Residents at Birchwood abide as officials navigate future of Grand Marais apartment complex

A federal inspection this year of the Birchwood Apartments in Grand Marais found “substantial water damage to ceilings, walls, flooring, and personal property” in more than one-third of the units at the local housing complex.

In a letter dated Jan. 26 from the United States Department of Agriculture (USDA) that was sent to Birchwood owner Lilean Sedlacek, officials from the federal agency share both a list of concerns and expectations to address the deficiencies at Birchwood. The inspection report was obtained by WTIP through a request under the Freedom of Information Act. The inspection by USDA staff took place Jan. 24.

WTIP reported earlier this year that the conditions at the Birchwood Apartments were a growing area of community concern. Among the issues at Birchwood were leaking pipes, mold on the walls, rotten sheetrock, failing appliances, a lack of responsiveness to the needs of the tenants, walkways not properly shoveled in the winter, and more.

Included in the federal inspection report were instructions to fix or create an action plan to address the deficiencies impacting the apartment complex and the tenants who call Birchwood their home. During the past 12 months, at least one tenant at Birchwood has been forced to move from their home due to the flooding and unlivable conditions inside an apartment. Others, WTIP was informed by tenants at Birchwood, chose to remain silent even as issues like flooding persisted out of fears of being evicted. In a statement sent to WTIP March 15 about the USDA inspection report, Sedlacek said that “plumbers have repaired water leaks and a crew has removed wet debris and personal property.  All wet carpets, etc., have been removed.”

However, there is still work to be done. Sedlacek said additional phases included in the plan to fix the damaged apartments at Birchwood include the “removal of the most severely wet and water damaged areas of the structure.” This aspect of the cleanup is currently underway, Sedlacek said. Once this phase of the restoration is complete, some parts of Birchwood “will require final demolition to assure all damaged areas are clean so that extensive plumbing updates and rehabilitation of structure may take place.”

The Birchwood Apartments were built in 1992 as federally-subsidized housing in Grand Marais. There are 24 units in two separate buildings that make up the apartment complex. The apartments are either two or three bedroom units, about 770 sq. ft. and 930 sq. ft., respectively. The tenants range widely in age, including families with young children. When it was being built, the developers received funding in part through the Section 515 Rural Rental Housing program. This means tenants in Birchwood can qualify for various rental assistance programs, and many of them do.

Among the reasons local, state, and federal officials noted for why Birchwood is in such bad condition are policy changes with the USDA’s Rural Development program due to the COVID-19 pandemic, and issues with two rental companies: Minnesota based DW Jones Management, Inc., and NETA Property Management out of Fargo, N.D.

In spring 2020, during the early days of the pandemic, federal inspectors from the USDA stopped doing inspections on federally-subsidized housing, according to Danielle Logan, the public affairs specialist for the USDA’s Rural Development office in Washington D.C. She told WTIP “inspections were on a pause from March 2020 to summer 2022 in-line with COVID-19 restrictions that were in place.”

In terms of local oversight, the city of Grand Marais has neither an inspection standard that occupied dwelling units must adhere to, nor does it have a team to do inspections even if such a code were in place, according to Jason Hale, the director of the Cook County Housing Redevelopment Authority (HRA).

This lack of oversight appeared to have a trickle-down effect at Birchwood, as maintenance issues started to surface from the lack of attention. DW Jones Management was in charge of keeping operations afloat at Birchwood for many years until they ended their contract in September. Following that, NETA signed on for just a few months before the company broke their contract, which expired Jan. 31. Sedlacek told WTIP on March 15 that a new property management company based in Minnesota, VanBinsbergren & Associates, is now taking care of Birchwood, and are “doing an excellent job.”

Sedlacek traveled to Grand Marais last month so she could see firsthand the extent of the damages at Birchwood.

“I went up north to evaluate the property,” she told WTIP.

Upon arrival, Sedlacek said she encountered “the perfect storm.”

“The management company hired to take care of the apartments had basically abandoned their duties,” she said. “The COVID epidemic prevented the USDA inspectors from doing the annual inspections for two years. The administrative orders of non-eviction during the epidemic prevented property owners from removing tenants that were not meeting their lease obligations.”

Making matters worse, Sedlacek said a Birchwood tenant who no longer lives at the apartment complex “left the windows open in the apartment during the extreme freeze in December, which froze up the water lines and broke the hot water pump serving the upper building. And in the midst of this, our main copper water lines failed, resulting in extensive water damages in several units.”

The ownership team at Birchwood filed insurance claims for damages, Sedlacek said, but it appears this will be a lengthy process as “the insurance companies jockey for position and find all the loopholes they can to deny claims.”

Last month, the Cook County Board of Commissioners approved $700,000 in assistance to help the local HRA with current and proposed housing projects. Funding for the proposed project came to the county through the federal American Rescue Plan Act (ARPA). Some of that funding could be directed toward the Birchwood Apartments in Grand Marais, according to local officials.

Also last month, Hale said it is possible One Roof Housing in Duluth could be taking on an ownership and management role at Birchwood, though discussion with current Birchwood ownership is in a preliminary phase, he noted.

In a statement Hale sent to WTIP on March 14, he stated, “The HRA is still working with the owner (Sedlacek), USDA, and One Roof to try to discern and secure the future of Birchwood Apartments. While the HRA has some resources, we do not have enough to acquire and renovate the property without significant assistance. This is why we are trying to partner with One Roof and take advantage of their resources and capacity to ensure this property is saved.”

Jeff Corey is the executive director of One Roof Housing. He confirmed with WTIP March 15 that the Duluth-based nonprofit is interested in obtaining the Birchwood Apartments, but that the organization is “still doing due diligence” and any official plan to purchase the apartment complex remain in a discussion phase at this time.

Corey said One Roof has interest in Birchwood for several reasons. First, he said, “as a mission-based organization who works to create and preserve affordable housing, we understand the importance of preserving housing this affordable and at-risk in a community. We have conducted preservation projects before with successful outcomes, so it is natural that we would consider this property.”

Corey said that with local and state support One Roof “can garner resources to move forward with a redevelopment of the building which would modernize any systems or materials that are outdated or have outlived their usual existence.”

If a deal with One Roof can’t be reached to take over Birchwood, Hale said he has been exploring alternative options.

“Because this is a USDA Rural Development property, that path is neither simple nor quick,” he said. “Transferring the to a new owner can take over a year through there office, while we know there are immediate and short-term issues that need to be addressed.”

In order to build the apartment complex 30 years ago, Sedlacek and her business partners took out a 50-year federal loan for more than $928,000. The loan, with a federal subsidy, had an interest rate of 1 percent. A second loan for nearly $50,000 was added a year later due to project cost overruns. According to the most recent data available, as of early 2022, more than $774,000 remained on the loan.

As various agencies, organizations, and property owners chart a course for the future of Birchwood, the people who live in the apartment complex continue the basics of day-to-day living. Tenants do routine things such as scheduling appointments, going to work, doing the dishes. The basics. With housing so scarce in Cook County, most are happy to have a roof over their heads, a tenant previously told WTIP. This same tenant, Suzy Eklin, said March 16 that she remains hopeful for better days coming to the people who call the apartment complex their home. That being the case, Eklin expressed concern that the situation at Birchwood is not improving fast enough.

“Progress is slow, but I’m optimistic,” she said.

Meanwhile, Sedlacek maintains that “the Birchwood Apartments have provided over 30 years of family housing to possibly thousands of people” in Cook County and the North Shore community.

“We are fortunate to have procured a team of professionals that are putting forth their best efforts to help to maintain the only affordable family housing in Cook County,” she said. “We still have a long way to go, but community backing will help us to continue to make progress in providing affordable housing to the residents that expressed their sincere need for, and support of, Birchwood Apartments.”

Joe Friedrichs March 19, 2023