Minneapolis puts embattled landlord Stephen Frenz on notice

Minneapolis officials have launched an investigation into the apartment buildings owned by landlord Stephen Frenz, warning that he could be stripped of his rental licenses if he misrepresented his ownership of the properties.

Frenz, one of the biggest landlords in the city, bought about 40 buildings from Spiros Zorbalas in 2012 when the city forced Zorbalas to sell the properties after a long history of housing violations. But testimony in a recent Hennepin County housing court case revealed that Zorbalas retained control and financial interest in the properties.

Housing Court referee Jason Hutchison ruled last week that Frenz had operated a substandard apartment house in south Minneapolis and used an elaborate scheme to deceive Hutchison in an unsuccessful effort to get the case dismissed. The apartment building was in disrepair and infested with mice and insects.

Noah Schuchman, director of the city's regulatory services, referenced the trial testimony in a letter sent to Frenz on Friday, ordering him to submit the names of "all partners, shareholders or interest holders" in 62 separate properties. He was told to produce an affidavit explaining any legal or financial connections between Zorbalas and the properties.

"You are hereby notified," Schuchman wrote Frenz, "that should Mr. Zorbalas have any such interest that the City of Minneapolis reserves the right to pursue any available enforcement action or legal remedy including but not limited to adverse license proceedings against such rental dwelling licenses."

In a letter to Mayor Betsy Hodges and City Council members on Monday, Schuchman called it "the first step in what may be a lengthy process that may include actions up to and including revocation of the rental licenses held by Mr. Frenz." He wrote that the next steps depended on if and how Frenz responded.

Frenz did not return calls for comment Tuesday. But in a Sept. 1 e-mail to city officials, Frenz wrote that he, not Zorbalas, controlled the apartment buildings.

"To be clear, despite what has been reported in the newspaper, Spiros Zorbalas does not continue to have a controlling interest in these properties," he said.

Frenz has inherited about 752 units from Zorbalas in 37 buildings. Altogether, he has about 1,324 rental units in his name.

When Zorbalas sold the properties to Frenz, the agreement was clear that Zorbalas would not have any ongoing financial interest in the buildings, said Tom Deegan, who was then the city's chief of housing inspections.

If the city revokes Frenz's licenses, officials have said they do not want to displace tenants or lose more affordable housing. The city could approve a voluntary sale of his buildings to another landlord who meets city requirements.

Frenz has already put some of his properties up for sale, and has made efforts to upgrade some apartment buildings that could make them unaffordable to low-income renters.

Hutchison has yet to rule on other matters in Frenz's court case, including a motion for sanctions, punitive damages, and a recommendation by the tenants' attorneys that criminal perjury charges be filed against Frenz.

Pulling a landlords' rental license is no simple task if the landlord chooses to fight it.

In another case, the city of Minneapolis has been trying for a year and a half to revoke the rental licenses of Mahmood Khan. The action has been delayed by a series of legal appeals, and on Friday Khan filed a lawsuit in federal court challenging the city's rules for pulling rental licenses.

Randy Furst • 612-673-4224

Twitter: @randyfurst