Patrick S. Nelson is a man under siege.
An early player in the off-campus student housing business, Nelson raised capital from major financial institutions and hundreds of wealthy individuals to form a property management company. But business has deteriorated in recent years, with Nelson previously breaking promises to repay some of his partners and now facing more than a dozen lawsuits and dogfights with private equity firms. .
Nelson faces at least $115 million in restitution, despite escalating fines and interest and twice being held in civil contempt by a judge for allegedly misusing company funds. No, I haven't paid. His defiant attitude has irritated investors and lenders, as well as some of the judges hearing the dispute.
“We're seeing a lot of money moving around,” Judge Melissa Crane said in February in New York County Supreme Court during a hearing on private equity firm Fortress Investment Group, which is trying to foreclose. There are, but I don't like it.” One of Nelson's properties. Judge Crane in January found that Mr. Nelson violated the court's restrictions by using nearly $3 million from his business for personal expenses, including a luxury vacation rental ranch in Utah and the mortgage on a home in California. He was charged with contempt. , golf trip, credit card bill.
“I had bills to pay,” Nelson testified at a March 12 follow-up hearing. Mr. Nelson declined to be interviewed, but he said in written comments to the New York Times that he is “doing everything I can.” fulfill his duty. ” He said the finding of civil contempt was unwarranted.
Nelson, 51, launched Nelson Partners Student Housing in 2018 after parting ways with his brother, who had run a student housing business with him for nearly 20 years. His brothers were among the first to realize this opportunity, which has become a $10 billion a year market. In 2017, Inc. magazine included the former company on its annual list of fastest-growing private companies. Big companies like Blackstone have entered the market in recent years, attracted by the promise of virtually guaranteed rent payments thanks to student loans.
Mr. Nelson uses the funds he collects to purchase student housing properties, uses the rent to pay mortgages, investor dividends, and general upkeep of the buildings, charges a fee, and ultimately sells them. In some cases, a fee will be charged. He manages his 18 properties through Nelson Partners, each of which is managed as a separate company with separate finances under contractual agreements with investors.
In a written statement, Nelson told the Times that occupancy in some buildings has declined due to the pandemic, leading to investors suing his business and student residents complaining about property conditions. He said his business would have prospered if he hadn't published it in the paper. . Nelson said investors had never suffered a loss until the Times article “shattered their ability to get a loan.”
Nelson claims that if he secures new financing and sells the property for a profit, he will have enough money to pay investors and cancel his debt. He testified Tuesday that he was trying to sell three student apartment complexes.
More than 20 lawsuits have been filed against him since 2021. About half remain active. Tens of millions of claims are still pending. He owes his $57 million to Fortress, his $50 million to investors, and small amounts to other lenders and vendors. He drove a company that owned five properties into bankruptcy after defaulting on loans. And the Internal Revenue Service placed a $3 million tax lien on one of his Southern California homes.
The first major lawsuit against Nelson and some of his companies occurred in early 2021, when hundreds of investors in a luxury student housing tower called Skylofts near the University of Texas in Austin lost tens of millions of dollars. He claimed he had been defrauded. of dollars.
One of Mr. Nelson's companies acquired Skyloft in 2019 for $124 million, including $75 million from small investors, mostly wealthy retirees, lawyers, doctors, and engineers. The rest came from hedge funds and big banks. When classes moved online due to the pandemic, Nelson said he suspended monthly dividend payments to investors in Skyloft and other properties due to cash flow issues.
Reached $50 million settlement with Skyloft investors in 2022. That same year, he sold his two buildings. One property made a profit before the Skyloft settlement, and his other property sold for just over the purchase price. He returned tens of millions of dollars to investors in these properties, some of whom received significantly less than their investments.
But last fall, Judge Karyn Crump in Travis County, Texas, found that Nelson violated the terms of the settlement by using money that was supposed to go to a compensation fund for legal costs and accepting fees, and found him in contempt of court. was indicted. Instead of returning that money to investors, they sell another building.
Judy Sims and her husband, a retiree, invested $250,000 in a Nelson Partners student housing building near the University of Northern Colorado in Greeley, Colorado, but their investment was lost when the lender moved to foreclose on the building. He said he expected to lose a lot. In 2023.
“He was very nice on the phone when he wanted our money,” said Sims, who lives with her husband in Chelan, Washington. I will not take any responsibility for this,” he said.
Nelson's lawyers explained in court that the disputed transfers, including those for personal use, were legitimate “intercompany loans” consistent with the way Nelson has always operated his business. They argue that Mr. Nelson is simply doing what is necessary to prevent the business from collapsing. Nelson testified at a March 12 hearing that he was concerned that the 130 people employed by Nelson Partners would lose their jobs. He also said he wanted to “leave something behind for his daughters.”
“I really don't understand what his end goal is,” said George Wong, 64, a marketing executive from Los Altos, California. He has invested in three of Mr. Nelson's transactions.
One of Nelson's biggest disputes is with Fortress, a New York investment firm. Fortress, which obtained a $52 million loan to Nelson Partners, which owns Auraria Student Lofts in downtown Denver, has been trying to foreclose on the building for more than two years. However, the case was put on hold when Nelson filed for bankruptcy with the estate in 2022.
Filing for bankruptcy halts foreclosures and gives borrowers more time to negotiate a deal, but it doesn't necessarily prevent losses for investors.
Last summer, Fortress obtained a judgment allowing it to collect on loans, now worth $57 million, with interest, which Mr. Nelson had personally agreed to repay. This set the stage for the current series of contempt proceedings against Judge Crane.
Nelson called Fortress a “predatory” investor who obtained a loan from Auraria during the pandemic and is now “effectively trying to put me out of business.”
Mr Nelson is due to appear in court again on Monday before Judge Crane over his failure to comply with a previous court order.
Martin Goodman, 60, a real estate broker from San Diego, Calif., tried to gather investors in the Greeley student housing complex to create a plan to avoid foreclosure by Fannie Mae, a federally backed mortgage. he said. Financial giant. Fannie recently received court approval for the foreclosure in April.
Goodman said he expected Nelson to file for another bankruptcy.
“At the end of the day, we are very likely to lose property,” Goodman said. “Because Pat doesn't step up.”
alain draquelier Contributed to research.
