Minneapolis officials hope new rules will prevent a repeat of the fiasco that allowed a banished landlord to continue owning apartment buildings secretly after his licenses were revoked.
"Working with the City Attorney's Office, this process will be the new city standard where there's been a revocation, so that hopefully we don't end up in a situation similar in the future," Noah Schuchman, director of regulatory services, told a City Council committee meeting earlier this month.
The city wants to avoid a recurrence of the troubles that unfolded after revoking Spiros Zorbalas' rental licenses in 2012 over repeated housing violations.
The buildings were bought by another controversial landlord, Stephen Frenz, who assured the city that Zorbalas had relinquished all ownership interests. But a 2016 suit against Frenz, brought by a tenants' rights group over a shoddy apartment building, uncovered evidence that Frenz and Zorbalas were secret partners in about 60 properties.
In response, the City Council revoked Frenz's rental licenses last year, forcing him to sell off all his apartment buildings.
Now the city is insisting that all buyers of the Frenz-Zorbalas properties sign affidavits asserting the two men no longer have any financial interests in the buildings.
"I'm thrilled they [city officials] are requiring more rigor from applicants," said Michael Cockson of Faegre Baker Daniels, lead lawyer in the tenants' suit that exposed the deception.
The city has also refused to grant rental licenses to anyone who bought Frenz-Zorbalas properties on contracts for deed, because the two men could regain control if the buyers fail to make payments.
The city is also giving all Zorbalas-Frenz buildings that are sold the city's lowest rating, a "Tier 3," which requires the most scrutiny by inspectors. For years, tenants of Frenz and Zorbalas have alleged problems with poor heating, vermin infestations and lack of repairs.
"In addition to a full application, paying all fees and a $1,000 reinstatement fee, properties are required to have a full inspection, including all units being inspected," Schuchman told the city's community development and regulatory services committee.
"The property owners are required to file a management plan and attend the property management workshop, and in addition — and this is the relatively new piece — we have required sworn affidavits from all owners explaining who the ownership interests are, both in the property and any LLC [limited liability company] associated with the property." The new owners must also provide the city with copies of the new warranty deed.
The council has approved the reinstatement of rental licenses for four Zorbalas/Frenz buildings at 2500-2506 Emerson Av. S., 3312 Blaisdell Av., 214-220 19th St. E. and 1308 Powderhorn Terrace.
Schuchman said the new owners had complied with all city requirements and were making satisfactory progress on a few remaining items.
"One of the things that is important with these license reinstatements is that the tenants who are currently there will not be evicted," said Council Member Lisa Goodman, the Regulatory Services Committee chairwoman. "So in a way, it's housing stability for the people who are there."
Nicer place, higher rent?
City rules don't dictate rents, however. "What these future landlords do in terms of rent, we really have no say in that, but what we do have a say in is how they upkeep their property and that is something that Mr. Schuchman and his team have been working on," Goodman said.
A tenant at the 214 and 220 19th St. E. complex said her rent has gone up about $60 a month. The tenant, who asked that her name be withheld, worried that further improvements to the buildings could bring more rent increases.
Joe Knapp, the new owner, said rents are going up, but that is because his company is now paying renters' utility bills. The average monthly rent is about $910, he said.
He said he also plans to install outdoor security lighting, improve landscaping and upgrade a first-floor coffee shop. "I'm very into keeping long-term tenants," he said. "If I can keep rents down, [I will] absolutely." Knapp owns 15 apartment buildings in Minneapolis and St. Paul.
Jim Gray, who owns 35 rental properties in Minneapolis and the western suburbs, bought the apartment building at 2500-2506 Emerson Av. S., with about 20 units each. He said Frenz had raised the monthly rents to a $1,000 just before they were sold.
"At this point, I think we are keeping [the rents] the same," he said. But as people move out, he plans to raise rents, on average, to $1,100, which he believes to be the market rate.
Gray praised the work of building inspectors. "I think the inspectors are great," he said. "Best part of the city."