Student housing pioneer faces angry investors, irate judges and a $115 million bill

Patrick S. Nelson is under siege.

An early player in the off-campus student housing industry, Mr. Nelson built his property management company by raising money from major lenders and hundreds of wealthy individuals. But his business has deteriorated in recent years, and Mr. Nelson — who has so far reneged on his promises to pay back some of those partners — now faces more than a dozen lawsuits and a dogfight with a private equity firm.

Mr. Nelson faces at least $115 million, which he has failed to pay, despite escalating fines and interest and being twice ordered into civil contempt by judges for alleged misuse of company funds. His resistance has frustrated investors and lenders, and irritated some judges who heard those disputes.

“I see a lot of money moving around, and I don’t like it,” New York County Superior Court Judge Melissa Crane said in February during a hearing involving Fortress Investment Group, a private equity firm trying to seize a of Mr. Nelson’s property. In January, Judge Crane held Mr. Nelson in contempt of court after finding he violated court restraints by using nearly $3 million from his business to pay personal expenses, including bank mortgages. luxury vacation rental ranch in Utah and a house in California, golf trips and credit card bills.

“There were bills we had to pay,” Mr. Nelson testified at a follow-up hearing on March 12. Mr. Nelson declined to be interviewed but said in written comments to the New York Times that he is “doing everything he can to fulfill his obligations.” He said the civil contempt findings were without merit.

Mr Nelson, 51, started Nelson Partners Student Housing in 2018 after parting ways with his brother, with whom he ran a student housing company for almost two decades. The siblings were among the first to spot an opportunity that has become a $10 billion-a-year market. In 2017, Inc. magazine placed their former company on the annual list of the fastest growing private companies. Great players love Blackstone has entered the market in recent yearslured by the promise of rent payments that are virtually guaranteed because of the student loan money.

Mr Nelson buys student accommodation with the money he raises and uses the rent to pay mortgages and dividends to investors, as well as for the general maintenance of the buildings, charging fees and collecting a commission when he eventually sells them sells. Through Nelson Partners, he manages 18 properties – each managed as a separate company with separate finances under contractual agreements with investors.

In his written statement, Mr. Nelson said his business would have thrived without the pandemic, which led to reduced occupancy at some buildings, and articles in The Times about investors suing his company and complaints from student residents about the condition of the properties. . Mr. Nelson said he had never lost money for investors before The Times articles, which he said also “crushed the ability to get loans.”

Mr Nelson has insisted that once he secures new financing and sells properties at a profit, there will be more than enough money to pay investors and service his debts. On Tuesday, he testified that he was trying to sell three student housing apartment complexes.

Since 2021, more than twenty lawsuits have been filed against him; about half remain active. Tens of millions in claims are still pending. He owes $57 million to Fortress, $50 million to investors and smaller amounts to other lenders and vendors. He has forced companies owning five properties into bankruptcy after defaulting on their loans. And the Internal Revenue Service placed a $3 million tax lien on one of his homes in Southern California.

The first major lawsuits against Mr. Nelson and some of his companies came in early 2021 when hundreds of investors in a luxury student housing apartment tower called Skyloft, near the University of Texas at Austin, said they had been defrauded out of tens of millions. of dollars.

One of Mr. Nelson’s companies had bought Skyloft in 2019 for $124 million, with $75 million coming from small investors — mostly wealthy retirees, lawyers, doctors and engineers — and the rest from a hedge fund and a major bank. When the pandemic moved classes online, Mr. Nelson said cash flow issues led him to halt monthly dividend payments to investors in Skyloft and other properties.

In 2022, he reached a $50 million settlement with Skyloft investors. The same year he sold two buildings: one for a profit before the Skyloft settlement, the other for slightly above the purchase price. He returned tens of millions of dollars to investors in those properties, although some received significantly less than they invested.

But last fall, Judge Karin Crump of Travis County, Texas, held Mr. Nelson in contempt of court after finding that he had violated the terms of his settlement by using money that was intended to go to a restitution fund for legal bills, and collect a commission. on the sale of another building instead of returning that money to investors.

Judy Sims said she and her husband, both retired, had invested $250,000 in a Nelson Partners student housing project near the University of Northern Colorado in Greeley, Colorado, but expected to lose much of their investment after the lender foreclosed. had placed on the building. in 2023.

“He sounded very nice on the phone when he wanted our money,” said Mrs. Sims, who lives with her husband in Chelan, Washington. “But what makes me so angry is that he doesn’t accept any responsibility.”

In court, Mr Nelson’s lawyers described the disputed money transfers, including those intended for his personal use, as legitimate “inter-company loans”, in line with the way he has always run his business. They have argued that Mr. Nelson is simply doing what is necessary to keep his company from going bankrupt. Mr. Nelson testified at the March 12 hearing that he was concerned that the 130 people Nelson Partners employs would lose their jobs. He also said he wanted to “leave a legacy for my daughters.”

“I really don’t understand what his end game is,” said George Wong, 64, a marketing executive in Los Altos, California, who has invested in three of Mr. Nelson’s deals.

One of Mr. Nelson’s biggest disputes is with Fortress, the New York investment firm. For more than two years, Fortress, which secured a $52 million loan to a Nelson Partners company that owns the Auraria Student Lofts in downtown Denver, has been trying to foreclose on the building. But the action was suspended after Mr Nelson declared that property bankrupt in 2022.

A bankruptcy filing halts a foreclosure and gives the borrower more time to potentially negotiate a deal, but it doesn’t necessarily prevent losses for investors.

Last summer, Fortress obtained a judgment allowing it to collect on the loan, now worth $57 million, with interest, that Mr. Nelson had personally agreed to repay. That set the stage for the current round of contempt proceedings before Judge Crane.

Mr Nelson has called Fortress a “greedy” investor who acquired the loan on Auraria during the pandemic and is now “essentially trying to put me out of business.”

The two parties are due to appear before Judge Crane again on Monday as she grapples with Mr Nelson’s failure to comply with her previous court orders.

Martin Goodman, 60, a real estate broker who lives in San Diego, California, said he had been trying to rally investors in the Greeley student housing complex to come up with a plan to avoid a bankruptcy by Fannie Mae, the federally backed mortgage , to prevent. financial giant. Fannie recently received court approval to seize in April.

Mr Goodman said he expected Mr Nelson to go bankrupt again.

“Ultimately we could very well lose the property,” Mr Goodman said. “All because Pat won’t get up.”

Alain Delaqueriere research contributed.