Mr. Small's owners work with an old friend to get out of debt | Pittsburgh City Paper

Mr. Small's owners work with an old friend to get out of debt

After years of struggling with the mortgage, the venue is on sure footing and looking ahead

Keeping Mr. Small's alive: Mike Speranzo and Liz Berlin
Keeping Mr. Small's alive: Mike Speranzo and Liz Berlin

On a February morning, Mike Speranzo is coughing — he's had a protracted head cold.

"It's just because I've been out there hanging drywall in 18-degree weather," confesses the 45-year-old co-owner of Mr. Small's Theatre, the live-music venue in Millvale. "Otherwise I'd have gotten over it by now."

He and his nephew, Evan Smith, have been working along with other Small's employees to build what's going to be a restaurant on one side of the former church on Lincoln Avenue. They recently completed a few other renovations to the place: a downstairs bar where patrons can buy drafts and hang out if the opener isn't doing it for them; a screening room for movies and music videos; and an intimate show space where the old backdrop from the Club Cafe stage has found a new home. In fact, Speranzo has been putting sweat equity into the business he owns with his wife, Liz Berlin, for its entire existence — but this January was the first time in years that they've felt they were on sure footing with the venue. For five years, the space, a mainstay of the live-music resurgence that Pittsburgh has gone through, was on the brink of foreclosure —and it was an old bandmate of Speranzo's who helped save Small's.

Mr. Small's was founded in 2002 by Speranzo, a musician and former competitive skateboarder, and Berlin, best known as a member of Rusted Root. They bought the property from the borough of Millvale in 2000 and at the outset, it was meant to be a number of things: a live-music venue, a recording studio, a skate park. While the recording studio was the first part of the plan, it didn't pan out as well as they'd hoped.

"The recording-studio market dried up with the advent of Pro Tools," the easily accessible recording software that helped to revolutionize home recording, explains Speranzo. "There was a huge dynamic shift."

Over the years, while the live venue grew in popularity, the other aspects of Small's changed: The studio, run by engineer Larry Luther, moved to the North Side, to the old site of Audiomation Studios. More recently, the skate park was closed.

The live calendar at Small's picked up into the mid- and late-2000s, with promoter Opus One Productions serving as the venue's primary booker. With the help of an additional investor, the venue secured a liquor license, which helped with revenue, but soon another bump in the road came along: The 2007 implementation of the Allegheny County drink tax. The tax — initially at a rate of 10 percent, though it was dropped to 7 percent in 2009 — put a burden on Small's in particular because the venue didn't have a point-of-sale system and was dealing in cash.

"All of our prices were on the dollar: It made it easier for my bartenders. All of a sudden, the Allegheny County drink tax comes in: They put a 10-percent custodial tax on it. Now we're dealing with non-round numbers. Either we take it up to the next dollar or we eat the cost."

In addition to the tax, Speranzo's deal with an outside investor caused trouble. "Some of the deals I had inked with the investor for the liquor license went sour, so that created a fiscal drain," he says. "We started struggling immensely."

The first year's drink tax ended up being $45,000 that wasn't accounted for. By fall of 2008, the Pittsburgh Business Times was reporting that the venue had defaulted on a more than $400,000 loan from PNC.

"There was a point where I realized if we were going to succeed, I had to stop paying everyone and I had to let the cards land where they may," says Speranzo.

There were times when Speranzo and Berlin came close to throwing in the towel. At one point, Speranzo was offered a job in California, working at the West Coast version of Camp Woodward, the central-Pennsylvania camp where Speranzo once headed up skateboard instruction.

But, for five years, the couple persevered, working with PNC, whose representatives they say were more than helpful.

"At a certain point, I had to say to PNC, ‘Look, if you want the keys, here they are,'" Speranzo says. "‘I can't do anything to stop you.' They decided that wasn't in their best interest."

"They were very nice — they were not the hatchet crew you'd expect your banks to be," he adds.

They couldn't get out of the bind alone: That's when David Welsh stepped in. Welsh, a Penn State grad, played with Speranzo in the band Out of the Blue, which was based out of State College and won the 1993 Graffiti Rock Challenge, Pittsburgh's high-water mark for local bands at the time.

Welsh went on to work in real estate, working at Morgan Stanley then helping to found Normandy Real Estate in 2002. The New York-based Normandy's specialty is buying up the debt on properties that are in trouble, turning around risky acquisitions and selling them at a profit — the firm's most notable deal involved acquiring Boston's John Hancock Tower in 2008 and selling it for over $900 million in 2010.

"I remember being in the driveway and calling David and saying, ‘Look, I'm gonna lose my liquor license.' And he said ‘I'll get you a check.' I get emotional thinking about it; it was a turning point, because I didn't want to lose what we'd accomplished."

Welsh then worked with Speranzo to deal with the bankers and read the fine print. For a time, he was only helping; last year, he offered to take on a controlling interest in the mortgage.

"He was reluctant to do it for the longest time, because we're friends," says Speranzo. "But as every good businessman does, he never made a move before he was ready. So, as he started negotiating with the bank, he realized what he could do; it was closed out, and the investor we were having trouble with was bought out on New Year's Day."

It's not a simple, sweet bailout, though: As part of the restructuring, Speranzo and Berlin — who have never taken a paycheck from Small's, and live off Berlin's Rusted Root royalties and touring income — are selling their house in Friendship and moving into the apartment at the venue, along with their 17-year-old son and their niece and nephew.

"One of the conditions for David was that he wouldn't carry all of [the debt] — and Liz and I thought we should take that equity [in our house] and do what's right instead of profit off of it," says Speranzo. "So we're in the process of moving out of our house and moving in here."

Mr. Small's recently opened the downstairs bar, and has begun to use the additional rooms for smaller recorded shows and screenings. An expansion to the balcony level of the venue is planned, and the team is making headway on building a restaurant that Speranzo hopes to eventually open seven days a week, which will help with overhead costs in a big venue that, in the winter, might only see five or six shows per month.

And as Speranzo and Berlin emerge from five years of doubt and uncertainty, beyond the big plans, the couple has the curious sensation of feeling at ease.

"It's a different feeling," says Berlin. "After five years with all that hanging over us — we're free."