Let's Talk Turkeys

Let's talk turkey about Minneapolis real estate developers Drew Levin and Danny Perkins. Levin and Perkins acquired the nickname the "Turkey Guys"after their successful restaurant and catering business, Turkey to Go. They have gained national fame and adulation as the stars of the HGTV reality series, "Renovate to Rent."  They are major investment property owners in the city of Minneapolis.

Turkeys overrunning a neighborhood.

As developers, Levin (real estate broker) and Perkins (contractor) are on a steam-roll in the Wedge.Let's trot out some numbers: As mentioned in the previous post, Levin and Perkins, using several LLCs (KLP Realty, D&D Reality Holdings, DDMZ Real Estate, Lotterman-Madan, 2817 Girard Avenue, Farkas Wagner), have gobbled up 25 properties in the Wedge, with six of these already wrecked and a seventh slated for demo. Public records show that since their first purchases in the aftermath of the 2008 banking crisis, under the names of their various legal entities, they acquired over 80 properties in Minneapolis, taking out many millions of dollars in mortgages and loans. 

Levin and Perkins have taken out a total of $5,692,000 in loans for their Wedge properties. From public records, it's impossible to say how much of the debt has been paid off, how much is secondary financing, and how much of the bundled mortgages relate to Wedge properties. Steven Kalin is their most frequent lender, but they have also received substantial financial banking from these community banks: Merchants Bank, Anchor Bank, and Western Bank. They have also been bankrolled by regional Bremer Bank and Wells Fargo, a large national bank. Anchor Bank is their primary Wedge financial backer, lending them $2,651,500. (It would be interesting to find how much Anchor has loaned to individuals for home mortgages in the Wedge.)

KLP's (Levin and Perkins) first acquisition in the Wedge was 2613 Bryant Ave. S., purchased from Moneyapolis, LLC, for $215,000 in September 2008. This was the month that saw the collapse of Lehman Brothers, a sprawling global bank, a collapse which almost brought down the world’s financial system. The industry was saved by huge taxpayer-financed bailouts. But now chary of lending to individual home buyers, the "too-big-to-fail" banks have turned their corporate eyes to greener pastures, namely investment in real estate development.

2613 Bryant Avenue South

1.2 million people lost their homes through foreclosure during the 2008-2009 banking crisis. Investors quickly jumped on the opportunity to leverage a fortune out of the misfortune of others by buying up these properties  As indeed they brag on the HGTV website, starting in 2008, Levin and Perkins went out in search of foreclosed properties. A big bank is listed as the owner of four of the properties they bought in the Wedge: 2113 Bryant (Wells Fargo), 2612 Colfax (Capitol One), 2621 Colfax (US Bank), and 2814 Colfax (Bank of America). For another five properties the seller is listed as an LLC (Moneyapolis, Simple Living, Properties Ideal, Shree Investments, and TDL Properties).

In addition to their 25 Wedge properties, Levin and Perkins currently own 58 investment properties in Minneapolis, for a total of 83.  The owners of their current holdings are listed as one or more of the LLCs listed above, most commonly KLP.  On property purchases city-wide, 16 were from big banks; 8 purchases were from Fannie Mae, and 16 were from other LLCs. In some cases, one of their LLCs sold the building to another of their LLCs. And so these properties are transferred from one faceless entity to another, with a bewildering number of mortgages and other loans from banks, LLCs, and individuals.

No clear profile emerges of KLP when you look at public information associated with their properties: the addresses, buyers, sellers, loan amounts, and lenders. The list is filled with LLCs. Some properties have a series of five mortgages associated with them. Entities buy and sell the properties, passing them around, appearing at one address as a buyer, another as a seller. This befogged tangle of names and numbers is impossible to penetrate. 

The enormous number of properties that changed hands during the 2008-2009 financial crisis has created a nightmare for title companies that continues to this day. When a property is sold, title companies often have to sort through a list of owners, loans and liens, to determine if the property can be sold with clear title. This title mess creates more obfuscation of who's buying, who's selling, and who's financing a given property. It contributes to the confusing blizzard of data found in public records related to investment real estate. 

Graphic courtesy History of Economics Playground: Capitalism

In the 1960s much of the Wedge was absentee-owned. The 1963 upzoning brought dramatic changes. On just about every block, houses were wrecked for walkup apartment buildings. Absentee-owned houses became crash pads. One evening, an old couple, watching from the house they had occupied for 50 years, counted 400 revelers pouring in and out of the house next door. A drugged-up young man sprayed his neighbor's house with automatic weapon fire. A guy on LSD leaped from his apartment into the second-story window where a child was sleeping next door. Tenants rode motorcycles up the staircases of houses.

Thankfully, those awful days are long gone. Run-down houses were bought by homeowners who rehabbed or restored them. Condemned apartment buildings were made into Section 8 (low income) housing. Homeowners and renters banded together to stop crime, monitor absentee properties, and generally improve the quality of life in the neighborhood.  The Wedge was eclectic, funky, economically diverse, with affordable rents in a wide range of building types. Some have called this process of cleanup and rehab "gentrification", and in some ways, it was. However, it was nothing compared to the process of upscaling and gentrification under way right now.

A one-bedroom apartment in this older building on 26th and Bryant rents for $695.

Today the Wedge is being transformed into a high-density, absentee-owned area. Each home turned into investment property raises the number of renters. The most recent figures available show that 800 of the 3900 housing units in the Wedge were owner-occupied in 2013. Since then, scores of units have been added and are still being added on the Greenway, and now, with Michael Lander's and KLP's new apartment projects within the neighborhood, even more rental units will be available to rent. Obviously, the proportion of owner-occupied units to renter-occupied units is getting smaller and smaller.

These new apartments are "market rate" (what the market will bear), not by any stretch of the imagination "affordable." As more new apartments come on line city-wide, rents have increased by an average of 4.8 percent to $1,098 per month in 2015. Compare this average figure to rents in new Wedge apartments, for example, $1,795-$2,745 a month for a two-bedroom (877-1161 sq. ft.) in Flux Apartments on the Greenway, or $1,745 monthly for a two-bedroom unit (683 sq.ft.) in Motiv Apartments on 24th and Colfax. Thanks to these new apartments, in the Wedge the percentage of rent increase is likely higher than the city average.

One-bedroom apartments in this new Wedge apartment building rent for between $1539 and $2445 monthly

The duplexes next to my house and across the street were owner-occupied for decades. No longer. Turning family homes into rentals and new infill development raises rents and the value of the property as land (i.e., building sites), but lowers the value and attractiveness of older houses nearby. I've heard comments from two owners who sold their beautifully restored single-family houses and moved out of the Wedge that they saw "the handwriting on the wall." Not wanting to deal with increased congestion, construction chaos, and more absentee-owned buildings on the street, they felt they were gettin' out while the gettin' was good.

Increasing absentee-owned rental units in a neighborhood undermines a sense of community. Many renters are just passing through. The 2013 figures show that in that year, 35% of Wedge residents had lived there less than one year. It's hard to build relationships with your neighbors when they change so frequently. Knowing your neighbors is the key to community pride, including crime prevention and a sense of civic investment.

To return to where we started: It's very difficult to parse what all the figures and data about KLP's real estate investments mean. Just looking at all the loans, the addresses, the numerous banks, LLCs and private financial backers for KLP is enough to give anyone a migraine. It's a murky swamp of data that's impossible to see into. Economics is not an exact science, and there are many conflicting points of view. And certainly, one hesitates to accept the word of City officials who clearly are supporting their agenda. If residents protest, they are tarred with the NIMBY brush. The attitude of the City is: "This is going into your back yard, whatever argument you make. Whatever you say, we won't listen. If you don't like it, leave."

So, what can we see beyond the smoke and mirrors, political rhetoric and bureaucratic gobbledygook? One thing is as clear as the handwriting those fleeing the neighborhood saw on the proverbial wall: The Wedge has been targeted as a haven for investors, a place where owner-occupants are a rapidly dwindling demographic. Whether or not this is seen a good thing depends on whether you are an investor or resident, I suppose. It remains to be seen if these changes will make the interior of the Wedge more or less attractive to prospective tenants as well. From what I hear from my renter neighbors, they find the old, funky Wedge a great place to live.

On 28th Street, old and new buildings of compatible scale and design.

Around the corner, KLP's "sore thumb" infill (center) of incompatible scale and design.

One day, sooner or later, this latest apartment building boom will cease. By the time that happens, will the Wedge still be the Wedge or will it be just another nondescript absentee-owned real estate investment farm?

What is that thing blocking out the sun? It's the latest infill multi-unit apartment building! It's HUGE!

 --T.B.

Don't Mess Around with the Demolition Men

1963-1975: 100+ Wedge houses wrecked for apartment buildings.
1975-2015: 0 Wedge houses wrecked for apartment buildings.
February 2015-February 2016: Wedge houses wrecked for apartment buildings:

2320 Colfax
2316 Colfax
2808 Colfax
2743 Dupont
2809 Girard
2815 Girard
2821 Girard
2424 Lyndale
*2008 Bryant 
*slated for demo soon

Michael Lander and At Home Apartments brought the first two down for what is now Motiv Apartments. But all the rest are the work of Drew Levin and Danny Perkins of KLP Realty (a.k.a. D&D Reality Holdings, DDMZ Real Estate, Lotterman-Madan, 2817 Girard Avenue, Farkas Wagner).

Along with their financial partner, Steven Kalin, Levin and Perkins own dozens of properties in Minneapolis, including 26 in the Wedge:
         1008 W. 26th Street
         2344 Aldrich Ave. S.
         2008, 2113, 2612 Bryant
         2612, 2621, 2808, 2814 Colfax
         2521, 2557, 2612, 2644, 2701, 2725, 2743 Dupont
         2812 Fremont
         2700, 2709, 2715, 2809, 2815, 2821, 2828, 2832 Girard
         2424 Lyndale

Do their names sound familiar? That may be because Drew Levin and Danny Perkins are the stars of HGTV's "Renovate to Rent" series, described on the network website this way: "Real estate agent Drew Levin and his partner, contractor Danny Perkins, have been friends since college and now run a successful renovation business together.  They strategically buy old or foreclosed homes in desirable locations, but rather than flipping them for a quick profit, they Renovate to Rent.  Using specific design plans, they transform these homes to attract top rental dollar.  Even though they’re young, they already own and manage over 70 homes, and the number just keeps growing."

But instead of flipping seven of these "for a quick profit," they are demolishing them and building apartment buildings for even bigger profits.

Last year, KLP wrecked this 1880s duplex at 2743 Dupont:

And replaced it with this four-story thing that towers over its neighbors:

Then they wrecked this bungalow on 2800 block of Girard and the two houses to its north for an apartment building now under construction:

2821 Girard Ave. S. before demo by KLP

The living room of 2821

The new DUMP, er, KLP apartment building on 2800 block of Girard

                                                             Bette Davis comments.
The next wrecking is planned for 2424 Lyndale Ave. S. The replacement appears to be a clone of the 2743 monstrosity.

 2424 Lyndale before demo

UPDATE: 2424 Lyndale being wrecked, March 7, 2016

KLP's most recent project, their second Wedge apartment building, is slated to replace the house at 2008 Bryant Ave. S.  Plans for the new building show a  four-story stucco box containing 10 units with small, cramped rooms, covering most of the lot. Despite the fact that the building will house at least 10 tenants and as many as 20, plans call for only two parking spaces. That's because the orthodoxy of Minneapolis City Planning insists that everyone should be walking, biking, or taking mass transportation, not driving. If you are a tenant with a car, you'll just have to join the melee for spaces out on the streets of the Wedge.
 

Bummer: Your car is wedged in so tight, you can't get your bike onto your car's bike carrier. At 4 p.m. today I walked the 2800 blocks of Fremont and Girard. There was not one open parking space on these blocks.

KLP's demolitions and replacements with new higher-density apartment buildings have been done with the approval of the City of Minneapolis, notably of 10th Ward Council Member Lisa Bender. Again, planning orthodoxy demands that the City provide medium- and high-density housing for the 50,000 new residents it hopes to attract. But for some reason, this high density housing winds up being built in the Wedge by demolishing and rebuilding, rather than on the North Side, where scores of lots remain vacant. And the new Wedge apartment units are far from affordable; instead, the new ones replace ones that did have modest rents.


When will the wrecking end in the Minneapolis? It's hard to say. Perhaps when this fantasy-driven high-density building craze ends in a crash, perhaps when the area zoned for higher density is filled.  What area is this?  Take a look at this zoning map. Any building outside the pale yellow area is potentially in danger. The areas most in danger are the Wedge apex north of 26th Street and the area just north of the Greenway.

Endangered: the remaining houses on the 2700 and 2800 blocks of Girard and other blocks around 28th Street.

For decades the neighborhood association repeatedly petitioned the City to downzone the area north of 26th. It hasn't happened yet, and given the current political climate, certainly won't in the near future. The City wants more young affluent suburbanites and well-to-do retirees and fewer of the motley assortment of renters of modest means.

This afternoon the City Council sent a clear signal to neighborhoods in approving the Graves hotel at Emerson and Lake in Uptown: Whatever developers want, they get. The City has scrapped the Small Area Plan, zoning, and environmental concerns in favor of a development which, at six-stories, is way out of scale with the surrounding houses. It will certainly lower the property values and attractiveness of the houses around it, but who cares? Density is all.

The rising sun illuminates the six-story hotel coming to Emerson and Lake. No traffic, no traffic lights, no nearby buildings, no trash. Just an empty horizon full of promise.

What's your vision for the Wedge and other Minneapolis neighborhoods? If the City and KLP get their way, we'll see more big, chintzy boxes out of scale with the neighborhood and fewer of the old houses that have been the trademark of the Wedge and other Uptown neighborhoods for decades.

        "Tied to the tracks and the train's fast coming
          Strapped to the wing with the engine running
          You say that this wasn't in your plan
          And don't mess around with the demolition man
          Tied to a chair, and the bomb is ticking
          This situation was not of your picking
          You say that this wasn't in your plan
          And don't mess around with the demolition man."
                  --from "Demolition Man" by Sting 1993

First to go down: 2320 Colfax, the Orth House

--T.B.