Massive student housing firm bilked on upscale complexes, tenants and investors say

Patrick Nelson’s student housing empire appears to be crumbling beneath him, angering the investors and tenants close to Nelson Partners Student Housing.

The New York Times reports the firm is facing foreclosure on multiple properties, lawsuits from investors and allegations of poor upkeep from tenants. The problems are emerging only three years after the firm began compiling upscale apartment buildings to use for student housing near college campuses.

Nelson Partners raised close to $100 million from about 400 investors, according to the Times. The firm has established a sizable footprint of two dozen student housing complexes across 10 states.

Tenants in Nelson-owned buildings — including students at University of Northern Colorado, University of Mississippi and University of Arizona — have complained of broken elevators and malfunctioning fire alarms, among other problems. Students told the Times the utilities are shut off for weeks and security guards hired to protect the building allegedly go absent.

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Investors are alleging they aren’t receiving regular payments they are owed. Scott MacKinnon, who invested $150,000 in Sol Y Luna near the University of Arizona, told the Times he only received two dividend payments.

As Nelson Partners’ financial troubles grew, the firm has faced foreclosures.
Court documents reported by the Times said hedge fund Axonic Capital gave the firm $35 million to help close the purchase of Skyloft Austin, a luxury residence near the University of Texas. Last year, it moved to seize the property, saying the company had stopped paying dividends altogether and didn’t inform investors of the property’s troubles.

Similarly, North American Savings Bank seized the Taylor Bend apartments in Mississippi. Three other properties were put into bankruptcy to avoid foreclosure.

Some associates and former employees who spoke to the Times pointed to a sibling rivalry between Nelson and his brother, who used to work together before splitting up a few years ago; Nelson says he hasn’t even spoken to his brother in three years.

Nelson cited the pandemic as a reason for his company’s financial problems, claiming it cost his company $20 million in revenue as it “crushed the student housing market.”

The landlord’s struggles are not universal. The volume of student housing deals actually surged in 2020 and hit $2.5 billion in the first half of 2021, only $500 million below the 2019 mark, according to JLL. Occupancy rates are also up 3 to 4 percent from last year, when many students decided to live near campus despite the pivot to remote learning.

[NYT] — Holden Walter-Warner