Housing

Auraria Student Lofts Files for Bankruptcy, Hoping to Avoid Foreclosure

Auraria Student Lofts on 14th Street in downtown Denver.
Auraria Student Lofts on 14th Street in downtown Denver. Catie Cheshire
Auraria Student Lofts, maligned by tenants and subject to numerous Orders to Comply from the Denver Fire Department, filed 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 facility, 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.

But then, Patrick Nelson, a businessman who owns Nelson Partners and 5280 Auraria (the company he used to purchase Auraria Student Lofts), apparently needed every dollar he could get.

According to a motion filed by DB Auraria, the company that oversaw Nelson’s $46.5 million loan on the property, the balance on that loan is now over $51 million: Nelson never made a payment toward the principal or covered any interest after taking out the loan in 2019. DB Auraria acquired the loan in November 2021, and Nelson defaulted on it on December 9, 2021, when the loan matured.

At that point, DB Auraria asked Denver District Court to appoint a receiver for the property, saying Nelson Partners had mismanaged it so badly that the company shouldn't be in charge of its management any longer. The court agreed and appointed Michael Staheli to be in charge of the property. Staheli hired Cardinal Group Management to help, which tenants discovered when they found notes on their doors in early February.

That makes this bankruptcy different from a typical Chapter 11 procedure, according to Adam Stein-Sapir of Pioneer Funding Group, a bankruptcy claim buyer based in New York.

In a typical bankruptcy, the first step is replacing the old management with a receiver who tries to improve conditions. In this case, the receiver had already been appointed but legally is still required to relinquish control of the business. That could benefit Nelson, Stein-Sapir says, because Nelson could get the opportunity to take back control of the property if the court declines to appoint a different trustee to replace Staheli, reverting control back to Nelson Partners.

In an effort to stop that from happening, DB Auraria filed a motion for Staheli to stay on June 13.

“Right now there will be a fight over who manages it: Nelson, [DB Auraria’s] pick, the old receiver or someone new,” Stein-Sapir says, adding that someone new is most likely. But DB Auraria may be able to keep Staheli because “it’s not easy to get a receiver appointed prior to bankruptcy, so the fact that DB Auraria was able to go to court…means there must have been compelling evidence,” Stein-Sapir notes.

And there’s plenty of evidence in the motion. DB Auraria claims that Nelson wouldn’t allow Cardinal Group access to the property’s banking documents or computer system. (Residents were told they couldn’t make online payments in the first month Cardinal Group took over.)

Once Staheli, who declined comment through his attorney, got those banking documents, he discovered more problems at Auraria Student Lofts, including a lack of upkeep on the building's facade and sewer lines in the laundry rooms that hadn't been cleaned for years. He also found the reason that the elevators were often out of service: Nelson had failed to pay almost $99,000 to the elevator service company to repair and modernize the equipment.

“Because of [Nelson's] non-payment issues, the elevator service company was only providing minimal ongoing service and maintenance of the elevators and had not yet fixed the broken elevator,” the motion says. “These elevator issues created operational challenges and led to reputational damages that have affected the Property’s ability to attract new tenants.”

When Staheli and Cardinal Group took over, the building had a 63 percent occupancy rate; according to the motion, similar properties have an 83 to 98 percent occupancy rate. And Denver’s vacancy rate was only 4.3 percent in May.

“It’s hard enough to find an apartment, and this building had dozens of them, so that tells you something,” Stein-Sapir says.

The building owed other organizations over $150,000 and had failed to return over $57,000 in security deposits to former tenants, according to the motion, which notes that 5280 Auraria hasn’t turned over $100,000 in security deposits from current residents to DB Auraria.

Elise Esmond, who has lived at Auraria Student Lofts for years, says the place has improved under Cardinal Group's management. "The communication has increased, work orders are completed — or at least addressed — within 24 hours," she says. "No surprise water shut-offs or anything of the like, and they’ve done a lot to repair and maintain the property." The washers and dryers have all been replaced, she adds, while two of the previously broken elevators are now fully functional and the pool is being serviced.

“If [Nelson] were allowed to regain control of the Property, [DB Auraria] believes that the valuable improvements and management gains made by [Staheli] would quickly evaporate—all to the detriment of the estate,” the motion concludes, pleading for Staheli to remain in charge and for management not to be returned to Nelson.

According to the motion, Nelson has attempted to file for Chapter 11 bankruptcy protection to avoid foreclosure four times in the past; each time, reorganization was deemed impossible by the court.

Nelson will have eighteen months from June 9 to submit a plan showing that reorganization is possible this time around.

Neither his lawyer nor lawyers for DB Auraria responded to requests for comment.
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Catie Cheshire is a staff writer at Westword. After getting her undergraduate degree at Regis University, she went to Arizona State University for a master's degree. She missed everything about Denver -- from the less-intense sun to the food, the scenery and even the bus system. Now she's reunited with Denver and writing news for Westword.
Contact: Catie Cheshire