Minneapolis landlord with long history of troubled properties sells out

One of the most troublesome landlords in Minneapolis has sold all his rental properties in the city, ending a long-running battle with city officials over repeated housing violations.

Spiros Zorbalas accumulated 2,131 violations over a five-year period, including such violations as illegally installed water heaters, work done without permits and roach and rat problems. He had faced revocation of rental licenses for all 38 of his Minneapolis properties.

Council Member Gary Schiff, a persistent critic, called the sale good news. "Renters won't be displaced and Spiros Zorbalas is out of business," he said Wednesday.

Minneapolis developer Steve Frenz, who already owns numerous rental properties in the city, confirmed that he bought the buildings.

Frenz promised that renters will see a prompt response to their complaints, but said they'll also see rent increases.

"I don't think we have a choice," he said, adding that Zorbalas charged rents that were below market rates.

"There are mostly winners here," he said. "It's a win-win for us. It's a win-win for Zorbalas. It's a win-win for the city and most residents will see it that way, but I think some are going to be unhappy with where their rents are going to end up."

While increases for low-income renters will not be dramatic, he said, "it is going to be difficult for them. I think some will decide to look for housing elsewhere."

That could put an additional squeeze on the city's critical shortage of affordable housing, said to be the worst in a generation, and a factor in the recent surge in homelessness.

City Attorney Susan Segal said it was her understanding that Frenz "has been a responsive landlord and property manager with city regulators."

She said her office will meet with him next week to review the sale and begin the process of transferring rental licenses to him.

Frenz, president of the Apartment Shop property company, said he also owns 26 buildings in Minneapolis with 650 units.

Neither Frenz nor Zorbalas disclosed terms of the sale.

License crackdown

The council launched a crackdown against Zorbalas in 2011, revoking three of his rental licenses because of unresolved violations. A council ordinance targeting troublesome landlords prohibits any landlord who has two rental licenses revoked from renting property in the city for five years.

The council held off pulling Zorbalas' other licenses while he appealed his case. But after the state Appeals Court turned him down and the Minnesota Supreme Court refused to hear it, city officials began negotiating with Zorbalas last summer to give up control of the buildings.

The council was reluctant to simply shut down the buildings because they contain 751 rental units and an estimated 2,000 residents who would be forced onto the street if all his licenses were revoked.

Frenz said he began talking to Zorbalas three years ago about purchasing the buildings before the economic downturn forced Frenz to deal with other properties he owned.

After resuming negotiations, he said he first explored retaining Zorbalas as a minority owner, although not involved in management of the properties. But Frenz said Schiff insisted that Zorbalas have no ownership in the buildings.

Frenz said he then proceeded to purchase the buildings and began working on maintenance issues in October, two months before the sale was complete. He said he has a "very well-trained, long-term full-time staff" of 35 or 36 workers.

'Decade of neglect'

This is the "first winter we haven't had complaints from this inventory of buildings because of lack of heat," because Frenz has been maintaining the boilers, Schiff said. "He is catching up on a decade of neglect of these buildings," Schiff said.

Zorbalas, who lives in Florida, dismissed the role of the city government and Schiff in his decision to sell. "The terms are confidential and the city had nothing to do with the lucrative deal for me," he wrote in a text message.

"It was pure economics and Gary Schiff and his rhetoric made no difference whatsoever," he wrote. "I am living on the beach in Naples and flying on my personal jet, not him."

Frenz said he bought the properties because he believes there is rising interest in renting in Minneapolis, and said he hopes to gentrify some of the buildings. Among the properties he bought are some historic brownstones, he said.

Frenz said that too much rental property is being built and that the prices will be too high for some renters, who may prefer his lower-priced renovated units.

Randy Furst • 612-673-4224