Development Group on Tuesday without casting a preference for either option. He did not comment on the Wild Rose plan, but noted the group has not asked for an endorsement and one won’t be forthcoming.

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Corbett said he personally prefers the larger concept, but is supportive of both Cedar Crossing models.

“I like option ‘b’ only because it is an option,” he said. “I’d rather have a larger casino. If we have to go to a boutique style facility, then I’m willing to be supportive of it.”

The multimillion-dollar question is whether the gaming market, which appears flat, has shifted enough or whether a smaller casino reduces the potential of taking revenue from nearby casinos enough to justify a new license.

Overhead map of the proposed casino locations

Map by John McGlothlen / The Gazette

Studies ordered by the commission leading up to the 2014 denial predicted 73 percent to 81 percent of Cedar Crossing revenue would come through cannibalization of nearby casinos, most notably from Riverside Casino & Golf Resort south of Iowa City.

New studies will be ordered up this time.

“The studies are going to have a pretty significant impact in our decision,” said Jeff Lamberti, an Ankeny lawyer and chairman of the state commission. “Whether the type of facilities being proposed will change the market outlook we saw in the past is unknown at this point.”

Lamberti said there isn’t a “magic number” for how much revenue cannibalization is too much, and it isn’t the only factor. But historically, the commission moves forward with a license if the percentage of revenue cannibalization is in the single digits. It could go either way if the percentage hits the teens.

“These projects require a big investment and for that they are going to get some protection in their territory,” Lamberti said, adding the commission likes to see additional amenities such as hotels, restaurants and entertainment.

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Dan Kehl, who owns three Iowa casinos including Riverside, did not respond to a request for comment. He has vocally and financially opposed a Cedar Rapids casino.

Ten of 19 Iowa casinos posted year-to-year losses and overall admissions slipped by more than 90,000 patrons to a total of 21,538,433, according to the most recent annual Iowa gambling industry report. Iowa casino profits grew by more than 1 percent in the most recent reporting year, but gaming revenue peaked at $1.466 billion three years ago.

If anything, commission members have discouraged more applications, saying the market doesn’t appear to have changed, but vowed to keep an open mind.

The commission has the same make up as it did in 2014, although the terms of Lambert and Carl Heinrich of Council Bluffs — two of the previous Cedar Rapids ‘no’ votes — expire April 30.

Both applied for reappointment, among 18 applicants. The only Linn County applicant was Rene Gadelha, of Marion, who was the Republican nominee for the District 34 state Senate seat retained by Liz Mathis.

An aide to Gov. Terry Branstad said recommendations will be forwarded March 1 to the Iowa Senate for confirmation, but there’s no indication if Branstad would make changes.

Brian Ohorilko, administrator with the Iowa Racing and Gaming Commission, said no gaming license applications have been submitted yet, but it’s normal for applications to arrive close to deadline. He said two entities have been in touch about applying.

“There’s some concerns by applicants if they submit too early, competitors will get the opportunity to look at applications,” he said.

The gaming commission will consider the applications over the next several months.

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One or two vendors will be hired likely in April to conduct market studies, followed by project presentation, site visits, background checks, public hearings and other aspects before the commission makes a ruling, possibly at a November meeting.

l Comments: (319) 339-3177; brian.morelli@thegazette.com

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