Social status

11/12/2014

The Des Moines Social Club is one of the highest profile nonprofit organizations in the city. It is backed by some of the wealthiest and biggest names in the metro, and its offices and operations reside in a gorgeous, historically significant building in the heart of downtown Des Moines at 900 Mulberry St. The staff consists mostly of young, passionate, creative people, and the Social Club, even as a nonprofit entity, is doing most everything in its power to position itself as the artistic and cultural touch point in Iowa’s capital city.

The Social Club’s slogan is “You’re a Member,” and, aside from being a catchy phrase, it’s literally true. As a 501(c)(3) nonprofit entity, everyone in the city is paying dues in some form or another. Those actively engaged with the club do so through direct donations to the club itself or by spending money at one of the club’s events or in Malo or Capes Kafe. But even if you’ve never set foot in the facility, a bit of your tax dollars has been used to offset the building’s property taxes or has made its way to the Social Club itself in the form of grant money.

So what kind of return are you getting for your investment? What follows is, as objectively as can be attained, an examination of what the Social Club does, who it is being done by, and how effectively it is being managed.

The Good

To understand why the Social Club has reached the level of cultural saturation that it has in the city — to get to the heart of why men like Fred Hubbell are willing to put their name and their money behind the operation — you’ve got to start at the top.

Zachary Mannheimer, the Social Club’s founder and executive director, is one of the best fundraisers in the city — possibly in the entire state. So adept is Mannheimer at getting people to see his point of view and open their checkbooks for it, that Des Moines councilwoman Christine Hensley — whose own interactions with Mannheimer have at times bordered on adversarial — has dubbed him “The Rainmaker.”

Mannheimer came to Des Moines via New York after a quasi-monastic trip through 22 cities in search of the best place to create his vision. Once he chose Des Moines, Mannheimer picked up a job where he knew he’d meet the people with the cash and influence to get him started: The Embassy Club. It didn’t take him long to move from waiting tables to bending ears, and the Des Moines Social Club presented its first public event on May 10, 2008, less than a year after Mannheimer first rolled into town. Now, six years later, Mannheimer has personally raised somewhere in the ballpark of $3 million for the Social Club, and the Club’s new home at 900 Mulberry has attracted attention and praise from everyone from George Formaro and Hubbell to David Byrne.

Hubbell, in particular, has been a strong supporter of the Social Club. He and Mannheimer met around the time the Social Club launched, and the two took a quick liking to one another.

“He’s a curious guy,” Hubbell said of Mannheimer. “He likes to learn and listen. I found him to be enjoyable to be with.”

Hensley calls Hubbell a mentor to Mannheimer, and the former’s contribution to the Social Club — both in advice and in dollars — cannot be overstated. With his deep pockets, deeper connections and commanding personality, Hubbell is the kind of man who can direct a lot of good fortune your way. So it’s probably not entirely a coincidence that the Social Club’s list of high-dollar donors is a veritable who’s who of Des Moines’ business elite. (See sidebar.)

The legitimacy that names like Hubbell and Hensley lend to the Social Club has not gone unnoticed either, and, much to the delight of the city of Des Moines, the Social Club has proved to be a tremendously valuable marketing tool.

“I was over in Cedar Rapids the other day, and one of the first things they asked me about was the Social Club,” said Hensley. “When I visit other cities, they want to know about it because they wish they had something similar.”

While it’s far too early to tell if the Social Club in its permanent home has had any effect on tourism or dollars spent in the city, there’s no doubt that city legislators are glad to have Mannheimer in their corner.

In addition to being a fundraising magician, Mannheimer has attracted a cadre of young, smart and passionate artists, musicians and actors who share his vision. One of the most important of those, in terms of day-to-day public impact, is education director Marnie Strate.

A Drake theater grad, Strate saw the potential behind Manheimer’s vision early on. The only public event that Strate hasn’t had a hand in was the Social Club’s very first one.

“I’ve been involved since late 2008 in varying capacities and levels,” she said. “But I came on staff in my current position in January of this year. Pretty much all of the staff has been brought on specifically for the Firehouse.”

As education director, Strate is the person who determines what courses go into the Social Club’s classrooms. It’s a job that’s part balancing act, part trial and error.

“Anything we do where someone is learning something is typically under my wing,” she said. “This year has been a learning experience; it’s been a lot of testing classes that we think will be successful and finding out if they are.

“What I’m learning is that we tend to be most successful with classes where there are very few or no other examples of around town.”

The result: The Social Club is establishing itself as the best — and in many cases, the only — place in town to take classes on topics like audio production, comic book drawing and aerial acrobatics. From Strate to gallery director Elise Goodmann to venue coordinator Bethany Arganbright, the Social Club staff is filled with bright, passionate people who are doing their best to ensure that, whether it’s your first time in the Firehouse or your 1,000th, your experience is engaging as possible.

“The whole idea of the Social Club is to have a wide range of programming that appeals to a wide segment of the population and have them interact with a range of people who might not normally interact with each other,” Hubbell said. “How many organizations do that? Not very many.”

In addition to the events that the Social Club itself puts on, the Firehouse renovations created ample space for the Social Club to rent to third parties as for-profit spaces. In that regard, once again, Mannheimer and his crew have made some excellent decisions. Two that are immediately visible to someone walking in the front door are Capes Kafe — occupying a prominent space in the middle of the Firehouse’s first floor — and the Orchestrate Management-owned Malo, which dominates the building’s Mulberry street facade. According to the Social Club’s monthly in-house numbers, the Firehouse sees 20,000 to 25,000 people a month come through its doors, and Mannheimer estimates that at least half of that number is supplied by Malo and Capes.

Clearly, the Social Club has a lot going for it. The staff believes in the Club’s mission, the endeavor has the support of the city’s civic heavyweights, and its executive director practically prints his own money. But as the Social Club grows, so do some people’s concerns.

The Questions

To understand why some have doubts regarding the Social Club’s future — to get to the heart of why those doubts grow in time with the Social Club’s expanding focus and sphere of influence — once again, you have to start at the top.

Mannheimer has never been afraid to learn on the job. As the years have ticked by, he has honed his natural people skills to be an increasingly effective fundraiser. But no one is good at everything, and there are concerns — even among his supporters — about whether or not Mannheimer has the ability or desire to see the areas in which he could use help.

“I had concerns about a lack of governance early on,” said Hensley, who served on the Social Club’s board in the very early days. “When (the Social Club) was vying to purchase the Firehouse, that was one of the conditions that I included in the negotiation: that (Mannheimer) add staff to address that lack of governance.”

The person Mannheimer brought on to address that void was Cyndi Pederson. Pederson’s resume is impressive, having served as Christie Vilsack’s chief of staff during Gov. Tom Vilsack’s tenure, and was a former director of the Iowa Department of Cultural Affairs (DCA). She’s been a leader for nonprofits including Salisbury House and the Center for Sustainable Communities, but nothing in her background is directly analogous to the job she took over at the Social Club.

While some may find it nitpicking, considering the rest of her impressive credentials, it’s an experience gap that even Pederson, whose degree is in art education, acknowledges. In an interview earlier this year, she told reporter Josh Hafner, “My fingers are on the numbers every day. Arts people aren’t spreadsheet people, but I’m learning.”

A big reason why the selection and placement of the Social Club’s staff is critical is that, while most everyone agrees that Mannheimer is great at raising money, not everyone is confident in his ability to manage it. The bulk of those concerns stem from the same place: The Sideshow Lounge.

The Sideshow Lounge was a for-profit bar opened in 2010 by a trio of investors including Mannheimer and former Social Club Artistic Director Matt McIver. The Lounge was located in the Social Club’s original home at 1408 Locust, and, just like Malo and Capes do at the Firehouse, the Sideshow Lounge was paying the Social Club to rent the space. When the club began to lose money, however, the Lounge quit making those rent payments, along with other financial commitments that Mannheimer and McIver had agreed to pay to the Social Club. By the time the Sideshow Lounge failed, the shortfall in rent and fees had worked its way up to $47,000. Put into the awkward spot of needing to collect from its own executive director, the Social Club board came up with a creative, if unorthodox, accounting solution: It loaned Mannheimer the money.

Financial records show that, in 2011, the Des Moines Social Club issued a loan to Mannheimer and McIver in the amount of $47,000. It was money that never actually left the Social Club’s coffers, but which allowed the accounting department to mark all the back-rent as paid in full. When McIver left the Social Club, part of his severance agreement transferred his portion of that debt to Mannheimer, and Mannheimer has been making payments on the full $47,000 since then.

It’s the Social Club’s experience with the Sideshow Lounge, then, that raised local concerns when the club announced plans to run the new Basement Bar itself.

The space underneath the Kum and Go Theater at 901 Cherry St. has been intended for a bar since the Social Club moved in. The original plan was for the space to be leased to an outside tenant, similar to Malo and Capes. Finding a tenant, however, proved to be problematic.

“There’s significant sound bleed into the theater upstairs,” Mannheimer explained. “So we have to be very aware of the events we have down (in the Basement).

“That proved to be an issue in finding a tenant,” he continued. “Seven to 10 p.m. tends to be prime time for bars, so telling someone they can’t have live music in their bar during those hours, no bar is going to agree to that.”

“We had a contract for some people to come in and own and operate the bar,” Hubbell concurred. “But those people didn’t want to continue under the rules of that contract, so we canceled it.”

The group in question included Mike Krantz, a member of the Krantz family that owns Adventureland.

“It’s one of those situations where not all projects are destined to actually happen,” Krantz said. “Everyone put in a good faith effort to reconcile the problems that you find as deals develop.”

And so, this past September, the Social Club decided cut out the middleman and officially launched The Basement.

“Early on in the Social Club’s life, there was thinking that the Club would run the restaurant and the bar themselves,” Hubbell explained, before conceding: “I don’t know that it’s wrong, necessarily, but it does raise some questions in people’s minds. That’s valid.”

One of the questions it raises is legal.

“Only under rare circumstances would a bar be able to operate as tax-exempt,” said Erin Bradrick, senior counsel for the Nonprofit & Exempt Organizations Law Group. “An organization that is tax-exempt under the IRS Code must be operated primarily for a listed exempt purpose, the most common of which are charitable, educational and religious. Operating a bar in and of itself would not satisfy this requirement.”

There can be quite a bit at stake here.

“Groups that seek to use tax-exempt status in order to avoid paying taxes may be subject to audits,” Bradrick said. “Agencies that fail to follow the IRS guidelines may lose their tax-exempt status and face civil suits or criminal charges.”

There’s a fairly simple work-around. If a nonprofit wants to run a for-profit business, they can establish a separate, for-profit business entity to run it, pay all the applicable taxes on property and wages, then donate 100 percent of their profits back to the nonprofit, Bradrick said. But, in the Social Club’s case, Mannheimer says the tax concerns are unfounded.

“We’re approaching it more as a stage with a bar, as opposed to a bar with a stage,” he said. “There’s a sort of rule — it’s not even a rule, really, more of a guideline — that you don’t want more than one-third of your revenue to come from unrelated income. The Basement is nowhere near that. If it ever gets there, that will be a nice problem to have to address, but I just don’t see it.”

Still, for some critics, it’s not a gamble that’s worth taking, given what’s at stake. Chris Knauf is an attorney with Sullivan & Ward in West Des Moines. He also served on the board of directors for both the Des Moines Music Coalition and the Social Club. Given his combined nonprofit and legal experience, would he have voted to allow the Social Club to run The Basement if he were on the board today?

“No,” Knauf said. “If a third party couldn’t be found, I’d have recommended breaking the bar off into a separate, for-profit entity. The most important consideration has to be for protecting your nonprofit status, even if it entails having to take additional steps or precautions.”

You’re a member

The Social Club has come a long way. Starting as the idea of a lone traveling theater director, it’s grown into a multi-million dollar nonprofit powerhouse through the unique combination of talented, passionate boots on the ground like Strate, along with the vision, drive and sheer cult of personality of Mannheimer and the deep pockets and deeper influence of people like Hubbell. But the bigger it grows, the more closely people will examine the structure that keeps it all standing. And they should. The Social Club wants to be the cultural bright spot in the growing landscape of Des Moines. It wants to be more than just another place to go. It wants to be a destination. Time and The New Republic have both published articles recently on how Des Moines might not be the desolate place many think it is, and both have held up the Social Club as an example of why. But if an entity allegedly speaks for the city culturally and artistically, it should have to answer the difficult questions that come with the responsibility.

No one we talked with in the city questions the current Social Club staff’s commitment to the cause. However, even the people who have the most to gain by seeing it succeed, stop just short of giving Mannheimer their full-throated approval, as evidenced by the answers to the question: If you were starting a new nonprofit today, would you want Zach Mannheimer to run it?

Hubbell: “You’ve got to know where your strengths are. I’m not going to put him in charge of Planned Parenthood. But if he had an interest in animals, could he lend some excitement and interest in the zoo? Probably. He can’t run an entire organization himself, but I think he can make a valuable contribution.”

Hensley: “I think he’s learned a lot since I first met him, and I think he’s got some very strong mentors. So, provided he continued to work with those mentors, I would say a qualified ‘yes.’ ”

So, are Des Moines residents, as members, receiving a good return on their investment in the Social Club? The answer: a qualified yes. CV

Follow this link to see a listing of the 2013 Des Moines Social Club donors: http://desmoinessocialclub.org/wp-content/uploads/2014/05/DMSC-2013-Annual-Report.pdf