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By CP Staff
By Olivia LaVecchia
By Chris Parker
By Jesse Marx
By John Baichtal
By Olivia LaVecchia
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Zorbalas was sentenced to nine months in the Duluth federal workhouse. While there, he did his best to keep his education from suffering. He got permission for a weeklong transfer to a halfway house in Minneapolis to take his finals. (Zorbalas claims he never served time, though in a June 27, 1990, letter he wrote that "I am presently in custody" in Duluth.)
Perhaps recognizing that his rap sheet would make getting admitted to the bar something of a long shot, Zorbalas soon shifted his career focus. After getting out of prison, he quit law school and focused his attention instead on the U of M's Carlson School of Management.
Shortly after graduating with an MBA in 1993, he took a consulting job at Arthur Anderson, the now-shuttered firm made infamous by its pliant Enron audits. Zorbalas eventually opened his own consulting firm based in Atlanta, but by 1999, Zorbalas recalled in an interview with a Florida paper, he was burned out from the traveling. He decided to try his hand at real estate.
BY THE TIME HIS FIRST MARRIAGE ended in 1996, divorce records show, Zorbalas owned two houses and a duplex in Minneapolis, as well as a partial share of a building in Florida. In 1999 he got serious about real estate, founding Uptown Classic Properties and snapping up a dozen apartment buildings.
He'd chosen an opportune time to invest. With rental vacancy rates hovering at 1.5 percent, it was a landlord's market. And Zorbalas quickly went about capitalizing—or, as he put it in a newspaper interview at the time, buying buildings "that have values that can be unleashed."
"When he came into town, he was willing to pay more than we thought the properties warranted," says Harold Teasdale, president of St. Louis Park-based Minnesota Brokerage Group, whose firm sold Zorbalas several buildings. "As it turned out, he was right in that properties did increase in value. Particularly during the condo-conversion craze."
Some of Zorbalas's new tenants saw a 60 percent hike in their rent from one month to the next, as City Pages first reported in a 1999 article. Those living at 905 E. Franklin Ave. were also subjected to Zorbalas's profound hatred of pigeons. They told of seeing Zorbalas wander their apartment complex with a BB gun. One woman saw Zorbalas with the gun when she left for work, then returned that evening to find a hole in her window and broken glass on her floor.
Yet Zorbalas continued to expand his real estate empire. In 2001 and 2002, he spent more than $30 million on another 29 buildings, almost all of them in south Minneapolis. With these new investments, Zorbalas modified his strategy. While he maintained relatively high-rent buildings in Uptown, Zorbalas was now in the business of down-market properties in the poor, minority neighborhoods flanking East Lake Street. And Zorbalas established novel ways of milking his new tenants, such as charging upward of $100 extra for "non-emergency" maintenance work done on weekends and demanding $80 a day in penalties for late rent.
The complaints soon followed. By the end of '02, Zorbalas and his company faced 50 lawsuits in conciliation court, mainly over unreturned security deposits. The landlord also racked up hundreds of complaints to city inspectors—everything from outbreaks of mold to small armies of roaches and mice.
At the end of 2002 Zorbalas shuttered Uptown Classic Properties, shifting ownership of the buildings into a series of new companies with obscure names like SZ112 Inc., R110 Inc., and S1322 Inc. He spun the property management component of Uptown Classic Properties into UPi Property Management Company.
Then, claiming that Uptown Classic Properties no longer existed and had no successors, he set about trying to get all claims against the company thrown out of court.
It worked in many of his cases, but when a Somali immigrant named Mohamed Ali Mohamed sued to get his security deposit back in late 2002, the judge in the case saw Zorbalas's gambit for what it was. Uptown Classic Properties, S1322, and UPi, wrote Judge John Holahan, "are all shells established by Mr. Zorbalas in an attempt to avoid creditors. In fact all of these companies are alter egos of Mr. Zorbalas." The judge ordered Zorbalas to pay Mohamed the deposit and more than $1,000 in penalties.
"The judge was pontificating," Zorbalas counters. "He had no facts. He was 100 percent wrong." In spite of the judge's ruling, Zorbalas insists he won the case.
Tenants weren't the only ones suing Zorbalas. In 2002, he hired AL Cleaning Services, run by Violeta Lopez, to vacuum carpets in his buildings. According to the complaint Lopez filed in 2004 in Hennepin County District Court, Zorbalas didn't pay her for more than a year's worth of work, and stopped returning her calls and emails. "From the beginning he never paid me on time," she complained. After a year and a half of legal wrangling, Zorbalas eventually settled, agreeing to pay Lopez $13,000.
She wasn't the only worker he stiffed. In May 2002, Jilene McMillion, an office manager working for Zorbalas, quit her job to spend more time with her mother. When her final paycheck arrived weeks late and hundreds of dollars short, she sued. Zorbalas forced the case to arbitration, where he was ordered to pay McMillion $2,200.