15 West Kellogg Blvd.  
Saint Paul, MN 55102  
City of Saint Paul  
Minutes - Final - Final  
Rent Stabilization Appeal Hearings  
Marcia Moermond, Legislative Hearing Officer  
Nhia Vang, Legislative Hearing Officer  
Mai Vang, Hearing Coordinator  
Joanna Zimny, Executive Assistant  
651-266-8585  
Tuesday, July 19, 2022  
3:00 PM  
Room 330 City Hall & Court House  
3:00 p.m. Hearings  
Rent Stabilization Appeals  
1
Appeal of Jack Cann, Housing Justice Center, representing Hannah  
Gray, to a Rent Stabilization Determination at 787 HAMPDEN AVENUE  
#213.  
Attachments:  
Lay over to RSLH Thursday, September 1, 2022 at 9:00 AM. For further discussion.  
Hannah Gray – tenant, appeared  
Jack Cann – tenant representative, appeared  
Owen Metz – property owner representative, appeared  
Tammera Diehm – counsel to property owner, appeared  
Rent Stabilization Staff: Lynn Ferkinhoff, Angie Wiese  
[Moermond gives background of appeals process]  
Moermond: I will turn it over to staff to get us started and will be right back with you.  
Ms. Ferkinhoff, Ms. Wiese good afternoon. We will be getting a staff report. Tell us a  
little about this application and how it fits into the process. This is the very first appeal  
we’ve heard so I don’t think it would hurt to give a little bit of a 101 on the process.  
Ferkinhoff: Tenants are allowed to appeal a decision that’s been made by City staff  
through the process. How they do that is they can go online and enter the information  
that they are prompted to provide on the form online and that would generate a  
complaint into our system. Staff reviews that complaint and determine whether or not  
additional action should be taken. In this particular case, on May 27th the department  
received an intake form from a request for exception to the 3% increase per Ordinance  
193A. The application is part of the record and Jack Sipes is listed as the applicant  
representing Dominium. They were requesting an 8% increase on rent using the  
self-certification method. The reasons listed in the application were: an unavoidable  
increase in operating expense, a decrease in rental income, and a pattern of recent  
rent increase. The intake form asks applicants to enter three pieces of information  
from the MNOI worksheet: income adjusted by CPI is one of those items, allowable  
rent increase is another of those items, and allowable increase unit per month is the  
third item. As part of the self-certification process, the applicant received a  
confirmation email including their determination letter and a fillable flier for tenant  
notification. Staff also reviewed the recent inspection record. It was approved by Fire  
Safety Inspections as an “A” property in October 2017 and it has had 11 complaints  
since. There are no current inspection issues. The premise of MNOI is that an owner is  
entitled to the same rate of return on investment in the current year as they received in  
the base year. This premise assumes there is some profit margin attained that is  
allowed to remain. So as part of this appeal, the interpretation of rental income has  
come into questions. In the rules, gross rental income is gross rents calculated as  
gross scheduled rental income at 100% occupancy and all other income or  
consideration received or receivable in connection with the use or occupancy of the  
rental unit. There are further details about how to cover owner occupied or vacant units  
which are not applicable to this appeal. Our interpretation of this has been the actual  
income received, not the income potential. Secondly, the base year income or  
operating expenses can be adjusted for exceptional circumstances. The landlord must  
present evidence to rebut the presumption that the base year net operating income  
provided a reasonable return. For this appeal, since we have not had a chance to  
discuss the supplemental appeal documents, staff is questioning how the proposed  
base year income is exceptional from 2019 or the current year. Finally, the department  
has not received a complaint from any resident at this address.  
Moermond: Ok, to be clear, at this juncture there is no provision in the ordinance  
specifically or in the rules that have been finalized by the department for a tenant  
appeal. However, it is considered by me and backed up by the City Attorney’s Office  
that tenants are interested parties and therefore due process would apply to the  
tenants, and they would have the ability to appeal. The appeal came in directly to the  
Legislative Hearing office, it did not come through the Department of Safety and  
Inspections by way of a complaint which would be the proper procedure for that to have  
happened. We are looking at that today…  
Wiese: Marcia, thank you for making that clear…  
Moermond: Director Wiese, please yes.  
Wiese: Thank you for making that clarification and we just wanted to make a  
distinction or just recognize that we had not received one previous to the appeal  
coming in. So not saying that it couldn't come in the way it did just that we did not  
receive one and therefore did not review any sort of complaint. The web form is a way  
that complaints can be made it also can be made via phone call or any other method,  
we've received handwritten letters, but we prefer the website intake form.  
Moermond: Ok, so keeping that in mind. We have an application that was made for  
self-certification for an exception to the 3% cap. It was self-certified therefore granted  
by way of email. When the appeal came in, I asked building management to submit  
the MNOI and other associated materials that were supporting of the exception to the  
ordinance to be sent. The DSI rules do state that those forms should be retained for  
the records of the owner so they should have been available, and they were submitted  
upon request and made available to the appellant as well. You have had a chance to  
look them over. You have not had a chance to talk either with the appellant or the  
property owner with follow up questions you would have for that. Is it typical that you  
would have follow up questions for this? This is a significant proposal, there's a lot of  
units involved, so I'm assuming that you would in the normal course of events, and this  
is early days, but have follow up questions. Is that how things have been operating for  
you?  
Wiese: Yes, Hearing Office Moermond. I don't know that we've approved or denied a  
single one of these applications yet without confirming our understanding with what's on  
the piece of paper that's in front of us. We always have a conversation with the  
applicant to make sure that our understanding of what's on the written document is  
what they intended to share with us and then we clarify through the documents any  
discrepancies in our understanding so that the record is really clear. So yes, under  
normal protocol for a staff determination we would do that back and forth.  
Moermond: So if it were a staff determination and the paperwork would need to be  
submitted, and that would be 8% or more of an increase in rent, then you would have  
that paperwork and do that follow up communication with the applicant.  
Wiese: Yes.  
Moermond: Alright. OK. So you do have follow up questions; you enumerated them,  
had kind of like a light touch on that, we'll come back to that. What I'm going to do  
right now is turn it over to Mr. Cann. You filed an appeal without the background  
knowledge of what the supporting information was, which you didn't need to have with  
you at that time, but you appealed based on what you knew. What I'd like you to do is  
talk a little bit about that appeal and then I would like to switch and hear from the  
building owner about what their comments are on the paperwork they submitted. You  
did submit, I believe you titled it a rebuttal, of the information that they provided. So  
more or less I'd like to take this in chronological order as it came into my office so that  
we can review it that way. Mr. Cann you have a client who wants to appeal this, tell me  
the story of the appeal.  
Cann: Well, your honor, the appeal, was really simply to get them to submit the MNOI  
and the guts of everything is the rebuttal. And the rebuttal is based on really two sets  
of arguments. One is that the MNOI worksheet is wholly inconsistent in really two  
important ways in this case. One the staff says…  
Moermond: Wholly inconsistent with? With what?  
Cann: Internally inconsistent. The staff pointed out that that they wanted to see actual  
operating income, actual operating expenses used to calculate an actual net operating  
income. The form requires that for the base year and the current year, which is  
basically defined as 2021 in this case, it's the full calendar year before the application  
for exemption. The problem is that this building didn't open until May of 2019 and it  
was still accepting applications at least through the fall of that year. Nevertheless, what  
appears to have been submitted is a full years operating statement with a full year of  
income, a full year of expenses. That doesn't make any sense because the income  
was only generated over part of a year. The other problem is that the net operating  
income that was calculated isn't based on real numbers and real operating experience.  
It's somehow hypothetical, I have no idea how Dominium came up with it. The second  
problem is that the very first line in this calculation of net operating income is  
supposed to be the potential gross rents for the building for the entire year. Basically,  
summing up all of the rents of all of the units multiplying by 12, assuming 100%  
occupancy. Then the next line following is a vacancy reduction. Well, the problem is  
that later on in the form, and in this case it’s attached in five pages of appendix, is a  
complete list of all the initial rents, of all the rents used to make the calculation. Right  
next to it is a complete list of all of the initial rents for the for the tenants. Well things  
don't add up. Oh and then, and actually most important, if you add up all of the rents  
for the current year that are on this five page list, which shows for the current year the  
rent for each unit added up multiply it by 12 it exceeds the number put into the net  
income calculation for this year by, I think it's more than $300,000. In other words  
they're net income calculation for the current year is way too low and their net income  
calculation for the base year is based on purely hypothetical numbers. So that's the  
first set of problems. The second set of problems is that their argument, there's a two-  
or three-page argument that they submitted explaining why they were entitled to the 8%  
percent exception. And it's based entirely on the notion that the rents on this project,  
which is a low-income housing tax credit project, are somehow reduced from market  
rate units that are somehow comparable. What they did is they looked at the rules and  
what the rules provide for an exception to the 3% limit, is that the rules permit an  
exception if the net operating income from the building since the base year has not  
kept up with the consumer price index, kept up with inflation. The rule provides that  
under exceptional circumstances the base year net operating income can be adjusted  
and among those exceptional circumstances are reduced rents for particular or certain  
tenants. So their argument is that this is a is a low income housing tax credit building,  
it's not a market rate building, therefore we have reduced rents and therefore we should  
be able to base our net operating income as if our building had comparable market  
rents. That's ridiculous for at least a couple of reasons. This building received, let me  
actually get the numbers, a little over $2.5 million in low-income housing tax credits  
annually for 10 years. They sold those tax credits to investors for $22.7 million. In  
addition they got over $1 in grants to write down the cost of the project. And they got a  
long term federally insured fixed rate mortgage. It's not a market rate project. The  
project was underwritten obviously with all of those tax credits and all that tax credit  
equity. Resulting in a much lower net operating income then a market rate project  
would require. The market rate projects that they've used as comparables have much  
higher rents because they don't have $20 million in tax credit equity syndication to write  
down the mortgage. So they're not even remotely comparable. First of all they've taken  
reduced rent completely out of context. There is nothing in 2019, the base year, that  
was remotely different than what they completely expected. There were no exceptional  
circumstances. The rents were exactly what they projected, and the rents are exactly  
what all the underwriters involved in both the provision of the mortgage and the  
provision of the tax credit equity assumed would provide them with: a reasonable  
return. They don't need market rate rents to give them a reasonable return because  
they've got all this public subsidy. I guess the final point to make about this  
reasonable return is if they actually were, if they actually got rents, market rate rents,  
that they're saying they should be able to use to sort of calculate a hypothetical net  
operating income for the base year that would be totally unreasonable for two reasons.  
For one thing it would provide them with way, way, way, way more cash flow then  
everybody that put in all of that public money expected and secondly the investors,  
because they're buying tax credits, are looking for tax shelters. The last thing they  
want and the last thing that would be reasonable for them is to get a huge amount of  
cash each year. So their use of reduced rent as an excuse for the exception is taken  
totally out of context because there was nothing exceptional about the operation of the  
project. The comparables, and it's really ridiculous to use a market rate project that  
hasn't received 10s of millions of dollars of public subsidy as a comparable and as  
setting comparable rents. So for those two basic sets of reasons they have no right at  
all to any kind of exception. The two basic reasons are one, their MNOI worksheet  
doesn't make any sense and doesn't hold together and two, their written explanation  
doesn't make any sense or hold together. I'll leave it at that.  
Moermond: So the other arguments that you presented in the appeal you filed with my  
office you're not carrying forward? Would you like to make any comments, specific to  
Ms. Gray’s unit in particular because you are representing her and her unit in this? It's  
not a discussion of the entire building.  
Cann: Well if the 8% rent increases are not permissible under the ordinance or under  
the rules then of course Ms. Gray’s 8% rent increase is not permissible.  
Moermond: Any other comments about the appeal that you filed originally?  
Cann: Well the original appeal was made without any knowledge whatsoever of how  
they could possibly have justified this in the MNOI worksheet that they purportedly did  
before they filed the appeal. And what it said was look, if you look at the rent  
increases in that building between the 2019 base year and the increased rent that  
they're proposing right now, it was something like a 24-25% rent increase. If you  
looked at the increase in consumer price index from the base year, and I actually took  
it all the way to this year, this March, it was like it was 1.2% + 3% + 8%. Way, way  
less than the percentage increase in the rents. And my argument was well, if the CPI  
has increased by only 10 or 12%, I forget what the number was, and that's the amount  
that the net operating income can increase and you're increasing the rents by over  
20% the only way that works mathematically is if the operating expenses have  
increased dramatically more than the 20% or 24% increase that the rents laid out. I  
mean it was the best I could do knowing nothing about what the actual net operating  
income said. The idea that that the operating expenses could have increased that  
much when the actual inflation was on the order of 10 or 12% seemed ridiculous.  
Moermond: OK. Do staff have any questions at this juncture or would you prefer to hold  
them until we hear also from the owner?  
Ferkinhoff: We’d prefer to hold them until we hear from the owner.  
Moermond: Alright do you have any other comments?  
Cann: No… well I point out that you suggested that this appeal is just about Ms. Gray  
and I'm suggesting it obviously is not.  
Moermond: I am saying that Ms. Gray has the ability to file an appeal on her own  
behalf and on no one else’s. If there's follow up based on any outcome here, that is  
separate from what I'm looking at today.  
Cann: I understand that. I’m just telling you there will be a follow up.  
Moermond: Enough said then. Thank you, Mr. Cann. Alright who do we have here from  
Dominium? Can I get your names for the record please?  
Diehm: Yes, my name is Tammera Diehm.  
Moermond: And your name sir?  
Metz: I'm Owen Metz, I’m with Dominium.  
Moermond: Can I ask what your roles are with the corporation?  
Diehm: I'm an attorney at Winthrop and Weinstine so we are legal counsel to the  
landlord.  
Metz: I'm a partner at Dominium and a partner in the ownership group that owns the  
apartment community.  
Moermond: Thank you. Alright so you have heard now from Mr. Cann about his appeal  
and about the reasoning that he has applied to the information that Dominium provided  
when requested as part of the application for the 8% increase which would be an  
exception to the 3% cap. So what I'd like to do is to provide you an opportunity to  
describe the information you provided and if you have comments about Mr. Cann’s  
statements I will accept them and also hear again from Mr. Cann if he has any follow  
up after that. We will do it that way then and it looks like Ms. Diehm I will turn it over to  
you to begin.  
Diehm: Good afternoon. Again my name is Tammera Diehm. I am an attorney at  
Winthrop and Weinstine and I am representing the landlord entities. I am joined today  
by Owen Metz who is also a representative of the landlord entities. First of all thank  
you for giving us the opportunity to participate in this process. We recognize this as a  
new process for the city and with that there's some learning on all sides and so we  
appreciate being here and having a chance to share our comments. We do understand  
there are two separate and distinct appeals. The preliminary comments that we have  
really apply to both, so we'll go through those and then we are happy to talk specifically  
about the information in each appeal to the extent that is helpful, too. These two  
properties Union Flats and Cambric are affordable housing residential communities  
which means that the appellants, Ms. Gray and Ms. Banbury are paying and will  
continue to pay rent that is well below market rent for their residential units. The record  
that you have received and that is before you for review has a lot of information in it, a  
lot of information from the Housing Justice Center, as well as information that has  
been provided by the landlord. As you review this information and you listen to our  
testimony today and others who are here and present, you'll see that affordable  
developments, like Union Flats and Cambridge do not fit neatly into the city's current  
rent stabilization rules. In fact, most communities that have rent control or rent control  
rules, rent restricted affordable housing that is developed using federal tax credits or  
other public subsidies are treated differently than regular market rate properties under  
those rent control rules. That is one way in which many cities provide affordable  
housing in and of itself which helps the city further its goals of providing stable  
affordable housing for residents. We are not here today and we understand it's not the  
purpose of this appeal to argue that these properties fall outside of the city’s  
ordinance, but instead we think the record will show that the landlord for these two  
properties followed the City’s process and increased rent well below the amount that  
would be legally allowed not only under the City’s rent control rules but also under  
contractual agreements that are in place between the landlord and the city. As a  
starting point it's important to acknowledge the underlying goals of the residential rent  
stabilization ordinance that was approved by Saint Paul voters in November of 2021.  
The ordinance seeks to balance the desire to ensure that Saint Paul residents have  
access to affordable housing with an acknowledgement that property owners in this  
state have a right to a reasonable return on investment. To achieve this balance the  
ordinance creates a presumption that monthly rent increases should be limited to 3%  
in any 12-month period. But this presumption is just that - a presumption or a starting  
point. For an analysis that allows landlords to present information that would justify an  
increase of more than 3% in certain situations. As part of the ordinance  
implementation the city developed rules to clarify first, whether a property qualifies for  
an exception to the rent cap and two, how the requests for the exception to the three  
percent cap would be considered. The rules were finalized in late April and the limits  
on rent increases took effect on May 1. In this case the landlord followed the City’s  
regulatory process and was granted an exception to the 3% rule. For reasons that I will  
explain in greater detail both Union Flats and Cambric are affordable housing  
developments that operate in a way that allows them to qualify for the exceptions to the  
rent cap under the city rules that have been adopted. The appellants have argued that  
the city erred when it granted the exception. In doing so they attempt to create a cloud  
of confusion by first claiming that we're not legally entitled to an exception and then  
challenging the net operating income calculations that have been provided by the  
landlord through the worksheet. The rules as adopted by the City define what the city  
believes to be a reasonable return on investment. The city starts with an assumption  
that the landlord's actual net operating income or NOI in the year 2019 represents a  
reasonable return on investment for that particular property. Using 2019 as a base  
year, landlords then have a right to continue to receive the same NOI adjusted by  
100% of the percentage increase in the consumer price index. The rules however  
acknowledge that the 2019 base year adjusted by CPI may not work in all situations.  
To that end the rules allow a property owner to rebut the presumption that the 2019  
base year NOI is a reasonable return on investment if they can show that they were  
exceptional circumstances in the base year. To help clarify when a property may  
qualify for an exception to the rent cap the city provides examples of what may be  
considered an exceptional circumstance. These examples are provided in the rules and  
they’re also included in the worksheets that landlords receive as part of the exception  
process. There are three examples of exceptions that we would like to draw your  
attention to today. First one example of exceptional circumstances is that gross  
income in the base year, that 2019 year in most cases, was lower than it may have  
been because some residents were charged reduced rent, and Mr. Cann spoke to that.  
Second base year rents were disproportionately low in comparison to base year rents  
of other rental units in the city, Mr. Cann also spoke to that. And finally, the rules  
contemplate that there may be kind of a catch all “other” exceptional circumstances.  
So, I just want to talk briefly about all three of those situations. Ss noted earlier both  
these properties that are subject to the appeals today are rent restricted affordable  
developments which means that both Ms. Gray and Ms. Banbury are currently paying  
and will continue to pay below market rates for the residential units. The landlord for  
both Union Flats and Cambric established exceptional circumstances for each of  
these properties because the gross income in the base year was lower than it would  
have been as a result of residents paying reduced rent. The two properties are  
residential communities that were developed using a complex financing structure  
designed and administered by the federal and state regulators to provide affordable  
housing to residents in the City of Saint Paul. As part of this financing the developer  
entered into multiple contracts to ensure that rent in these communities would continue  
to be affordable to a segment of the population who earns income at a level that is  
60% of the area's median income. The first contract is called the Declaration of Land  
Use Restrictive Covenants or LURA. The LURA is an agreement between the City of  
Saint Paul and the developer. The second agreement, a regulatory agreement, is an  
agreement between the developer and the United States Department of Housing and  
Urban Development or HUD. And finally, the bond financing that was used to support  
these developments resulted in a regulatory agreement that was signed by the  
developer and the Saint Paul HRA. These agreements impose restrictions on the  
maximum amount of rent that can be charged for units that are part of these  
developments. The restrictions in these documents, specifically the LURA, the first  
one I mentioned, not only binding the original developer but all future owners of the  
property and those restrictions last for 30 years. For Union Flats, where Ms. Gray lives,  
there are 217 units and 100% of these units in the development must be rented to  
individuals who earn no more than 60% of the area's median income. Under federal and  
state guidelines and the terms the LURA, rent for these units is set at 30% of the  
income that is earned by someone who makes 60% of the area's median income. For  
Cambric, where Ms. Banbury resides, there are 113 units and like Union Flats all of  
these units are encumbered by a LURA and this along with the state and federal  
regulations impose restrictions that result in below market rent and it sets limits on the  
income of the residents who live in these units. In accordance with these documents,  
which are legally binding agreements with the City of Saint Paul, HUD establishes what  
rent should be for residents who live in these communities. Ensuring that rent is  
affordable for families at that specific income levels. Because of this, residents in  
these communities are paying rent that is reduced from what the market would  
otherwise dictate the rent to be for these units. As a result both of these properties  
qualify for an exceptional circumstance that's listed in the ordinance because the  
gross income in the base year was lower than it might have been as a result of some  
residents paying reduced rent. Second for the same reasons both Union Flats and  
Cambric qualify for an exceptional circumstance under the city stated description that  
base year rents were disproportionately low in comparison to base year rents of other  
rental units in the city. That's the language from the exception: base year rents were  
disproportionately low in comparison to base year rents for other residential units in the  
city. In 2019 Ms. Gray’s rent was $1060.00 for a one-bedroom apartment and Ms.  
Banbury rent was $1243 for a two-bedroom apartment. Both of these rental rates are  
significantly lower than the average Saint Paul rent for units of a similar size even  
before adjusting for differences. Specifically the City’s average rental rate for a  
one-bedroom unit like Ms. Grays in 2019 was $1525 or 30% higher than the rent that  
Ms. Gray was paying. Ms. Banbury’s rent in 2019 was $1243, this is 40% less than the  
average Saint Paul rent for a two-bedroom apartment. The Saint Paul average in 2019  
for this unit was $2060 and the average does not take into account that Ms. Banbury’s  
unit was brand new, and the building boasted more amenities than many of the other  
apartments in the city. The reason that the 2019 rents paid by Ms. Gray and Ms.  
Banbury are so far below what a typical unit in Saint Paul would rent for is because  
HUD, not the typical rental market, establishes what the maximum rate for units are  
when these units are financed by low income tax credits and they're subject to a LURA  
and regulatory agreements. And these rates that are established and published by  
HUD are below the market rental rates that would otherwise be paid for a unit like this  
in the open market in the City of Saint Paul. Based on this both Union Flats and  
Cambric qualify for an adjustment to the base year NOI under the City stated standard  
that rent paid by residents at these properties is disproportionately low when compared  
to base rents for other comparable properties in Saint Paul. Finally the third way in  
which we meet that standard is the rent stabilization ordinance and related rules  
contemplate that flexibility will be provided if there are “other exceptional  
circumstances.” Here there is an additional exceptional circumstance because the City  
entered into a contractual agreement with the property owner agreeing that the  
regulations established by HUD would be used to set the rent for these residential  
communities. HUD entered into a similar agreement with the property owner. Following  
the terms of these previously agreed to contracts the landlord is entitled to increase  
rent this year by almost 12% based on what HUD has established and published as  
2022 changes in the calculation of median income of this area. Limiting the landlord to  
a 3% cap on rent increases for these two properties would be contradictory to the  
City’s legal commitment to the property owner, the developer, the lenders, the investors  
all as set forth in the LURA and the regulatory agreements. The fact that both the City  
and HUD entered into contractual agreements related to appropriate rent for units in  
these communities, that in and of itself creates an exceptional circumstance to rebut  
the presumption that the 2019 NOI as increased by CPI would be a reasonable return  
on investment for the property owner. Mr. Cann argues that the landlord expects a  
reasonable rate of return to be the same as what market rent would be. That is simply  
not true. To the contrary in these two cases a reasonable return on investment should  
be defined as the return that was negotiated by the City, HUD, the developer, the  
lender, and the tax credit investors when these two communities were developed and  
financed. This agreed upon return is already well below market for a 30-year time  
period. Accordingly, Union Flats and Cambric properties that are the subject of today's  
appeals satisfy the exceptional circumstance standard in the rent stabilization rules in  
three separate and distinct ways. First residents paid reduced rent, second base rents  
in 2019 were significantly lower than the rent that would be charged for comparable  
units in the city, and finally third, the other exceptional circumstances, the contractual  
agreements that are in place between the city and the property owner and HUD which  
already set forth the process of determining rent. Once the property owner establishes  
that there are exceptional circumstances as the landlord has done here, the 2019 net  
operating income is no longer presumed to be the basis for the landlords reasonable  
return on investment. Instead the City agrees that it will allow an adjustment to the  
base year NOI and evaluate subsequent rent increases accordingly. Here the landlord  
followed the specific regulatory procedures that were established by the City to apply  
for the exception. Specifically the owner provided support for the increases in rent  
through the adjusted income and operating expense worksheet. Using the maintenance  
of net operating income worksheet the 2019 increase in allowable rent for Union Flats.  
when you do the adjustments and the calculations, would be 66%. The 2019 increase  
in allowable rent for Cambric would be 51%. That is certainly not what the landlord is  
asking the City to approve. Using HUD calculations related to median income, the  
LURA, and the regulatory agreements with the City, rent increases for these  
communities, or for the residents in these communities, would be close to 12%.  
Again, that is not what the landlord has asked for and not the adjustment that they  
made. Notwithstanding their right to request a greater increase, in an  
acknowledgement of the fact that this is a new process for the City, and the City has a  
self-certification and beyond that there's some question as to exactly how the process  
would work, the landlord provided notice for the 8% increase in rent and followed the  
self-certification process that the City developed. The Housing Justice Center’s  
position that the base year NOI cannot be adjusted because the financing of the  
original development used subsidies and tax credits makes absolutely no sense. In  
fact if the 2019 NOI is left in place and you don't allow there to be an ability to adjust,  
the City would be creating a situation in which the rent stabilization ordinance would  
prohibit the City from honoring the legal obligations that are in the contractual  
agreements the City has with the landlord. Specifically under the LURA following 30  
years of compliance with affordability the City has promised that the landlord would  
have the right to adjust rent to then market rates. But if the City’s rent stabilization  
ordinance is read in such a way as to prevent any adjustment to the NOI for affordable  
housing developments then the City’s rent stabilization ordinance would make it  
impossible for the landlord to ever achieve anything close to a market rate rent 30  
years from now. Not only would this scenario result in the City’s violation of the LURA  
but it would constitute unconstitutional taking of the landlord’s property. We are  
confident that that is not the intent of the City today. In the Housing Justice Center’s  
reply documents Mr. Cann descends into what I consider a hyper technical and  
somewhat erroneous examination of our maintenance of net operating income  
worksheet in an effort to kind of confuse the process and argue that the properties  
don't qualify. He also ,as he stated earlier today, claims that the exceptional  
circumstances standard cannot be met. In doing so he then goes on and asks for four  
orders that I think clearly exceed the issues that are presented in these two appeals.  
Instead the only question before you this afternoon, and before the City Council in  
accepting your recommendation, is whether the landlord for Union Flats and the  
Cambric property properly adjusted the 2022 rents for Ms. Gray and Ms. Banbury  
based on the self-certification paperwork and the process that's outlined in the City  
rules. The record that you have before you today, and as we will clarify with any  
questions, establishes that the rent increases are justified and the landlord did so not  
only in accordance with the rules that have been established by the City but also in  
accordance with the contractual documents in the LURA and the regulatory  
agreements that are binding; not only on us as the property owner but also on the City.  
So based on the record we respectfully request that you recommend to the City  
Council that the appeal of Ms. Gray and the appeal of Ms. Banbury be denied and that  
the legal agreements between the landlord and the City be honored and the rent  
increase be affirmed. Thank you.  
Metz: I'll just add, we use actual income and expenses. The form has asked for that  
so certainly if there's request to see the financial statements, we have a HUD audit  
done every year. The auditors and accountants look deeply at the operating expenses  
and incomes of the properties. We're happy to share that information. You know, we  
follow our agreements with the City in good faith and we believe we're following the  
rules established by the City. To Tammy’s point, without an adjustment to these base  
year rents to a hypothetical market rent, which is done all the time in market studies  
and information, where you look at a comparable market rate property. For example,  
Lyric at Carleton Place Lofts is directly across the street from Union Flats and a  
one-bedroom there rents for $443 more than a comparable one-bedroom in our  
building. We have comparable amenities, we’re actually a newer building than that  
building and we have a pool, they don't. There are high amenities at both of these  
apartment communities that would justify significantly higher market rent. We're asking  
to follow the agreements, we’re asking to follow the rules and equally as important we’re  
asking that 30 years from now that we're not removed from our obligation to at some  
point theoretically charge a market rent. And under the ordinance there's no vacancy  
decontrol and without an adjustment to these base year rents and to have NOI that's  
hypothetically market that is taken from us and that is a major problem. It would be in  
direct violation of our agreements with the city and something we’re very happy to  
continue to honor the affordability which we have been all along. The rent increases  
have been done in accordance with those agreements. We’ve never had any finding of  
charging more rents than what is allowed under our agreements and will continue to  
happily abide by those. Thank you.  
Moermond: Alright I will let you folks take your seats again and invite Mr. Cann to  
make a couple comments and then hear from anyone else. Do you have any follow up  
on anything you heard just now?  
Cann: Absolutely. So first of all, she made the point that the rules in discussing  
exceptional circumstances in the base year say the gross, so it's headed “exceptional  
circumstances in the base year” the gross income during the base year was  
disproportionately low due to exceptional circumstances. What she said was well  
disproportionately low means disproportionately low compared to all of the other  
buildings, market rate buildings in the City. But the context makes it completely clear  
that disproportionately low means disproportionately low compared to other years. The  
entire section is about adjustments to the base year and exceptional circumstances in  
the base year compared to other years. So first of all, the disproportionately low  
doesn't help her at all. Secondly, she said look the City and various governmental  
entities have entered into contracts with us that provide for a guaranteed return. They  
absolutely do not. They provide for potential rent increases. The return… there has  
been no testimony whatsoever that in either project the return that they got in the base  
year or in 2020 or in 2021 is any different from the return they completely expected  
given the 10s of millions of dollars of public subsidy that was put into those projects to  
assure that they did not need a net operating income like, that they did not need rents  
like a market rate project. You know in order to have a net operating income that that  
gave them a reasonable return on investment. In their MNOI worksheet for Union Flats  
they did a calculation of the allowable rent increase they could get if they were allowed  
to use comparable rents in making the calculation. The allowable rent increase that  
they came up with was $739.50, average rent increase using the mechanisms and  
procedures that they were talking about. That would produce way more than a  
reasonable return on investment because it would produce an enormous cash flow, a  
cash flow that's enormously greater than any of the parties that reviewed their  
applications for tax credits or reviewed their applications for millions of dollars of public  
subsidy thought they that would ever get. What they're asking for is a procedure in  
setting their exemptions that wouldn't come even close to guaranteeing them a  
reasonable return, that would guarantee them a return that is ridiculously higher than a  
reasonable return. We're not saying that they shouldn't be able to increase their net  
operating income, to keep up with inflation. Absolutely, that's what the ordinance says  
and that's what they should be able to do. But they have not shown, or even tried to  
show, that the net operating income in the base year was in any way exceptional in any  
way other than what they completely bargained for. We’re fine with them increasing that  
net operating income by the consumer price index increase, assuming that you use the  
consumer price index that's specified in the preface to the rules rather the one than  
that the city for some reason stuck into the to the form.  
Moermond: Can I pause right there? That remark, there was some e-mail that you sent  
to the department of safety and discussions on that exact point and I just want to allow  
them a chance to correct what their information had said and because there is a  
change here. Director Wiese?  
Wiese: Yeah, I can address that. The former language in the rules talked about the  
CPI as of March and it was listed in a couple different places in the narrative. The  
worksheet itself used the annual CPI. So in understanding that there was a  
discrepancy there in the language versus the worksheet. And the language is in the  
worksheet, so they're both in the same document but referencing a different CPI which  
would have yielded a different number. We got a city attorneys office opinion that the  
number in the worksheet is the one that people expected to utilize and therefore to  
keep as far as the correct CPI for MNOI. And therefore we've now, I believe it is  
posted currently, has been corrected today in all locations. It should now say the  
annual CPI and then also gives the reference to the BLS which is where we come up  
with the CPI numbers for the Minneapolis Saint Paul Bloomington area.  
Moermond: That acronym being?  
Wiese: The Bureau of Labor Statistics.  
Moermond: Mr. Cann, I apologize that I interrupted but I thought that that needed to be  
clarified because I know that there had been a correction. You can respond I guess.  
Cann: My response is that the only there are all kinds of CPIs and you know there's  
not…  
Moermond: You enumerated several in your materials.  
Cann: There's consumer price indexes for different geographical locations, there's a  
CPI for the 12 months ending in March and 12 months ending in a couple of other  
months. The point I'd like to make is that the only CPI that's actually referenced in the  
rules adopted by the City Council. It's the 12 month…  
Moermond: I need to correct you on that point that the rules were not adopted by the  
City Council.  
Cann: Oh, they weren’t?  
Moermond: No. The ordinance was not either, that was by ballot initiative.  
Cann: And the council didn't adopt the rules?  
Moermond: No.  
Cann: So the rules were made up by the city staff.  
Moermond: Department of Safety and Inspection drew up draft rules and they finalized  
rules. As specified in the ordinance itself.  
Cann: OK but nevertheless the CPI, the only CPI that's actually referenced in the rules  
is the 12 month CPI for March so you know…  
Moermond: We’ve gone over that territory a couple times now. You have more  
comments though it appears.  
Cann: Well again basically the ordinance itself requires a demonstration by the city or  
by the applicant that they're entitled to an exception in order to get a fair return. They  
have not demonstrated that the exception they proposed, which would again allow a  
$739 rent increase, is related in any way to a fair return. Nor… I'll leave it at that.  
Moermond: Are there other people who wish to testify today on the Hampton Ave  
property? Does counsel for this property, for Dominium have any other comments right  
now? OK I'm going to ask staff- do you have questions that you want to put on the  
record right now? I'm not expecting that anyone will be answering them but just  
questions that have come up for you during the course of this. I'm anticipating that on  
reflection from what you're hearing today you will have additional questions and I'd like  
to reduce those to writing so that they can be shared with all of the parties involved and  
we're all in the same place on what still could be done. Where I want to get is that staff  
will have had an opportunity to review what you would have reviewed if this were a staff  
determination question, so that there is that recommendation on the record from staff  
for me to consider in the context of this appeal. So that I have information from you as  
well. So anything right now that you would want to share?  
Wiese: One, I would like the reference that Ms. Diehm gave to the, and Mr. Cann  
brought it up too, the comparison to other properties. Which section of the rules  
specifically for that citation? And then also on the rental income just clarification on  
both properties actually what year the owner is using for base year and what rents. I  
think we all saw in the record that there's several columns of the spreadsheet with  
several different numbers, so we'd like to get a confirmation from the owner what base  
year they are considering and the rents they are utilizing in the base year.  
Moermond: Anything else… and that applies to both properties?  
Wiese: That applies to both properties and may generate further questions.  
Moermond: Of course. Mr. Cann, I can see you have one other comment on this  
property and then we'll go on to the next one.  
Cann: Oh well I guess I was just gonna get to that. Dominum addressed both  
properties at once and I was simply going to make the point that the arguments are  
virtually the same for the Cambric except that the problem with…  
Moermond: Can I just try to run the hearing for just a second? I wanted to get to  
wrapping up on 787 Hampden and did you have any other comments on 787 Hampden  
before we switch gears to talk about the other property?  
Cann: I wanted to make sure you were going to switch gears or that we would come  
back we come back in some way.  
Moermond: That’s my job. Alright.  
Laid Over to the Rent Stabilization Appeal Hearings due back on 9/1/2022  
2
Appeal of Jack Cann, Housing Justice Center, representing Katherine  
Banbury, to a Rent Stabilization Determination at 720 SEVENTH  
STREET EAST #330.  
Attachments:  
Lay over to RSLH Thursday, September 1, 2022 at 9:00 AM. For further discussion.  
Katherine Banbury – tenant, appeared  
Jack Cann – tenant representative, appeared  
Owen Metz – property owner representative, appeared  
Tammera Diehm – counsel to property owner, appeared  
Rent Stabilization Staff: Lynn Ferkinhoff, Angie Wiese  
Moermond: I am going to turn it back to staff and I will invite you back up Mr. Cann  
with your client for this property who is Ms. Katherine Banbury. Staff you have a  
summary of this information that you've seen and I imagine that it will be largely similar  
to the summary you provided for the previous case, but if you could simply make a  
record that would be appreciated.  
Ferkinhoff: On May 27th the department received an intake form for a request for  
exception to the 3% increase on rent per ordinance 193A. The application is part of the  
record and Jack Sipes is listed as the applicant representing Dominium. They were  
requesting an 8% increase on rent using the self-certification method. The reasons  
listed in the application were an unavoidable increase in operating expense, a decrease  
in rental income, a pattern of recent rent increase. The intake form asks applicants to  
enter three pieces of information from the MNOI worksheet. These include income  
adjusted by CPI, allowable rent increase, and allowable increase per unit per month.  
As part of the self certification process the applicant received a confirmation e-mail  
including their determination letter and a fillable flier for tenant notification. Staff also  
reviewed the recent inspection record. It was approved by fire safety inspections as an  
“A” property in January of 2020 and has 11 complaints since. There are no current  
inspection issues. The premise of MNOI is that an owner is entitled to the same rate of  
return on investment in the current year as they received in the base year. This  
premise assumes there is some profit margin obtained that is allowed to remain. As  
part of this appeal the interpretation of rental income has come into question. In the  
rules gross rental income is gross rents calculated as gross scheduled rent rental  
income at 100% occupancy and all other income or consideration received or  
receivable in connection with the use or occupancy of the rental unit. There are further  
details about how to cover owner occupied or vacant units which are not applicable to  
this appeal. Our interpretation of this has been the actual income received not the  
income potential. Decondly the base year income or operating expenses can be  
adjusted for exceptional circumstances. The landlord must present evidence to rebut  
the presumption that the base year net operating income provided a reasonable return.  
For this appeal since we have not had a chance to discuss the supplemental appeal  
documents, staff is questioning how the proposed base year income is exceptional  
from 2019 or the current year. Lastly the department has not received a complaint from  
any residents at this property.  
Moermond: You had mentioned just a moment ago 11 complaints?  
Wiese: 11 complaints related to housing, not to the rent stabilization ordinance. The  
last statement is “not received any complaints regarding the rent stabilization  
ordinance” at 720 7th Street.  
Moermond: For clarity’s sake, with both this property and the one we just discussed,  
you indicated clearly on the record that these were considered to be Class “A”  
properties and the complaints that you mentioned, I'm assuming were marginal, this is  
a Class “A” building and it's the highest rating. It means it's on a 6 year reinspection  
cycle.  
Wiese: Correct.  
Moermond: So that amount of complaints would be considered to be very low or  
normal.  
Wiese: Correct and that they have been appropriately dealt with and none are currently  
open. So that review and those statements are part of the department review of the  
warranty of habitability which is in the ordinance and in the rules and that's why it's  
mentioned here.  
Moermond: I just wanted to be clear for someone who wasn't familiar with that  
terminology. What that actually translated to.  
Wiese: Ok we'll clarify that for future appeals, should there be any.  
Moermond: Alright so we did talk exhaustively in the first case about issues that apply  
to both of these buildings and your comments as well as Dominium’s comments. Are  
there things that you would like to draw my attention to with respect to this property in  
particular?  
Cann: Very briefly. In the first argument I made two basic points that actually the staff  
just summarized. One is the question of how were the MNOI worksheets done and did  
they use actual rental income and operating experiences. The second was how was the  
base year exceptional and I talked about that extensively earlier. The difference here  
was that, that the first issue, that is what were the actual operating experiences in the  
base year. It seemed highly questionable to me in the Union Flats case because there  
was only a partial operating year, yet they've represented the full year of operating  
income and expenses. That's not the case in the Cambric. There is still at though in  
the Cambric a discrepancy between the gross potential income in the net operating  
income worksheet and what you get when you add up all the actual rents in the  
attachment. I guess the only other point I'd make is that in the Cambric case were  
Dominium permitted to use the procedure they wanted to use to determine the net  
operating income in the base year. It would justify a $682.77 rent increase this year.  
And I point out that that's just as ridiculous in this case as the similar one was in the  
earlier case. That's all.  
Moermond: Do you have comments, Ms. Banbury?  
Banbury: In what specifically? I’m just really listening.  
Moermond: You and Ms. Gray are both the appellants. If you had something to add, I’d  
be happy to hear it.  
Banbury: Dominium has the title of affordable housing and as Jack was laying out they  
get a lot of public funding. As a tenant that has lived there for four years, I compare it  
to a revolving door. People come in they get means tested and Dominium, or HUD  
takes the area medium income every year that continues to go up, and we are people  
that don't have that kind of income to continue to pay the highest amount that  
Dominium uses for the HUD number. They don't have to take that highest number but  
they do. So I've had countless neighbors having to economically evict. They cannot  
afford to live there and to me affordable housing is affordable. It keeps people in their  
homes and that is not the case with the Cambric Domimum that I live in.  
Moermond: Alright, Ms. Diehm I’ll turn it over to you.  
Diehm: Thank you, we have just a couple of comments. First since we can easily  
answer staff’s question we'll go ahead and do that. In the city of Saint Paul rent  
stabilization landlord worksheet on page 19 it lists exceptional circumstances for the  
base year and I do note those differ a bit from what are in the rules but number B4  
says base year rents were disproportionately low in comparison to the base year rents  
of comparable rental units so that's where that language is coming from. Just two other  
quick comments, Mr. Cann made the argument that we're looking for guaranteed  
return, that's not true. Our argument is that a reasonable return on investment for  
these properties there should be an adjustment to that base year NOI because a  
reasonable return on investment would be as reflected in the agreements that we have  
with the city and with HUD and with other federal and state regulators. They note that  
our worksheet justifies a $600 or $700 rent increase, that's not what is being proposed  
or what is being asked for we're talking about an $89 rent increase and a $96 rent  
increase. A comment was also made that were asking for just the maximum increases  
that are allowed, as we noted earlier under the HUD regulations the properties would be  
looking at a 12% increase and the landlord has only increased the rent 8%, so it is not  
at the maximum level that's allowed. They have come in at the 8% which again is $89  
for Ms. Gray and I believe $96 for Ms. Banbury.  
Metz: Hearing Officer Moermond, I'll just add I wish we could get 8% CPI. That's  
effectively what we're asking. Mr. Cann said we were happy with CPI. I think generally  
most landlords are happy with CPI and that's effectively what they 8% is under the  
self-certification. I think one of the struggles we've had in following the rules is there  
isn't a clear process as we looked at it so we submitted the self certification. It’s not a  
clear process to establish those base year rents other than through the MNOI  
worksheet. That process describes five different circumstances, we meet three of  
those five in order to adjust that base year rent. There's not a separate process on the  
city's website and how to follow that. So to be expedient we just went with the 8%  
which is as Tammy mentioned is less than the 12% we’re entitled to under our  
agreements with the city and HUD. The only way for us to describe those was through  
this process was as Ms. Wiese mentioned we will certainly follow up with that  
information to answer those questions to show where that that information was coming  
from. And to Mr Cann’s point we're not asking for enormous cash flow we're asking to  
follow our existing agreements. We have these agreements in place, we're asking to  
abide by those and follow the rules that were put in front of us. That that's very  
different than asking for enormous cash flow. I just wanted to clarify that.  
Moermond: Before you leave I just want to clarify one thing for the record, and we  
should probably clean this up in the record for the previous case as well, is that the  
agreement is not with the city of Saint Paul per se it's with the city’s housing and  
redevelopment authority which is a slightly different legal entity. So I just want to put  
that on the record that it is the HRA.  
Metz: Hearing Officer Moermond, we did, and I think it was in our response but if it  
wasn't we can clarify it too, on Union Flats, as Mr. Cann mentioned, it was a partial  
year in 2019. It's only a 3 year old building so 2019 was not a full year, we used 2020 in  
order to have a 12 month process of stable operating expenses and income. That was  
the information we used in the form not having a full year in 2019, so just want to make  
that clear for the record.  
Moermond: Ok thank you. I'm going to ask Mr. Cann if he has any other comments  
and then I'll ask the audience generally if there's anyone who wants to comment on this  
property as well. Mr. Cann?  
Cann: When I quoted the numbers that they put into that operating income worksheet  
showing for Cambric for instance is a $682 permissible rent increase, I wasn't  
suggesting that they were asking for that level of increase. What I was suggesting is  
that that is where their argument about what's permissible leads. It's obvious that's  
where it leads because that's what they showed. I quoted the ridiculously high number  
to point out how ridiculous their argument is. They have not ever in any of this  
discussion or any of their submissions indicated that they require any kind of  
exception at all to obtain a reasonable return on their investment as the rules define it.  
I guess the only other point I'd make is that if they use the 2020 operating experience  
to calculate the net operating income, of course they should have said it in the  
worksheet, but it also means that they don't get to use two years of inflation. They only  
get to use one year of inflation. They can't use the 6.05% number because they're not  
using 2019 as the base. Right?  
Moermond: Alright is there anyone else here who'd like to testify on 720 7th St. Ok do  
staff have any questions on this property to put on the record at this time? I have very  
few comments myself at this juncture. What I will say is that I want to express my  
appreciation to the tenants, to appellant’s representation, to the property owner, to city  
staff - this is an entirely new process that we are looking at. This is literally the second  
and third appeal that we've dealt with for the rent stabilization ordinance and its  
implementation. So very early days. We are charting a path, we are learning from that.  
I'm sure that what we learn will be used to fine tune the machinery of the ordinance  
moving forward. That being said we do need some time to evaluate the numbers, to  
evaluate the statements, I would personally like to connect with the housing and  
redevelopment authority's attorneys in this matter, and I think that to do due diligence  
is going to take just a little bit of time and communication back and forth. So I'm  
going to lay this matter over, which you could probably have guessed at the very  
beginning. There is just a half inch file on each one of these cases right now and it  
merits further examination. Today is July 19th and trying to take into account the  
ability of Dominium to provide any updated information and we should have not only the  
questions put on the record today but any additional questions we will have rounded up  
by shall we say Friday morning? And that will go out in a piece of correspondence  
that's a follow up to all the interested parties in this. So we will confirm that this case is  
being laid over confirm with the open questions are the deadline by which we'd like to  
get the materials back again. All the materials will become part of the public record,  
so all that being said could you have materials back by 29th or August 5th? With  
given the complexity of the discussion we've had so far.  
Metz: I will say without knowing what the questions are for sure, we’re usually pretty  
quick to respond. So we would do our best to respond by the 29th. When will the  
hearing date be then?  
Moermond: Well what I'm thinking is if you were able to respond by the 29th I would  
want to allow Mr. Cann to be able to review those materials, give him a good week.  
And to have staff be able to review things as well. I'm going to actually continue this to  
August 16th. We're going to go out that far, I would like to have staff be able to  
complete their determination, their recommendation on this and that might require  
additional correspondence that would be passing through my office but it is a  
cumbersome communication process and I want to take that into account and make  
sure that everybody does have the ability… and I'm going to ask you to come back up  
to the mic which I should have done a moment ago and did not.  
Metz: Hearing Officer Moermond, I believe Tammy’s on vacation on August 16th  
unfortunately and I have a City Council meeting already planned, I can try to rearrange.  
Is there any way to do it later in that week by chance or does it have to be a Tuesday?  
Moermond: Let me check something. Actually we could do Thursday morning on  
August 18th. Yes Mr. Cann?  
Cann: I am on vacation for two week starting August 13th.  
Metz: For what it's worth we’re happy to do the week before if that's helpful.  
Moermond: Alright we'll say the morning of Thursday, August 11th and that will… no?  
[discussion off mic about vacations] And the 9th was booked for your Ms. Diehm?  
Alright are people on September 1st? Thursday September 1st at 9:00 AM. With your  
permission Ms. Diehm, I'm going to include your comments from the first hearing into  
the second hearing. We will somehow make note of that and similarly with your  
comments Mr. Cann, so that if someone were to open one of the files in particular the  
second file they would see the substance of the argument from the previous case and  
how it might apply. Just so that the information shows up in both places as it was  
intended. Alright, again, thank you.  
Laid Over to the Rent Stabilization Appeal Hearings due back on 9/1/2022