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Languishing student housing firm on the hook for $50M

Nelson Partners settling after investors alleged fraud

Patrick Nelson of Nelson Partners Student Housing and the Skyloft Austin (Nelson Partners Student Housing, STG Design, iStock)
Patrick Nelson of Nelson Partners Student Housing and the Skyloft Austin (Nelson Partners Student Housing, STG Design, iStock)

A languishing student housing firm is on the verge of crumbling after settling a lawsuit with investors at its former Skyloft property near the University of Texas at Austin.

Nelson Partners Student Housing agreed to pay investors $50 million under a preliminary settlement approved by a Texas judge, the New York Times reported. The settlement resolves a lawsuit from investors who claimed they were defrauded by chief executive Patrick Nelson.

Investors across the firm’s student housing portfolio have alleged they aren’t receiving the regular payments they are owed. The housing firm has also faced allegations of poor upkeep from tenants.

Under the terms of the settlement, Nelson Partners may need to liquidate many of its other properties to raise the funds. The firm would have up to 18 months to raise money for the settlement fund once it’s approved.

The investors may have a bonus coming their way. A jury in a separate case ruled Axonic Capital was also liable for damages, awarding investors $17 million, although it deemed Nelson Partners was at 75 percent fault, likely lessening the hedge fund’s liability to around $4.2 million.

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Axonic helped Nelson finance Nelson’s purchase of the Skyloft building with a $30 million loan. After declaring Nelson Partners in default, it seized the property and resold it to a real estate firm. Axonic plans to appeal the ruling.

As of November, Nelson Partners raised close to $100 million from about 400 investors. The firm boasted a sizable footprint of two dozen student housing complexes across 10 states.

But the firm fell on hard times, as Nelson repeatedly cited the pandemic as a reason for his company’s financial difficulties, claiming it caused his company $20 million in lost revenue.

In February, an affiliate of Fortress Investment Group filed to foreclose on a $46 million loan Nelson took out in November 2019 to acquire the Auraria Student Lofts in Denver. The affiliate declared Nelson in default at the property, where complaints include broken elevators and poor upkeep.

[NYT] — Holden Walter-Warner

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Commercial Real EstateReal Estate LawsuitsStudent Housing