Amazon gets the sortation center; the hard 110 acres go to a preservation bet

After sitting dark since January 2015, the Atlantic City Race Course's 255 acres in Mays Landing, part of Hamilton Township, New Jersey, have sold in two clean pieces, according to CoStar News. Patriot Equities, a redeveloper based in Wayne, Pennsylvania, plans housing and commercial space on about 110 acres that include the old track and its grandstands, and Amazon plans a robotics sortation center of more than 2 million square feet on the remaining 145, the two pieces reconciling to the full site.

The track's first life is worth remembering. A group led by John Kelly Sr. of Philadelphia — an Olympic rowing champion and the father of Grace Kelly — built it in 1946, with partial owners that included Bob Hope, Frank Sinatra and the bandleaders and musicians Harry James, Xavier Cugat and Sammy Kaye. Kelly's company supplied the bricks, and Alfred Hitchcock shot a scene from his 1964 thriller "Marnie" on the grounds. The decline traced to the casinos: legalized gambling arrived in Atlantic City in 1978 and, per CoStar's account, helped lead to the track's demise, with the horses stopping in January 2015, thirty-seven years after the competition showed up.

Patriot bought its portion from Greenwood Racing of Bensalem, Pennsylvania, acquiring the former track itself along with the grandstands. Erik Kolar, the firm's chief executive, told CoStar that Patriot specializes in redeveloping distressed and troubled properties, and the mixed-use plan, he said, could incorporate part of the original grandstands and include office space.

Kolar's interest in the building runs down to the rivets: he described the upper decks' steel work as beautiful, said the state-of-the-art workmanship sits where nobody would ever see it, and traced it to the shipbuilding and production capacity the country built up during the Second World War. He hopes to preserve as many of those features as he can, and says demolishing the grandstands would pain him.

Amazon's half is a different kind of project: more than 2 million square feet of robotics sortation on land that has sat idle for more than a decade, and a township that welcomed the facility partly because of a pledge of 750 full-time jobs. E-commerce fulfillment is what gives those 145 acres a use at all, and it arrives in a leasing market where demand has outrun rent growth: our reporting on Milwaukee counted 8.7 million square feet of signed industrial space over the past year without a matching move in rents, the backdrop against which a 1946 racetrack becomes a logistics site.

Neither half is free of work, but only one carries variables: Amazon's 145 acres will need power, road capacity and whatever utility infrastructure a building of that size demands, though what Mays Landing requires on that front is not spelled out. The closest precedent is a different kind of Amazon project, the Shreveport campus, where a $400 million water system attached to the site put municipal water risk on the company's own books.

The 110 acres are where the hard variables sit. A mixed-use plan that keeps part of a 1946 grandstand is a construction budget with a preservation premium buried in it, and the office component Kolar floated is the piece of the program with the least support in anything reported so far — no preleasing, no tenant, no absorption figures for the submarket. CoStar frames the redevelopment as one more example of outdated properties being reimagined for uses now in demand, which is true by definition for the industrial half; the housing and commercial half has to demonstrate it.

Adaptive reuse is a financing problem before it is a design problem; our reporting on Cleveland's Erieview conversion made the arithmetic plain, because the structure is the underwrite, and the money has to hold from the first draw through the lease-up that proves the rents. Move that logic to Mays Landing and the grandstands stop being civic memory and become the asset that has to earn its way through a construction budget. That is why the tidy reading of this deal — Patriot took the sentimental half, Amazon took the practical one — gets the risk backwards. The practical half already has its tenant and its job count, while the 110 acres have to produce a rent roll before anyone can judge whether the preservation premium was worth paying, and as we have argued about the office clearing trade, obsolete stock is the part of the market where conversions keep getting done while trophy towers releverage. Mays Landing adds a variation: the obsolete structure is not what has to be overcome for the 110 acres to become mixed-use; it is the reason those acres can be something other than another warehouse.

Kolar says he would rather not demolish the grandstands, but whether they survive in place sets the cost basis for everything else on Patriot's 110 acres, and the mixed-use plan is the only document that will show where that lands. The other 145 acres will be sorting packages long before that question is settled.