Gay nightclub project bogs down in troubles

The smiling boosters and female impersonators gathered in an abandoned theater lobby on the third floor of the troubled Neonopolis mall in downtown Las Vegas suggested the pending announcement was a big one.

The event last July attracted enough reporters, photographers and urban enthusiasts to fill one of the theaters left vacant three years earlier, after air conditioning was cut off in a dispute between developer Rohit Joshi and the chiller plant operator.

The festive atmosphere that included a buoyant Joshi and an ebullient Mayor Carolyn Goodman suggested the dark history of the city-backed Neonopolis was about to get a dose of sunshine.

Goodman was joined by Kelly Murphy, operator of the gender-bending Drink and Drag tavern on the urban mall’s second floor, and of Krave, a longtime gay nightspot near the Strip. They were there to announce that Neonopolis soon would be home to Krave Massive, an 80,000-square-foot pleasure palace with an outdoor pool, five themed dance rooms and a performing arts venue.

“What a huge, exciting and grand step to be taking,” Goodman had written to Murphy a few weeks earlier, when the nightclub impresario told her the plan. “I know you’ll be tremendously successful and we will all benefit and be so proud.”

The big event achieved the desired result: Media reports said Las Vegas would attract more than 10,000 new visitors a week to party at Krave Massive. Neonopolis was about to take off.

But even then, signs of trouble were ahead — signs city officials who would come to invest time and the promise of tax dollars in Krave Massive never seemed to heed.

And eight months later, Krave Massive has yet to open.

QUESTIONS ABOUT VIABILITY

Neither Murphy nor Goodman would agree to talk about Krave Massive last week. But 1,600 pages of emails about the project, most obtained from the city through the state public records act, show deep doubts about the project’s chances for success and raise questions about city leaders’ willingness to overlook serious problems in their zeal to show progress downtown.

In the months following the celebration, city workers and Murphy’s own employees would come to question the viability of the proposed nightclub, and point to problems. Some had to do with Murphy’s background and his management of Krave Entertainment, LLC, which filed bankruptcy in 2010, listing more than $1 million in unpaid taxes alone.

Then there was the lawsuit from a prospective landlord who accused Murphy of falsifying records to secure a lease and then skipped on the rent. And the Drink and Drag employees who say their paychecks bounced, that liquor laws were flouted and that Murphy isn’t paying taxes now.

Those concerns didn’t puncture Goodman’s optimism. The mayor continued to boost the project at every opportunity, even pressing high-level city staff to steer Murphy to city incentives such as a program that reimburses businesses as much as $50,000 to offset the cost of code compliance during renovations.

As frustrated city staffers raised red flags about Krave Massive, Murphy worked a direct line to Goodman, winning financial help and other breaks even as city workers complained of undue pressure from her office and questioned whether Murphy was being allowed to skirt accountability standards that apply to other business owners seeking city help.

And the City Council, acting as the city’s redevelopment agency, didn’t seem concerned, either.

In January, the council without asking a single question unanimously approved the $50,000 construction reimbursement grant. No one publicly questioned the viability of the project or asked why Murphy’s grant application affidavit hadn’t been completed. The paperwork asks applicants to warrant that their project is free of liens, to declare he or she hasn’t had a recent bankruptcy and is current on federal, state and local taxes. Murphy left those check boxes blank.

NEONOPOLIS LAGS DOWNTOWN REVIVAL

There’s a lot riding on Krave Massive. Goodman’s election owed much to support for the downtown revival led by her husband, former Mayor Oscar Goodman.

While the mayors Goodman could be proud of developments such as a new City Hall, Mob Museum, new bars and restaurants on Fremont Street and the Smith Center for the Performing Arts, the inward-facing concrete edifice called Neonopolis had yet to join the revival. Built in 2002 through a partnership between the city and Prudential Real Estate Investments, it was acquired in 2006 by FAEC Holdings Wirrulla, LLC, which is run by Joshi. The city owns the parking garage under the property and Wirrulua owns the building, which has remained under-used and often empty in defiance of the Goodman legacy.

Krave Massive is supposed to change all that.

“These people have bent over backward — they are so far into it I don’t think they have a choice but to cross their fingers and hope that Krave Massive opens,” said a former executive in Murphy’s company who spoke on condition his name not be associated with Krave or Murphy.

The executive quit last November, when demolition of the old theaters to make way for Krave Massive was still unfinished even though the club was to open in December.

“I knew there wasn’t a chance in hell it was going to be back together,” he said.

From the start, city staffers questioned whether Murphy would be able to open. On July 11, two weeks before the mayor’s announcement, their email traffic included an article about Krave Entertainment, LLC’s 2010 bankruptcy. In that action, Murphy and his business partner, Sia Amiri, listed just $153,416 in assets and $3.5 million in liabilities, including more than $1 million in unpaid payroll, sales, live entertainment and unemployment taxes.

In those same emails, they discussed the difficulty of getting financial in­formation from Murphy.

“Apparently the mayor is the only one he’ll communicate with,’’ parking services director Brandy Stanley wrote in an email.

By September concern had shifted to the Krave Massive project itself.

“I am concerned about managing expectations on this,” chief urban re­development officer Scott Adams wrote planning director Flinn Fagg in a Sept. 19 note on the project’s lack of progress.

Adams noted that Murphy lacked a contractor or construction documents and was facing a swiftly approaching deadline to build out the club.

“Is this realistic,” Adams asked, adding that if it wasn’t he would need to tell Goodman and Councilman Ricki Barlow, whose ward includes Neonopolis. “It will be our fault, as always, given he has been encouraged to meet (by the Mayor) an unrealistic deadline.”

MURPHY COMPLAINED DIRECTLY TO MAYOR

If Goodman was concerned her efforts on behalf of Murphy and Krave Massive were wearing thin with the professional staff, it didn’t show in her correspondence.

Even before the announcement, Goodman was communicating about the project directly with Murphy.

When Murphy asked about the possibility of buying the city-owned parking garage, Goodman pressed staff members to consider working with him, despite their concern about his reluctance to disclose his funding source and concern that selling the parking for a multi-tenant building to one tenant would cause problems for the mall.

On Oct. 18, Murphy complained directly to Goodman about a sewer hookup bill for nearly $70,000.

Goodman appealed to City Manager Betsy Fretwell, stressing the importance of the project: “Anything we can do here?? It’s for KRAVE MASSIVE???”

Fretwell asked Economic and Urban Development Director Bill Arent if the project could qualify for a redevelopment agency Quick Start grant.

“I’m a bit hesitant as the principal has filed for bankruptcy in the past and I am not sure how long they will last as a tenant,” Arent wrote in reluctantly passing the request to Romeo Betea, a manager in the Economic and Urban Development Department.

In his email reply, Betea questioned the wisdom of investing in a project that would benefit Neonopolis, a mall that has consistently underperformed despite city assistance.

“The shame of it is that the building owner(s) benefit directly from the improvement made by the tenant making these permanent improvements for the building owner or directly from the city’s coffers or through city leniency,” Betea wrote. “We don’t hold property owners accountable for their desired tenants and the investment in that property.”

Those concerns were shelved, how­ever, and the grant application went to the council with a positive recommendation.

In an interview last week, Adams defended the decision. He said Quick Start grants drive investment in challenging properties and noted that the money is paid out only as a reimbursement after improvements are complete.

Quick Start has just $500,000 for grants, which are made on a first-come-first funded basis with a maximum award of $50,000 per project.

“The way our incentives work is they are performance based, they have to perform to get paid,” Adams said.

He acknowledged general concerns about the project, but said filling Neonopolis with tenants and attracting more people downtown is worth the risk.

“Maybe we could have gotten a better partner there but nevertheless we are trying to make it a better situation and get it filled up,” he said.

On Jan. 24, just a day after council approval of Krave’s grant, Stanley responded to a question about work at the Neonopolis garage with a complaint.

“There is pressure from the CMO (city manager office) and Mayor’s office to get this done ASAP and if Krave Massive isn’t kept happy, they have no compunction about visiting the Mayor,” Stanley wrote.

EXECUTIVES RESIGN, CITE CASH CRUNCH

While city workers were seeing a growing disconnect between Goodman’s expectations and Murphy’s ability to deliver, Murphy’s employees were even closer to the problems.

In November, Murphy’s vice president, his chief financial officer and bookkeeper walked off the job. In recent interviews, all three said they quit in part because of Murphy’s response to a serious cash crunch after his Harmon Avenue nightclub closed.

The CFO, who also asked that her name not be printed, said the company’s financials were a shambles. Murphy asked managers to delay taking their pay and switched from direct deposit to paper paychecks for employees to slow withdrawal of money from his accounts, she said.

When employees complained that banks would no longer take their bouncing paychecks, they were told to try to cash them at casinos and other businesses, she said.

In addition to issuing bad payroll checks, the former CFO said Murphy wrote checks from one bank account and cashed them at another bank before his first check could bounce.

“It was so awful on so many levels I just couldn’t be a part of it,” she said.

When bookkeeper James Burkhardt quit, his resignation letter to Murphy pulled no punches.

“It has become obvious that the reason you insisted you would handle various tax reports is because you have been lying on those reports and that you haven’t been paying them,” Burkhardt wrote. “You cannot even pay me within the law anymore. My bank no longer accepts your checks and the only way I can be paid is to pay check cashing fees when the law requires you to provide me my pay free and clear.”

On Dec. 20 another employee emailed city officials to report that Drink and Drag was buying booze from liquor stores, not authorized distributors as required by state law.

The complaint was forwarded to Nevada Department of Taxation Compliance Audit Investigator Michael Kelly, who responded he was already aware of the issue and is working on it.

A private email dated Nov. 8 shows Murphy and the Drink and Drag general manager discussing the bar’s dwindling supplies and which grocery and liquor stores offer the best price for replenishment.

The company’s adherence to liquor laws is likely to be covered during the licensing process.

Phantom Entertainment, the parent company for Drink and Drag and Krave, has only a temporary license that will expire in July.

DEVELOPER SAYS CONSTRUCTION PICKING UP

When he resigned in November, Murphy’s vice president emailed Goodman to announce that he was quitting without another job lined up. Goodman didn’t ask why, but she did plead with him to return to the project.

“I can’t imagine what has occurred but whatever it is needs to be put to rest for the higher, bigger undertaking (in my humble opinion), so if I can help, I’m here — you and Kelly have the best of the best projects and that’s what is important!” she wrote. “Just call and get yourselves in here, please! You have a winner of winners and this is THE FOCUS!”

Murphy’s former landlord has less positive things to say.

According to a lawsuit filed in August, Murphy and Kastle Management, a company owned by his former business partner, Sia Amiri, leased a $9,500 per month building at 5285 Dean Martin Drive as a new home for Krave. But the move never happened, leaving the building owner Itai Investments owed $83,000 in unpaid rent.

The men fraudulently submitted company and banking information to Itai to secure a lease they didn’t intend to honor, Itai attorney Becky Pintar alleges in the breach of contract and misrepresentation lawsuit.

“Defendants Krave, Murphy and Amiri concealed the true nature of their purpose to Itai, that is to create a scam company with no assets to enter into the lease with Itai for the sole purpose of securing the real property in case the negotiations on the Neonopolis project did not work out,” the lawsuit states.

It’s unclear if the city ever learned about the unpaid debt or the lawsuit, which is still pending in Clark County District Court.

GOODMAN REMAINS OPTIMISTIC

Krave Massive is now supposed to open in April, but that’s in doubt.

In a Jan. 30 email to Joshi and Stanley, the city’s parking services manager, Joshi’s wife, Loraine Kusuhar, said Krave has a new partnership agreement but construction might not be done until May.

In an interview last week, Joshi said construction on Krave Massive is picking up after stalling in the fall.

“It is all on track and we are moving forward,” he said.

On Feb. 13 Krave pulled permits needed to start construction and paid the necessary fees, though the company still has a delinquent sewer bill for $12,434, said city spokeswoman Diana Paul.

As ever, Goodman remains optimistic.

“I’m 100 percent supportive of Krave Massive coming to Neonopolis, and further expanding the exciting entertainment offerings that downtown Las Vegas provides,’’ the mayor said in a written response to the Review-Journal’s request for an interview.

“Having the world’s largest lesbian, gay, bisexual and transgender nightclub will undoubtedly draw tourists from around the world to visit our city,’’ she wrote. “All you have to do is look at the incredible success of Krave on the Las Vegas Strip to see how exciting this is, to say nothing of the new jobs that this venture will create.

“Neonopolis had long been the piece of the downtown redevelopment puzzle that we couldn’t get going, but with Krave Massive joining all the other new businesses there, this project finally has a chance to succeed ...”

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-383-0285 .