Following default notice, council discusses Manhattan Casino’s future

With the operating lease between the city and the Callaloo Operations Group approaching its five-year termination date, St. Petersburg City Council heard an update on the historic, culturally significant and often embattled Manhattan Casino and discussed paths moving forward after issuing a notice of default to its operators in December.

Joe Zeoli, city development administrator, led the presentation on the Manhattan Casino during Thursday’s council meeting. Built in 1925 as the Jordan Casino, Zeoli highlighted a brief history of the historic building in the heart of the Deuces along 22^nd Street South, culminating with the city buying the property in 2002.

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In 2017, the city awarded Callaloo a five-year lease, through November, 2022. The agreement called for a restaurant, lounge and commercial space on the first floor with an elegant event venue on the second level. Former Buccaneers star Vincent Jackson was an integral part of the original Callaloo Group, and his death in February 2021 resulted in changes to the organizational structure.

“Obviously, there’s been some obstacles and challenges for the Urban Collective as they stepped into the driver’s seat on this project,” said Zeoli. “Other than a payment made for its late fees in February, there has been no rent payments received from the Callaloo Group from October 2021 forward.”

Representing the Urban Collective, Trevor Mallory told city council his organization absorbed the original Callaloo Group’s debt “with our hearts in saving something that we felt belonged in our community.” Screengrab.

The new Callaloo Operations Group now includes the Urban Collective LLC, 642 MC LLC, Mario Farias and Seamless Unlimited LLC, with the Urban Collective becoming the group’s managing member in September 2021. The city issued a notice of default to the group due to delinquent payments just three months later.

Zeoli said city staff met with members of the Urban Collective numerous time during the past several months, and a look at the Callaloo Group’s financial information “helps to frame the issue.” He then illustrated how the group’s expenses exceeded income by about $40,000 since August 2021. However, gross profits increased significantly in February and resulted in a net profit loss of just $3,046 for the month.

“It’s apparent, that even without rent (payments), the cash flow is upside down,” he said. “However, as important as that is, I want to make sure you recognize some recent occurrences …”

Zeoli told the city council the group made substantial improvements to operations recently. He said Urban Collective redesigned its food delivery model on the casino’s first floor, which resulted in a significant change in the cost of goods that stabilized and improved revenues.

Representing the Urban Collective, Trevor Mallory told the council it was no secret the group willfully absorbed previously incurred debt because of what the building means to the surrounding area.

“We took on that debt with our hearts in saving something that we felt belonged in our community,” he said. “Something that should stay in our community, and we wanted to sustain it – for the community.”

Mallory said all seven members of the Urban Collective understood that hospitality businesses typically do not incur a profit for the first two or three years of operation, and the group tried to sustain the building and provide job opportunities in the meantime.

Over the last five to six months, Mallory said, the group realized the original model did not work. Contracted vendors took nearly $100,000 of the group’s $180,000 in profits during that time, and revenue meant to sustain the business, he said, left the building with vendors that paid minimal rent to operate in the space. Per the lease with the city, the group must also keep a minimum of 25 employees, further eating into income.

“The incubator program – it’s a great program if it’s done properly,” he said. “But the way it was designed … it’s just not a profitable idea for anyone.”

The group rescinded the incubator program for entire businesses and now focuses solely on individuals. Those individuals are now employees of the Urban Collective. He credited that change with drastically decreasing the group’s net profit loss.

Mallory added that when factoring in previous debt, Callaloo has paid the city about five months of rent over the six months since Urban Collective assumed the control. He said it may have taken six months, but he believes the group has realized the correct path to make the Manhattan Casino a success.

“I believe we figured it out,” he said. “And I believe all seven of us who are partners still have the same goals in mind when you’re talking about keeping this business in the community and for the community.

“We do not want to price out the community that this building sits in. It sits in our CRA (community redevelopment area), so we have to price it for the CRA.”

Zeoli explained terminating the lease agreement with Callaloo would have several negative effects for the city. These include the loss of contracted events, a limited time to transition to city staff taking over operational control, capital costs to replace furniture and equipment and “unknown collectability of outstanding rent payments.”

The city could also potentially amend the lease and take control of the upstairs event venue. However, Callaloo has refused such an amendment, and the move would create a logistical nightmare. Zeoli showed that continuing with Callaloo through the remainder of the term would incur the least number of negative impacts for the city – a loss of rent revenue.

The event space inside Callaloo in the Manhattan Casino. File photo.

“Maybe it’s better to look at it as a management operation,” he suggested. “Similar to what we do with the Mahaffey Theater and Big3 Entertainment.”

Zeoli recommended an amended lease agreement that removes rent requirements and adds performance criteria, such as guaranteed payments to third-party vendors and employee wage and tax withholdings.

Councilmember Lisa Wheeler-Bowman said she meant no offense before stating the group did not know what they were getting into. She added that to her, Urban Collective absorbing the original Callaloo Group’s delinquent rent “just wasn’t fair.” However, she is concerned that her constituents continually ask how a business can avoid paying rent for six months.

“The taxpayers are footing this bill,” she said. “It’s not the taxpayers – they shouldn’t have to split any costs on this building.”

Zeoli said the last several years proved the financial model of an entity paying the city rent for the building is untenable. He requested time to learn from previous mistakes and issue new requests for proposals (RFPs) to Urban Collective and other entities with a new business plan after the current lease’s termination date in November.

Zeoli also noted a significant road improvement project along 22^nd Street South would soon begin. That could help draw more customers upon completion but will make access to the Manhattan Casino more difficult in the short term.

Councilmember Deborah Figgs-Sanders called the initial lease agreement “ridiculous” and said it set the group up for failure. She added that Urban Collective – with fewer resources than the original Callaloo Group – should not have incurred the former group’s debt.

“Bottom line – the city needs to do better,” she said. “The negation of that lease should have been done before you all (Urban Collective) stepped foot in those doors … for you to be successful.”

Figgs-Sanders said the city council now appears like it is trying to dismantle good intentions due to an unreasonable lease and expectations.

“We had the financials going into this,” she said. “And we still promoted it like it was the best thing since sliced bread.”

Council Chair Gina Driscoll said the city “needs to do whatever we can,” as the historic building is important to everyone. She added that the city is investing $15 million in a project adjacent to the area that could boost profitability for the Manhattan Casino.

Driscoll said the city should increase concessions to give Urban Collective and the building a proper chance for success.

“I’m all about the amended lease agreement,” she said. “Whatever terms you guys can come up with, and in return, I really hope to see you guys deliver on a fantastic project for the community.”

Zeoli will bring an amended lease agreement and additional options to the city council at the last meeting in April.