Hundreds of investors in a troubled luxury student apartment building near the University of Texas at Austin are close to recouping much of the $75 million they pledged to the project, with most of the bill paid by a firm. management that has generated complaints from tenants all over the world. country.
Nelson Partners Student Housing will pay $50 million to the investor group that includes doctors, lawyers, teachers and engineers under a preliminary agreement approved by a Texas state judge. The deal or “settlement plan” could require Nelson Partners to sell many of its nearly 20 properties to raise the money. Investors could also get several million dollars from a New York hedge fund that provided financing for the deal, following Wednesday’s jury verdict in a related lawsuit.
The proposed deal would resolve a bitter legal fight in which investors in the Skyloft student housing complex said they were ripped off by the company’s CEO, Patrick Nelson, who has aggressively bought properties over the past four years.
But Mr. Nelson and his company have faced financial problems and bankruptcies at several properties, while student residents in different complexes complained of poor living conditions, including broken elevators, dark hallways, uncollected garbage, insect infestations and algae covered pools.
The Skyloft deal, which received preliminary approval from a Texas state judge late last month, would force Mr. Nelson to slash his ambitions to become a major regional player in the $100,000 student housing industry. millions. If the plan receives final approval, Mr. Nelson and his company would have up to 18 months to raise the money for the fund, which will be overseen by the court.
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Contributions from the San Clemente, California firm will come from equity stakes in properties it controls in various states. Many of them were purchased through private investment deals similar to the Skyloft deal that Mr. Nelson and brokers had offered to other investors.
Nelson did not respond to requests for comment.
Skyloft investors could also receive millions more from Axonic Capital, the New York 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, then promptly resold the building to a New York real estate firm.
A jury in Austin ruled Wednesday that Axonic was liable for some of the losses, awarding investors $17 million in damages. But it may be a while before investors see any of that money: When asked to award blame for investor losses, the jury placed 75 percent of the blame on Nelson Partners.
Axonic, in a statement, said it believed it would only owe investors $4.25 million.
“We strongly believe that we were collateral damage to Nelson’s fraud in this case,” the company said.
Robert Brownlie and Doug Brothers, the investors’ lawyers, said they were pleased with the ruling.
Mr. Nelson has repeatedly blamed the Covid-19 pandemic for creating cash flow problems that 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 federal government’s “heavy-handed” lockdowns during the pandemic created problems for his company.
“Even when the government prohibited landlords from evicting non-paying tenants, it did nothing to protect companies like Nelson Partners from their lenders,” said Mr. Nelson, whose company received just over $1 million in government aid. Federal Paycheck Protection Program.
Skyloft investors, in court documents and in interviews, claimed that Nelson had diverted some of the $75 million he had raised from them to finance the operation of other properties. Nelson has denied those allegations.
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, for $36 million, and has received several offers for a luxury student housing complex in Tucson.
Nelson Partners should have little trouble finding buyers. Investors see student housing as a stable source of income because rents are often paid with student loan dollars. Off-campus luxury housing has become popular in recent years, as universities and colleges spend less money building dorms, and some students yearn for homes with added amenities.
The student housing market recently got a big boost with Blackstone Group, the large private equity firm, announcing a deal to buy American Campus Communities, the nation’s largest publicly traded student housing firm. The deal values American Campus at $13 billion.