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Student Housing Developer To Repay Jilted Investors $50M By Selling Other Properties

The troubled Skyloft complex in Austin, Texas.

Investors in an Austin, Texas, luxury student housing building will likely get a payout from developer Nelson Partners Student Housing after a lawsuit threatened to topple the company’s student housing venture altogether.

The developer has now agreed to a settlement in Texas state court that includes a liquidation plan with a $50M payout to investors, which Nelson Partners could fund by selling off other properties, The New York Times reports. If the plan is approved, Nelson Partners will have 18 months to raise money to pay back its investors.

Complexes run by Nelson Partners all over the country, including Skyloft, have been plagued by complaints of poor living conditions including faulty air conditioning, elevators not working, malfunctioning fire alarms and disconnected utilities, The New York Times reported last year. Complaints led some investors to compare Nelson to a “Ponzi-like” scheme, according to court filings.

A group of more than 200 individual investors, including engineers, doctors, teachers and lawyers, sued the developer’s owner, Patrick Nelson, for $75M last year in an attempt to get their money back. Axonic Capital also invested, putting in $35M toward Nelson's acquisition of Skyloft, the 18-story Austin student housing complex.

Axonic may also be forced to help Nelson repay investors for the Austin property — a jury in Austin ruled that the investment firm was liable for some of the losses faced by individual investors and ordered a $17M payout. Axonic, which plans to appeal, claims it was defrauded by Nelson and is only liable to repay $4.75M.

Nelson Partners acquired the Skyloft property from Johnson Trube & Associates for $100M in 2019 after it was already completed and fully occupied, Multi-Housing News reported at the time. Skyloft was built in 2018 and fully pre-leased for the 2018-19 academic year, Austin Business Journal reported.

But Skyloft isn’t Nelson Partners' only troubled student housing venture — and this settlement may force the developer to scale back its ambitions of becoming a key player in the student housing industry.

Last September, 300 Utah State University students were left to find new housing options at the last minute when the developer failed to finish a planned student housing complex before the start of the semester, ABC4 reported.

Nelson affiliates have also filed for bankruptcy at three other student housing properties to fight off foreclosures, the NYT reported last year. A Mississippi bankruptcy judge permitted North American Savings Bank to take control of Nelson's Taylor Bend apartments close to the University of Mississippi, while Fannie Mae looked to take over a property near Texas Christian University.

Student housing remains an attractive prospect for investors, because rent is viewed as almost guaranteed. Last month, Blackstone agreed to pay $13B in cash to buy student housing giant American Campus Communities.