Nelson Partners student housing: a sinking empire
âIt’s all a mess,â said MacKinnon, 55. âI received two dividend payments and then it all stopped. It was supposed to be a pretty safe deal.
Like many others, Mr. MacKinnon invested in Nelson Partners transactions through what is known as private placements, a sort of unregulated offer that is often presented to affluent retail investors by brokerage dealers. securities. The arrangements – which generated millions of dollars in fees for Mr. Nelson’s company and the brokers who completed the transactions – were popular with investors because they could take advantage of a provision of the federal tax code known as the 1031 exchange. allowed them to defer the payment of capital gains on the proceeds from the sale of a property by integrating them into a new real estate project.
Nelson Partners’ financial woes came to a head with Skyloft Austin, a luxury skyscraper near the University of Texas that the company bought in 2019 for $ 124 million. Over 200 lawyers, accountants, doctors, retirees and others each invested between $ 100,000 and $ 500,000 in the case, but they were not alone. A hedge fund, Axonic Capital, gave Nelson Partners $ 35 million in additional financing to close the sale, according to court documents.
Last year Axonic, which specializes in commercial real estate transactions, declared Nelson Partners in default and decided to seize the property. Investors say Mr Nelson never told them about the dispute and simply stopped paying dividends, telling them the company needed to save money during the pandemic.
Mr Nelson, who said he did nothing wrong and did not abuse investor money, faces three lawsuits over the Skyloft deal. A potential class action lawsuit was dismissed in September on procedural grounds, but investors are appealing.
The problems in other properties have intensified in the meantime. Nelson Partners delayed construction of new housing near Utah State University, where Nelson earned a master’s degree in commerce, forcing more than 100 students who had signed leases for the fall semester to look elsewhere for where to live.
And Mr Nelson has put three other properties – near the University of Mississippi, Texas Christian University and the University of Houston – into bankruptcy to avoid foreclosure attempts by other lenders.