Real estate investment trusts (REIT) are good business. They get to assume little risk and, in return, receive huge rewards. They can, in the majority of the cases, be beneficial to the companies with which they work, as well, as these can lower costs associated with maintaining the property. MGM Growth Properties is one of many REITs operating in the US, but it sticks close to home, working exclusively with MGM Resorts International. It has just added another property to its portfolio, thanks to gaming regulators in Massachusetts. The MGM Springfield is to become the 15th property on MGM Growth Properties’ list of assets.
MGM Unloads More Real Estate
The Massachusetts Gaming Commission (MGC) greenlighted MGM to hand over MGM Springfield yesterday afternoon. The decision was made after deliberating issues pertaining to gaming licenses and obligations that were implemented when MGM requested permission to build the casino. At the time, the company was limited to how it might be able to negotiate changes in the property’s structure, but the MGC has determined that those limitations were applicable only to the construction and development phase, according to media outlet Mass Live.
With approval in hand, MGM can now move forward with the arrangement, which it previously expected to complete before the end of the year. It will sell the real estate to the REIT for $400 million and will then lease back the property for $30 million a year. That lease will be in place for 45 years, a shorter period of time than what was stipulated in MGM’s original agreement with the MGC. MGM Springfield becomes part of a Master Lease agreement between MGM and MGM Growth properties that contains properties in Nevada, Mississippi, New Jersey and other jurisdictions. In total, the REIT controls 32,400 hotel rooms and 1.6 million square feet of gaming space belonging to MGM.
Taking the Bad With the Good
REIT agreements, in many cases, also mean that the new owner has to deal with any problems that come up, including legal issues. MGM Growth Properties was close to having to step into a fight between MGM Springfield and several gamblers that began months ago, but a court decision from Wednesday will keep it out of the courtroom. MGM Springfield and Encore Boston Harbor were under fire for allegedly cheating blackjack players out of their winnings, but judges didn’t see it that way.
The Massachusetts Judicial Court was asked to weigh in on a dispute that began in 2019 regarding odds casinos in the state were paying at blackjack tables. Specifically, the casinos were paying 6:5 odds and not the 3:2 odds typically found when hitting blackjack, and this didn’t sit well with some blackjack players. They felt they were being deceived by the properties; however, the Massachusetts court, following the lead of a similar federal court case, disagreed. The plaintiffs have now dropped their lawsuit.
Story Still Being Written
Although the court justices determined that the casinos didn’t do anything wrong, they admitted that their conclusion was only the result of an inability to understand the language used by the MGC to create the gambling rules. Justice David Lowy said last month that the original rules are “a mess” and “an interpretative challenge” that create ambiguity. He and his fellow justices felt that the way the casinos are working the players may be “unfair,” but that it isn’t illegal.
It’s likely that the courts might become more involved and make requests that the MGC clarify its gambling rules. However, the commission cannot be ordered to make any modifications and, if the rules favor the house, there isn’t much incentive to change them.