Auraria Student Lofts Files a Plan to Get Out of Bankruptcy

Auraria Student Lofts, an apartment building aimed primarily at college students on the Auraria campus — and maligned by tenants and subject to numerous Orders to Comply from the Denver Fire Department — submitted a plan to get out of bankruptcy on December 14 after filing for Chapter 11 bankruptcy on June 9, less than an hour before the property was set to be auctioned off in a foreclosure sale.

Tenants have described various problems at the building, from broken elevators to management's refusal to return security deposits. The property even hounded former tenant Elliot Liveoak to collect more rent, despite documents that indicated Liveoak had met his financial obligation to the building. It's owned by Patrick Nelson, a businessman who owns Nelson Partners as well as 5280 Auraria, the company he used to purchase Auraria Student Lofts.

According to the bankruptcy filing, the building owed its elevator maintenance company nearly $100,000 and other organizations over $150,000. It also has failed to return over $57,000 in security deposits to former tenants, according to the motion, which noted that 5280 Auraria hadn’t turned over $100,000 in security deposits from current residents to DB Auraria, the company that held the $46.5 million loan on the property — the balance of which is now over $51 million.

To get out of bankruptcy, Nelson Partners proposes completing about a half-million dollars of renovations and then selling the property at auction. It estimates that, once the renovations are complete, the property could be worth $65 million, enough to pay off the loan and earn some cash for Nelson Partners.

To fund the renovations, Nelson Partners plans to borrow money from another affiliate of the company, because DB Auraria won’t lend the company any more money. That is atypical, according to Adam Stein-Sapir of Pioneer Funding Group, a bankruptcy claim buyer based in New York.

“Normally, if there's loans after the company files for bankruptcy, they’re more senior in priority to the pre-existing loans,” Stein-Sapir explains. “The existing lenders don't like that, obviously, because they don't want new debt coming in front of them, and so normally a third party is not allowed to just come in and do that.”

In this case, it appears that the new loan won’t interrupt the lien on the property from the first loan. That’s not out of goodwill toward DB Auraria, however. Despite students saying the building was predatory toward them, Nelson Partners claims it was the one that was the prey in the December 14 filings.

It turns out that DB Auraria was an entity created by a hedge fund called Fortress Investment Group, which had been working with Nelson Partners to refinance the building with a loan of $56 million. But after Nelson Partners paid Fortress a $100,000 application fee to refinance it, it turned out that Fortress, through DB Auraria, had acquired Nelson Partners’ original loan, known as the Cantor Loan.

“DB Auraria recorded an Assignment and Assumption Agreement in the real property records of Denver County indicating the Cantor Loan was purchased for $46 million,” the filing says. “Approximately one month thereafter, Fortress provided the Debtor with a payoff letter as of December 14, 2021, demanding $49,875,161.41. In other words, Fortress demanded almost $4 million more to pay off the loan than the amount if paid five weeks prior.”

Nelson defaulted on the loan when it matured on December 9, 2021, and Fortress, through DB Auraria, had just acquired it a month before after knowing the company had been looking to refinance, causing it to have to file for bankruptcy.

“They're saying it was what's sometimes referred to as a ‘loan to own,’” Stein-Sapir says. “You make a loan, but your intention, your expectation, is not that they're just gonna pay you principal and interest over years and you're gonna get all your money back one day. The intention of the loan was really to end up owning the property.”

In court filings, Fortress disputes those allegations. At the same time, Nelson Partners argues that Fortress should not be able to do what is called credit bidding, which is when the creditor can bid up to the amount of the debt to buy the asset, because of its alleged manipulations.

In its response to Nelson Partners’ plan, filed on December 19, Fortress didn’t challenge the company's argument about credit bidding, but rather targeted the plan for a lack of feasibility. Stein-Sapir says he expects it will eventually push back on the credit bidding aspect of the plan.

It’s ironic that Nelson Partners is struggling to pay back money after thinking it had found a solution, because that’s exactly what had happened to Liveoak when he lived at Auraria Student Lofts. His lease began on November 1, 2020, and by November 3, he had signed paperwork to move out.

“It feels like they’re trying to give the least amount of information possible,” he had told Westword of his experience with the building. Those three days still haunt him: On November 5, 2021, Liveoak received a call from StuCo, a student collections agency, informing him that he owed the Lofts $10,718.40.

Liveoak had thought he'd done his due diligence when moving out, because he'd signed a financial move-out agreement with the Lofts, and it had been over a year since he'd left the property. When Liveoak said he didn't have $10,718.40, StuCo offered to settle his balance for a one-time payment of $5,500 instead. After nearly a year of holding out, Liveoak finally decided just to pay the company off rather than risk damage to his credit score, or his mother’s, as she had co-signed his lease.

“There was no real way around it, unfortunately,” Liveoak says. “It's a tragedy.”

He considered taking the company to court, but the cost of lawyers and the risk of having to pay even more than $5,500 if he lost was too great.

Liveoak hopes that whoever eventually takes possession of the building will be less predatory than Nelson Partners.

“It's not that I'm happy or anything that they went under, but I hope that the newer management actually seems to treat the students better,” he says. “It’s kind of like retribution is served.”

New management won’t have the chance to take over until a judge decides whether to approve Nelson Partners’ plans and proceed with the renovation or side with Fortress, ruling the plan as not feasible. Fortress argues that, because the entity is another Nelson company, it may not have the ability to fund the loan, given Nelson’s track record.

“What they're doing is, they're pointing out that Nelson has got a lot of other problems going on other than just this asset,” Stein-Sapir says. “They've got judgments against them, and they're accused of dodging a judgment, so there's just mudslinging on both sides.”

Nelson Partners’ other Colorado property, University Flats in Greeley, is also going through Chapter 11 bankruptcy, having filed on December 13.