Last week in north Minneapolis, Mahmood Khan walked the darkened halls of his 11-unit apartment building, his tenants scattered and the chimney collapsed. Khan, a low-rent landlord who is fighting with city inspectors over code violations, vowed to use his insurance payments to rebuild his rental units after the May 22 tornado.

"I plan to fix it up and bring the people back," said Khan, who lives in Roseville. "I see a bright future." As much as it worries some neighbors and community leaders, landlords such as Khan will help determine the future of the tornado-scarred North Side.

Some predict that shoestring landlords will abandon hundreds of properties. Meanwhile, city leaders say that if aid money flows into north Minneapolis, disaster could become an opportunity for more stable affordable housing.

By one estimate, rental units make up more than 40 percent of the housing in the area, and a large proportion of those made homeless by the storm were low-income tenants who lacked insurance. Taking care of those displaced people "may be the biggest challenge we face from the tornado," said state Rep. Joe Mullery, a DFLer and North Side resident.

But those planning the future of north Minneapolis are also watching how owners of storm-damaged properties respond. Local leaders say the tornado will upend the already tumultuous real estate market of north Minneapolis -- one where massive government investment seeks to counteract the shock of foreclosures and rampant speculation, and where city leaders tussle with high-volume landlords such as Khan by revoking rental licenses and ramping up inspections.

More than 3,700 properties were damaged by an EF1 tornado that cut a diagonal path through the heart of north Minneapolis, city records indicate. At least 274 properties suffered major damage -- serious structural damage that requires extensive repairs.

Mullery said he wonders whether a property owner, handed a $100,000 insurance check for major repairs, will invest it in a house worth maybe $50,000.

Owners will ask "do I walk away with the money?" Mullery said. "This is a huge, huge issue."

A way to get out?

Ken Langenberger, a North Side resident and landlord, said he's considering that option for the tornado-clobbered duplex at 3126 Logan Av. N., one of his two rental properties. He's sorry to lose his tenants, one of whom rented the apartment for 17 years, but Langenberger said he's waiting on hiring a contractor until the insurance company acts.

"Before I take that step, I got to see what the hell they're going to do," he said.

The tornado blew out the windows of Kathleena Wilson-Harris' rented home on Vincent Avenue North, but she and six family members haven't left, for fear of looters. Living on a month-to-month lease since October, the family may not be allowed to stay there much longer. Wilson-Harris said her landlord told her that he's losing money on his properties and may bail out or sell his homes after the insurance payments roll in.

"It's almost like he sees a way to get out," Wilson-Harris said.

One of the neighborhoods' largest landlords, Steven Meldahl of Edina, expects more property owners to bail in the wake of Sunday's storm. Sixteen of his 75 rental properties were damaged, but he's planning to repair them. Still, Meldahl speculates that relatively new landlords could walk away from hundreds of north Minneapolis homes, tightening an already-strained rental market.

"I've always been in it for the long haul, but it could put a few of these newer landlords out of business," he said.

Mullery, the lawmaker, said a recent survey showed that a quarter of the homes in the Jordan neighborhood were vacant even before the storm. Roberta Englund, director of the Folwell Neighborhood Association, sees the potential negative scenario: more houses that become neighborhood nuisances as they go through the prolonged cycle of vacancy, deterioration and eventual demolition.

Hoping for stability

Englund and others can also imagine a happier outcome.

"We may be able to rebuild with some of the same investors and homeowners with a product that is more stable," she said. "There's a real possibility of having a sound housing stock."

Tom Streitz, Minneapolis' director of housing development, said the recovery money should be directed to help displaced people who lost housing and possessions, and to improve the housing stock by acquiring properties for rehabilitation or demolition and building new units.

Meldahl and Khan both complained that the city's code enforcement could slow down the reconstruction of their damaged properties. Meldahl accused city inspectors of condemning several of his properties for "absolutely no reason."

Khan admits he could have been more responsive to city complaints about some of his 40 properties in north Minneapolis.

"This is hard work," he said.

He shudders at the repercussions of even more low-income housing going off the market.

The city "expects Edina," Khan said. "But this is not possible in this part of the world."

In the storm's wake, Streitz promised "hyper-aggressive" enforcement of the building code. North Side landlords have already been the focus of city code enforcement: since 2006, 122 of the 188 rental license revocations were in north Minneapolis.

City Council member Don Samuels, whose ward covers some of the hardest hit blocks, said the city shouldn't lower its standards for housing.

"We really have to see this as a responsibility on our part to hold the line on quality," Samuels said.

Staff writer Jane Friedmann contributed to this report. • 612-673-4271 • 612-673-4491