Patrick Nelson battles with students, investors and a major hedge fund

A student housing operator who tenants and investors say has mismanaged high-end properties across the country has added a Wall Street colossus to the list of legal opponents.

Fortress Investment Group, an investment firm managing funds for institutional and private clients, attempted to take control of a high-rise student apartment building in Denver from Patrick Nelson and his company, Nelson Partners Student Housing .

Nelson Partners, which operates housing complexes in eight states, has been sued by investors who claim Mr Nelson owes them tens of millions of dollars. Its tenants say they have been stuck in properties with broken elevators, malfunctioning fire alarms, utilities that have been cut for weeks and piles of uncollected trash.

Over the past year, Mr Nelson has battled with lenders and investors, putting three properties into bankruptcy in the hope of avoiding foreclosure. A judge last week removed Mr Nelson as manager of another property, a luxury building near the University of Texas at Austin that had been foreclosed by Axonic Capital, a fund $4 billion speculative.

But Fortress, which manages $54 billion in hedge fund and private equity assets, is an even deeper-pocketed opponent.

Earlier this month, a Fortress-controlled company filed a legal notice in Denver to begin the process of foreclosing a $46 million loan Mr. Nelson’s company took out in November 2019 to fund the purchase of Auraria student lofts.

The Fortress subsidiary took action after declaring Mr. Nelson’s company in default on the loan and went to Denver District Court to have a receiver appointed to oversee the property.

One of the first steps taken by the receiver was to replace Mr Nelson’s company as property manager of the building, where some students complained of broken elevators and poor general maintenance of the establishment residential, which occupies the top 13 floors of a high-rise building. climb building and sits on top of a hotel.

Michael Staheli, an executive at Cordes & Co., an insolvency advisory firm that Fortress set up as a receiver, said his company would not discuss the case.

Mr. Nelson said it had been exploited by Fortress.

“The Fortress vultures bought the loan just weeks before the loan expired for one reason: to seize a sound property that had worked well for seven years with the intention of stealing millions of dollars in equity they didn’t have no right,” Mr Nelson said in a written statement. “Fortress has no concerns for students or investors.”

Mr. Nelson’s company, based in San Clemente, Calif., generates much of its revenue by working as a property manager on nearly two dozen student housing complexes. Some of those he owns directly; others bought with tens of millions of dollars raised from small real estate investors. It also generates millions of dollars in fees by sponsoring the investment vehicles these investors invest in, called private placements — a kind of unregulated offering sold by stockbrokers.

But while he and his company have come under fire for handling some of these properties, he has faced a host of issues. Local health and building officials have issued fines or had to pay for trash to be removed from properties, and lenders including Fannie Mae, the giant federally-regulated mortgage finance company, have demanded control of buildings which he led. His bankruptcy bet for three properties – near the University of Mississippi, Texas Christian University and the University of Houston – fell through, and by the end of last year his business had run out of it. control.

The complex near the University of Texas, called Skyloft, is the subject of a lawsuit filed by hundreds of investors who claim the $75 million they pledged to purchase the building is missing. They also claim they had no idea Axonic could foreclose on the property if Nelson Partners defaulted on a $35 million loan it took out to help fund the purchase. After the Axonic foreclosure, it sold Skyloft to another investment company.

Mr Nelson has repeatedly blamed the pandemic and Covid restrictions for limiting his ability to collect rent, hire maintenance workers and pay monthly dividends to his investors.

He bought the Auraria property in Denver just months before the pandemic hit. The $46 million loan was arranged in November 2019 by a division of Cantor Fitzgerald, a Wall Street investment firm. The loan was quickly sold to another hedge fund before the Fortress subsidiary bought it out last fall.

Fortress is not the only entity to claim that Mr. Nelson owes money for Auraria. At least two contractors who worked for Mr. Nelson’s business on the property have won court judgments saying they owed around $100,000 for the work they did.

But it wasn’t all bad news for Mr. Nelson. In December, he sold a student housing building in Tempe, Arizona, for $36 million, nearly double the price at which his company bought it in 2015.

The closing statement of the sale that Mr. Nelson sent to his investors encouraged them to transfer some of the proceeds to new properties that Mr. Nelson’s company said it was acquiring in California and the United States. Utah.

Kirsten Noyes contributed to the research.

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