Lawsuits, Judgments Totaling $115M Threaten To Sink Student Housing Trailblazer

A pioneer in the off-campus student housing business is fighting to stay afloat as foreclosures, bankruptcies, multimillion-dollar judgements and liens pile up against his businesses and personal assets. 

Patrick Nelson and his California-based firm, Nelson Partners Student Housing, owe at least $115M to small investors and a private equity firm as around a dozen active lawsuits weave their way through U.S. courts, The New York Times reports. 

As the bills are piling up, at least two judges have held Nelson in contempt of court for misappropriating settlement funds and misusing company money, including to pay for personal expenses. 

Nelson’s firm controls 18 student housing properties, each of which is managed by a separate company with separate finances. His business model involves raising money from investors to acquire properties and using rent payments to pay mortgages and dividends, along with property maintenance. 

He launched the company in 2018 after spending nearly two decades running a student housing business with his brother, per the NYT.

Since 2021, Nelson has been the subject of more than two dozen lawsuits from investors, lenders and vendors, with around half the suits still pending, the NYT reported. 

He’s locked in a legal battle with the New York-based private equity firm Fortress Investment Group. The lender acquired a $52M loan used by a Nelson-controlled entity to acquire the Auraria Student Lofts in Denver and has been trying for two years to foreclose on the property after Nelson’s firm allegedly defaulted on the loan.  

Nelson put the entity controlling Auraria into bankruptcy in 2022, effectively halting the foreclosure. But Fortress was able to secure a $57M judgment last summer that saw Nelson personally guarantee repayment of the debt, the NYT reported. 

But Nelson was found in contempt of court in January after the New York County Supreme Court judge overseeing the case found that he had violated court restrictions by taking nearly $3M from his business to pay personal expenses like his home mortgage, golfing trips and credit card bills. 

The first major lawsuit against him came three years ago when hundreds of investors in the acquisition of a student housing tower in Austin alleged they had been defrauded out of tens of millions of dollars.

A Nelson-controlled entity paid $124M in 2019 for the Skyloft, located near the University of Texas in Austin, using $75M from small investors. Nelson said the pandemic hurt his operations, leading him to suspend monthly dividend payments to investors in Skyloft, as well as at other properties. 

Nelson reached a $50M settlement with Skyloft investors and returned tens of millions of dollars, but a Texas judge held him in contempt last fall after finding that Nelson had used some of the restitution funds to pay legal bills and that he took a commission on another building sale instead of returning the money to investors, per the NYT. 

Nelson Partners didn’t respond to Bisnow’s request for comment, but Nelson told the NYT that he “is doing everything he can to live up to his obligations.”

He said the contempt findings were unwarranted and called Fortress a “vulture” for acquiring the Auraria loan during the pandemic and said the investment firm was “trying to essentially run me out of business.” 

Nelson has followed a similar track at other properties facing financial difficulties, moving five companies each associated with one property into bankruptcy after they defaulted on loans, the NYT reported. One of Nelson’s Southern California homes also has a $3M tax lien from the Internal Revenue Service. 

Nelson told the NYT that his company’s cash flow issues were the result of the pandemic reducing occupancy at some of his properties. He also said the publication’s past critical coverage of his firm had “crushed the ability to get loans.” 

He testified last week that his firm is looking to sell three of their student housing complexes and told the NYT that those sales and additional new financing would allow him to pay investors and eliminate his debt.