Minneapolis forced landlord to sell troubled properties in 2012, but he may still own them

A man who was once one of the most troublesome landlords in Minneapolis before the city forced him to get out of the apartment rental business may have, in effect, sold his rental properties to himself, according to testimony Tuesday in a civil trial in Hennepin County housing court.

Conditions at Spiros Zorbalas' properties had gotten so bad that the city pressured him to sell in 2012. Landlord Stephen Frenz bought the properties, in a deal approved by the Minneapolis city attorney's office and praised by city leaders.

But Frenz, who is now being sued for keeping apartments in substandard conditions, testified in court that Zorbalas' companies control 50 to 70 percent of Equity Residential Holdings, LLC, the entity that owns the apartments. Frenz has previously stated that he and his wife owned the firm.

And in court Tuesday, Frenz pleaded the Fifth Amendment repeatedly, refusing to answer questions at least 60 times on the grounds that his answers could tend to incriminate him in allegations that he had committed fraud and perjury. He also declined to answer 75 questions contained in an affidavit filed by his attorneys on Monday.

The trial began in March over a lawsuit filed by a tenants' group citing substandard conditions at Frenz's apartment building on the 3000 block of 14th Avenue S. The tenants claim the building had no heat during a cold spell in January, did not get repaired in a timely fashion and was infested with cockroaches, bedbugs and mice.

Frenz's attorneys produced a batch of invoices Monday to show that he had responded to tenants' concerns and made vast improvements at the property.

But Michael Cockson, the lawyer for a neighborhood group that is working with Inquilinxs Unidxs por Justicia (United Renters for Justice), said virtually all of Frenz's improvements were done after the lawsuit was filed in January.

The revelation that Frenz does not have the controlling interest could have far-reaching implications.

Former City Council Member Gary Schiff, who praised Frenz in 2012 when he announced he was buying the 40 apartment houses from Zorbalas, said Tuesday that the city attorney's office reviewed the deal before the purchase was approved.

"If he has given the city false information, I think it's grounds for the city to terminate all his licenses," Schiff said.

Asked to comment on Tuesday's court developments, Minneapolis City Attorney Susan Segal said in a text message, "The City is closely monitoring the case and will be reviewing the evidence as the City determines its next steps."

Zorbalas did not return a call for comment.

Frenz, who operates his rental properties under a company called Apartment Shop, which in turn is controlled by Equity Residential, had earlier claimed total ownership of the buildings he bought from ­Zorbalas.

But Frenz, under questioning by Cockson, a Faegre Baker Daniels lawyer who is working pro bono on the case, acknowledged that he paid only $500 and put up no collateral for all 40 properties. Pressed by Cockson — who read a list of companies Zorbalas owns — Frenz said that four companies were members of Equity Residential, giving Zorbalas majority ownership.

Cockson told Housing Court Referee Jason Hutchison that he will ask for sanctions against Frenz for committing fraud. Earlier in the trial, the tenants' attorneys accused Frenz of fraud for fabricating leases and inventing tenants for the south Minneapolis apartment building in an attempt to thwart the lawsuit for lack of support among residents.

Randy Furst • 612-673-4224

Twitter: @randyfurst