Patrick Nelson Fights With Students, Investors, and a Big Hedge Fund

Patrick Nelson Fights With College students, Traders, and a Massive Hedge Fund

A student-housing operator that tenants and buyers say has badly mismanaged high-end properties across the country has added a Wall Avenue colossus to the checklist of authorized opponents.

Fortress Funding Group, an funding agency managing cash for institutional and personal purchasers, has mounted an try to seize management of a high-rise scholar condo constructing in Denver from Patrick Nelson and his firm, Nelson Companions Scholar Housing.

Nelson Companions, which operates housing complexes in eight states, has been sued by buyers who say Mr. Nelson owes them tens of tens of millions of {dollars}. His tenants say they’ve been caught in properties with elevators which can be busted, fireplace alarms that malfunction, utilities which were shut off for weeks at a time and piles of uncollected trash.

For the previous 12 months, Mr. Nelson has fought with lenders and buyers, placing three properties out of business in hopes of staving off foreclosures. Final week, a decide eliminated Mr. Nelson because the supervisor of one other property, a luxurious constructing close to the College of Texas in Austin that had been topic to foreclosures by Axonic Capital, a $4 billion hedge fund.

However Fortress, which manages $54 billion in hedge fund and private-equity belongings, is an opponent with even deeper pockets.

Earlier this month, an organization managed by Fortress filed a authorized discover in Denver to start the method of foreclosing on a $46 million mortgage that Mr. Nelson’s agency took out in November 2019 to finance the acquisition of the Auraria Student Lofts.

The Fortress affiliate took the motion after declaring Mr. Nelson’s agency in default on the mortgage and went to district court docket in Denver to get a receiver appointed to supervise the property.

One of many first steps the receiver took was to switch Mr. Nelson’s agency because the property supervisor for the constructing, the place some college students have complained about damaged elevators and total poor maintenance of the residential facility, which occupies the highest 13 flooring of a high-rise constructing and sits atop a lodge.

Michael Staheli, an govt with Cordes & Co., an insolvency advisory agency that Fortress put in as receiver, mentioned his agency wouldn’t focus on the case.

Mr. Nelson mentioned he had been taken benefit of by Fortress.

“The vultures at Fortress purchased the mortgage simply weeks earlier than the mortgage expiration for one cause: to foreclose on a wholesome property that has carried out nicely over seven years with the intent to steal tens of millions of {dollars} in fairness they don’t seem to be entitled to,” Mr. Nelson mentioned in a written assertion. “Fortress has no concern by any means for the scholars or for the buyers.”

Mr. Nelson’s agency, primarily based in San Clemente, Calif., generates a lot of its income from working as a property supervisor on practically two-dozen student-housing complexes. A few of these it owns outright; others bought with tens of tens of millions of {dollars} it raised from small actual property buyers. He additionally generates tens of millions of {dollars} in charges from sponsoring the funding automobiles that these buyers put cash into, referred to as personal placements — a type of unregulated providing bought by securities brokers.

However as he and his agency have come under criticism over the management of a few of these properties, he has confronted a bunch of issues. Native well being and constructing officers have issued fines or have needed to pay for the rubbish to be faraway from the properties, and lenders together with Fannie Mae, the large federally managed mortgage-finance agency, sought management of buildings he ran. His chapter gambit for 3 properties — close to the College of Mississippi, Texas Christian College and the College of Houston — failed, and by the tip of final 12 months his agency was not in command of them.

The advanced close to the College of Texas, referred to as Skyloft, is the topic of a lawsuit by tons of of buyers who declare the $75 million they dedicated for the acquisition of the constructing is lacking. Additionally they declare they weren’t conscious that Axonic may foreclose on the property if Nelson Companions defaulted on a $35 million mortgage it took out to assist finance the acquisition. After Axonic foreclosed, it bought Skyloft to a different funding agency.

Mr. Nelson has repeatedly blamed the pandemic and Covid restrictions for limiting his skill to gather hire, rent upkeep employees and pay month-to-month dividends to his buyers.

He bought the Auraria property in Denver just some months earlier than the pandemic. The $46 million mortgage was organized in November 2019 by a division of Cantor Fitzgerald, a Wall Avenue funding agency. The mortgage was rapidly bought to a different hedge fund earlier than the affiliate of Fortress purchased it final fall.

Fortress isn’t the one entity to say that Mr. Nelson owes cash over Auraria. A minimum of two contractors that did work for Mr. Nelson’s agency on the property have obtained court docket judgments, claiming they’re owed about $100,000 for the work they did.

However it has not been all unhealthy information for Mr. Nelson. In December, he bought a scholar housing constructing in Tempe, Ariz., for $36 million — practically double the value his agency bought it for in 2015.

The closing assertion for the sale that Mr. Nelson despatched his buyers inspired them to roll over among the proceeds into new properties that Mr. Nelson’s agency mentioned it was within the strategy of buying in California and Utah.

Kirsten Noyes contributed analysis.

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