Struggling student housing firm reportedly pays tens of millions to investors

Hundreds of investors in a Distressed luxury student building near the University of Texas at Austin are set to recoup much of the $75 ...


Hundreds of investors in a Distressed luxury student building near the University of Texas at Austin are set to recoup much of the $75 million they committed to the project, with most of the bill being picked up by a management company that has sparked complaints from tenants across the country.

Nelson Partners Student Housing will pay $50 million to the investor group that includes doctors, lawyers, teachers and engineers in a preliminary settlement approved by a Texas state judge. The agreement or “liquidation plan” may require Nelson Partners will sell several of its nearly 20 properties to raise money. Investors could also get several million dollars from a New York hedge fund that financed the deal, following a jury verdict on Wednesday in a related trial.

The proposed settlement would resolve a bitter legal battle in which investors in the Skyloft student housing complex claimed they were defrauded by the company’s chief executive, Patrick Nelson, who has aggressively purchased properties for the past four years.

But Mr. Nelson and his company encountered financial problems and bankruptcies in several properties while resident students at different complexes have complained of poor living conditions, including broken elevators, dark hallways, uncollected trash, insect infestations, and algae-covered swimming pools.

The Skyloft settlement, which received preliminary approval from a Texas state judge late last month, would force Mr Nelson to drastically curtail his ambitions to become a major regional player in the student housing industry of 100 billion dollars. If the plan is finally approved, Mr Nelson and his company would have up to 18 months to raise funds for the fund, which will be overseen by the court.

The San Clemente, California-based company’s contributions will come from equity interests in properties it controls in multiple states. Many of them were bought using private investment deals similar to the Skyloft arrangement that Mr Nelson and stockbrokers had pitched to other investors.

Mr. Nelson did not respond to requests for comment.

Skyloft investors could also receive additional millions from Axonic Capital, the New York-based hedge fund that helped finance the purchase of the 18-story student building with a $30 million loan. After declaring Nelson Partners in default, Axonic seized the property in December 2020 and then quickly resold the building to a New York real estate company.

A jury in Austin ruled Wednesday that Axonic was liable for some of the losses and awarded investors $17 million in damages. But it may take a while before investors see some of that money: the jury, when asked to allocate responsibility for investors’ losses, placed 75% of the blame on Nelson Partners.

Axonic, in a statement, said it believed it was only liable for $4.25 million, but planned to appeal and did not expect to have to pay anything.

“We strongly believe that we were collateral damage to Nelson’s fraud in this matter,” the company said.

Robert Brownlie and Doug Brothers, attorneys for the investors, said they were happy with the decision.

Mr Nelson has repeatedly blamed the Covid-19 pandemic for creating cash flow problems which forced him to stop paying dividends to investors in Skyloft and other properties. Since last July, he has put three other properties out of business.

In a recent press release, Mr Nelson said the “heavy” federal government lockdowns during the pandemic created problems for his business.

“Even though the government prohibits landlords from evicting non-paying tenants, it has done nothing to protect companies like Nelson Partners from their lenders,” said Mr Nelson, whose firm has received little more than $1 Million in Help from the Federal Paycheck Protection Program.

Skyloft investors, in court documents and in interviews, have claimed that Mr Nelson misappropriated some of the $75 million he raised from them to fund the operation of other properties. Mr. Nelson denied the charges.

Mr. Nelson began taking steps to sell some of the properties managed by his company prior to the settlement agreement. In January, Nelson Partners sold a high-rise student apartment building in Tempe, Arizona to $36 millionand he received several offers for an upscale student housing complex in Tucson.

Nelson Partners should have little trouble finding buyers. Student housing is seen by investors as a stable source of income, as rents are often paid with student loans. High-end off-campus housing has become popular in recent years as universities and colleges spend less money building dorms, and some students seek housing with additional amenities.

The student housing market recently received a boost with Blackstone Group, the leading private equity firm, announcing an agreement to buy American Campus Communities, the nation’s largest publicly traded student housing company. The deal values ​​American Campus at $13 billion.

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Newsrust - US Top News: Struggling student housing firm reportedly pays tens of millions to investors
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