Embattled Minneapolis landlord Stephen Frenz plans to sell eight buildings

A prominent Minneapolis landlord embroiled in a major court battle over his business practices is selling several of his buildings, spurring pleas from the low-income tenants for someone to repair the properties and keep rents affordable.

Upward of 50 tenants from Stephen Frenz's south Minneapolis properties are planning a protest Monday, objecting to poor apartment conditions and rent increases that will likely follow a sale. Most of the eight buildings, totaling 133 units, are in neighborhoods just west of Hiawatha Avenue south of Lake Street.

The sale of lower-rent apartment buildings to buyers interested in renovating them and charging higher rent is attracting growing attention from policymakers across the metro area, who want to curb the loss of affordable housing. Mayor Betsy Hodges said this week that since 2000, the city has lost 10,000 units affordable to households making less than $43,000 a year. She proposed $1.5 million in the 2017 budget to preserve 280 of them.

The south Minneapolis properties are notable for once belonging to embattled landlord Spiros Zorbalas, who was pressured by the city to give up his rental licenses due to poor conditions and mounting housing violations. They are now overseen by the Apartment Shop and Frenz, but recent court testimony revealed that Zorbalas may have retained controlling interest over them.

Marketing materials said upgraded kitchens and bathrooms would be "very well received by tenants in the market" and costs could be absorbed by higher rents. "Market rents in these areas are … higher than the current rents," said a brochure from CBRE, a commercial real estate firm. Offers were due on Wednesday, and it is unclear who the buyer will be.

"We're going to [have] the protest to tell the people that are interested in buying these buildings … that we want affordable housing and don't raise ... their rent," said Edain Altamirano, an organizer with the Corcoran Neighborhood Organization who lives in one of the buildings on 22nd Avenue. "The people that live in these buildings are low-income people."

Altamirano said most of the building tenants in the Corcoran area are Hispanic and either elderly people or single mothers. Problems at the properties include drafty and hard-to-open windows, cockroaches and mold, she said.

The Apartment Shop is a major landlord in the city, controlling one of the largest portfolios of units — more than 1,300. A Star Tribune analysis of rental violations this spring showed that since 2013, the Apartment Shop had racked up more violations than any other operator of large apartment buildings in the city. Frenz did not return a message seeking comment.

Frenz is facing a litany of legal troubles. Tenants of a building on 14th Avenue S. sued him this year over pests and lack of repairs at the property. His attorneys later resigned from the case after allegations that Frenz staged apartments to appear occupied to avoid the lawsuit, which required a majority of tenants to sign on. It then emerged that Zorbalas, who was believed to have given up his properties, may not have actually relinquished majority ownership.

A ruling on the initial lawsuit is expected in the coming weeks. But a representative of the attorneys for the tenants, Jodie Boderman of Faegre Baker Daniels, said they are also pressing for sanctions that could affect all of the Apartment Shop's Zorbalas-related rental licenses.

The properties being sold are not the subject of a lawsuit. But Boderman highlighted the high profit margins for the buildings, outlined in financial documents provided to prospective buyers, which she said mirrored patterns that emerged in the court case.

"When you juxtapose that with the idea that you don't maintain them, it helps to bolster the definition of slumlord and persistent business practices that were the ones established by Zorbalas way back when and haven't changed," Boderman said.

The recent government push to keep rents stable at properties erected without subsidies and income restrictions — "naturally occurring affordable housing" — may come too late for the buildings now up for sale. Hennepin County recently approved $3 million toward a fund to preserve such units, launching this fall.

Minneapolis City Council Member Lisa Goodman, who heads the city's community development committee, said she has been developing a strategy for keeping such units affordable. But the Frenz properties are being sold on such a tight timeline, she wrote in an e-mail, that neither the city nor many nonprofit developers could respond.

"The challenge is when you're competing against private capital, it just moves quicker," said Lee Sheehy of the McKnight Foundation, which funds affordable housing developers. "So you need to have a source of capital for these kinds of transactions that is not how government or philanthropy or government funding for affordable housing has historically moved."

Eric Roper • 612-673-1732

Twitter: @StribRoper