Between the busted elevators, the malfunctioning fire alarms and the utilities being shut off for weeks at a time, the students at a half-dozen off-campus housing complexes across the country say they’re not getting what they paid for.
The investors in some of those properties, who may be out tens of millions of dollars, say the same thing.
And they all blame Patrick Nelson, a would-be real estate mogul whose nascent student housing empire is teetering.
“Sometimes the hallways are dark,” said Ashley Kubacki, 22, a senior at Purdue University who pays $965 a month for a one-bedroom apartment in The Fairway housing complex just off campus. “It is pitch black and it can be scary. Someone could get hurt.”
Three years ago, Mr. Nelson’s firm, Nelson Partners Student Housing, began rapidly collecting upscale apartment buildings to grab a share of a market worth an estimated $100 billion, according to CoStar, a real estate data firm. But legal fights are playing out in courtrooms in Texas and California that threaten to unravel the business.
Mr. Nelson has been accused of diverting investor money to shore up other projects, officials in states from Colorado to Mississippi have investigated his properties for health and safety violations, and students who work in his buildings say they’re missing pay. Lenders including Fannie Mae, the government mortgage finance firm, are seeking to foreclose on some of the properties. And hundreds of investors, ranging from wealthy retirees to doctors and lawyers, are suing Mr. Nelson in hopes of getting their money back.
Mr. Nelson has denied any wrongdoing. Campus shutdowns during the pandemic cost his firm $20 million in revenue and triggered his financial woes, he said.
“Covid crushed the student housing market,” said Mr. Nelson, 49, whose firm took just over $1 million in aid from the Paycheck Protection Program. “I am just a business guy trying to fight my way through it. We just need more time.”
But former employees and business associates offer up another explanation for what went wrong at Nelson Properties: Mr. Nelson’s grandiose ambitions, perhaps fueled by sibling rivalry.
In 2007, Mr. Nelson launched an earlier student housing operation called Nelson Brothers Property Management with his younger brother, Brian. Business was good: Inc. magazine put Nelson Brothers on its 2017 list of fastest growing private companies.
Not long after, the brothers split and struck out on their own, their firms separated by about 15 miles in Orange County, Calif. They sometimes pitch deals for student housing to the same pool of investors; Patrick Nelson called his brother his “biggest competitor.”
“I haven’t spoken to my brother in three years,” he said. “I may never speak to him again.”
Brian Nelson said he’s not sure why his brother is so upset with him. “I don’t understand all the animosity,” he said. He added that their parting was largely the result of a disagreement in business strategy: His brother wanted to expand the business more quickly than he did.
In the three years since they split, Patrick Nelson founded his own business, Nelson Partners, and raised about $100 million from roughly 400 investors, according to filings and Mr. Nelson. Today, it manages two dozen student housing complexes — just a sliver of an industry with roughly 4,500 such facilities. But unlike most firms its size, Nelson Partners has established a 10-state footprint more akin to that of the big real estate firms that dominate the industry.
Shane Stone, a former chief financial officer for Nelson Partners, said Mr. Nelson seemed determined to “make a big splash” after the partnership with his younger brother came apart. That meant focusing on larger properties than he’d targeted previously, he said.
“Patrick had said he wanted to put the company on the map and become a player in the industry,” said Mr. Stone, who said he was dismissed in spring 2019 without warning.
Patrick Nelson started Nelson Partners Student Housing after a partnership with his brother split apart.Credit...Business Wire Problems have sprouted up across the country at properties that promised posh off-campus living with proximity to class. University of Northern Colorado students griped about piles of trash and malfunctioning fire alarms. University of Mississippi students said their complex had disconnected utilities and a filthy pool. University of Arizona students didn’t have air conditioning at the height of summer. And some students at the Community College of Denver said they were stuck without elevators — in a 30-story high-rise.
Nov. 3, 2021, 7:33 a.m. ET2 hours ago
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Lindsey Riordan, 21, a student at the University of Arizona, and others have taken to posting negative reviews about the firm on Yelp and other sites. Ms. Riordan said that when she moved into Mr. Nelson’s Tucson property, Sol Y Luna, in October 2020 there was a security guard posted at the front door, but there hasn’t been one for several months.
Trash often piles up, Ms. Riordan said, the elevators don’t always work and the pool is “always very gross” in a complex where one-bedroom apartments are listed for $1,500 or more.