A student housing syndicator is at risk of losing two Chicago buildings, while battling a lender that’s closing in on a separate portfolio of similar properties across the U.S.
Versity Investments, led by Brian Nelson, has been delinquent on loan payments for The Buckingham and the Tailor Lofts in Chicago for the past two months, according to loan servicer notes compiled by commercial mortgage-backed securities tracker Morningstar Credit.
Versity bought The Buckingham, a 1920s-era high-rise near Roosevelt University, in 2018 for $73.3 million. The firm funded the purchase with a $45.3 million loan originated by Wells Fargo.
The 440-unit tower first ran into trouble in late 2020 when Wells hit Versity with a foreclosure lawsuit, alleging the loan was in default. But within a year, the lender worked out a forbearance agreement with Versity instead of taking back the keys.
Soon after, Versity hired Newmark to market the property at 59 East Van Buren Street in hopes of cutting its losses. However, the building didn’t sell and Versity failed to make mortgage payments toward the loan in both July and August of this year, according to notes from the PNC Bank-owned loan servicer Midland that were compiled by Morningstar.
The payments stopped coming in shortly after Versity settled a contract dispute with a private security company that ended with Versity forking over about $40,000, public records show.
At the same time, Versity fell behind on payments toward a $38 million loan backed by the Tailor Lofts near The University of Illinois at Chicago. Versity bought the 135-unit student apartment building at 315 South Peoria Street in 2019 for $60 million.
Nelson said he is working with the lenders to resume the payments and that a separate legal dispute between himself and other Versity executives had caused the delay.
There’s still time for Versity to forge another comeback, because the loans for the Buckingham and the Tailor Lofts don’t mature until 2028 and 2029, respectively. But they’re not the only properties giving the California-based investment company trouble.
A year before Versity hashed out a settlement with the private security company at The Buckingham, it was slapped with a much bigger lawsuit. A venture of Knighthead Capital Management’s real estate lending arm is suing Versity in a New York court for breach of contract and fraud, among other claims.
The filing claims that the Knighthead venture issued loans to Versity to purchase eight student housing complexes across the U.S. but Versity failed to pay off four of them. The four properties with loans in default are located in Alabama, Texas, Oklahoma and Florida. In a counterclaim, Nelson denies involvement in taking out the loan backed by the eight properties.
Much of the filing is redacted but a separate attorney who is pursuing a mass arbitration claim against Versity on behalf of investors claims Knighthead’s litigation unearthed $56 million in misappropriated proceeds from syndicators.
Nelson’s brother and former business partner is also in hot water for similar reasons. The brothers founded Nelson Brothers Real Estate in 2007 but soon went their separate ways. Brian Nelson’s brother’s firm, Nelson Partners, was the subject of a 2021 New York Times report alleging it ripped off investors and failed to properly maintain its properties.
Editor’s note: this post has been updated to include a response from Brian Nelson.