By Jake Rossen
By Jesse Marx
By Michelle LeBow
By Alleen Brown
By Maggie LaMaack
By CP Staff
By Jesse Marx
Koenig defends Dream Home. A few complaints aside, he says, city leaders warmly greeted the influx of mass rental homes.
"There were four City Council members that went through the house and all of them expressed that the house looked great and was exactly what the city was interested in," Koenig says.
Councilmember Samuels was one of them, but he remembers it differently.
"I thought it was so shoddy," says Samuels. "I remember the finish was pretty crude. It didn't seem like the materials would hold up."
In 2004, the City Council passed a moratorium on building in north Minneapolis, putting a permanent halt to Dream Home's expansion. In 2005, after building only about 70 of the proposed 350 properties, the company went belly up. It filed for bankruptcy the next year.
The East Coast investors told the Minnesota Supreme Court that an Edina Real Estate Agent approached them on behalf of Dream Home. In court, the investors accused Dream Home of duping them into buying six properties by promising a fortune in guaranteed cash flow from Section 8 vouchers and nonprofit funds allocated to low-income renters.
By this time, Koenig had already split from the company over what he calls a "dispute with the other owners," so his former partner, Kohlenberger, signed a confession of judgment on behalf of Dream Home and its sister companies.
When Koenig left the company, Kohlenberger agreed to buy out his interest in Dream Home. Koenig sued his former business partner in 2005 for failing to make the buyout payments on time, according to court records. Shortly after, Kohlenberger transferred all of the unsold properties to Koenig.
Koenig sold off most of the Dream Home properties, but held onto a few to help build his new empire—a company called Pamiko Properties LLC.
Five years after Dream Home folded, residents say their early fears about the company have been realized. Since the bankruptcy, more than 20 Dream Home properties have been vacant or boarded. Others have been demolished by the city.
Neighbors of the remaining properties say they're bringing down the value of the entire neighborhood.
"We're still stuck here with these six-bedroom homes that really aren't attractive," says Bev Scherrer, housing committee chair for the Hawthorne Neighborhood Council. "Only time will tell how long they'll last. We're just slowly eroding here."
JEFF SKRENES SAT in his cluttered office in the Hawthorne Neighborhood Council headquarters sifting through the usual mundane lists of nearby addresses when he stumbled on a record for a north Minneapolis house that had recently been bought at a foreclosure auction for $2.5 million.
This seemed more than a little odd to Skrenes. As the neighborhood's housing director, he spends a big part of his day monitoring nearby properties, and he rarely sees one graze six figures at auction, let alone break the $2 million mark.
So Skrenes did some digging. The more he looked at it, the stranger it appeared.
"This is like the Alice in Wonderland of mortgage," says Skrenes. "This gets so convoluted ...and I get this shit!"
Skrenes discovered that a company called Pamiko Property LLC had taken out at least three multimillion-dollar lines of credit from Minnwest Bank. Owned by a married couple named Paul and Michelle Koenig, Pamiko put up scores of largely north Minneapolis properties on each loan as collateral. Then Pamiko began losing some of the properties to banks—a combined total of more than 40 properties.
When Minnwest Bank bid $2.5 million at the auction, they were actually buying several dozen properties that they already had a stake in.
This only left Skrenes with more questions. Why would a bank loan someone millions to invest in cheap north Minneapolis properties? And if Pamiko lost all the properties to the bank, where did the money go?
As Skrenes continued to pore over the mortgage records, something else struck him. Several of the same addresses appeared as collateral on different lines of credit.
Skrenes, a former mortgage originator for U.S. Bank, says he's never seen anything like it.
"It's a foolish lending decision," he says. "Foolish at best. Maybe worse."
Almost immediately, residents from all over the city rallied in the comments sections of the blog posts, leaving horror tales about Koenig's reign as a landlord and lists of properties he has owned.
Then the digital mob turned on the Koenigs, leaving comments on a personal blog they maintained. One told the Koenigs they were going to hell for pillaging their neighborhood. Another made an ominous reference to knowing where the family went to church.
The Koenigs quickly deleted all the comments and made the blog private.
In late January, Skrenes and other neighborhood council members landed a meeting with city and county officials to discuss their beef with Koenig. City Councilmember Diane Hofstede and lawyers from the Hennepin County Attorney's Office were in attendance as the north Minneapolis residents made their case for an investigation into Koenig's business and banking practices.