Friday, October 15, 2021

Investors put millions in a luxury student hall. They say they were ripped off.

Mrs. Martinez, who lives not far from the residence, said she had invested a little over $ 100,000 in the transaction – money that came from the sale of a rental property. Like many investors in Skyloft, she was looking for a way to defer the payment of capital gains with the previous sale, and the private placement was marketed by brokers as a ‘1031 ‘transaction that the Internal Revenue Service on would keep a distance.

An exchange rate of 1031, named after a portion of the federal tax code, allows an investor to defer the payment of capital gains on the sale of property, as long as the proceeds are invested in another property of the same value as the sale. These transactions are often criticized as a tax break for the rich, but the transactions have also long attracted the interest of investors with more moderate means.

The Biden Administration is consider eliminating many of these trading as a way to raise additional income to pay for increased spending on child care and family leave programs. With the Biden plan, 1031 wallets can continue for most investors who want to defer capital gains up to $ 500,000 – many in the Skyloft agreement fit the account.

In recent years, student housing projects such as Skyloft have become particularly attractive investments in real estate – especially as universities have encouraged the construction of luxury apartment buildings to provide students with affluent families. Prior to the pandemic, there was an average of $ 7 billion in student housing transactions in the United States annually. According to CBRE, a real estate services firm, it was more than $ 3 billion just a decade ago.

The court documents and interviews with investors set out how the Skyloft project financing worked. To secure the $ 124 million acquisition of Skyloft, Nelson Partners obtained a $ 66 million mortgage from a group of lenders led by UBS, in addition to the $ 75 million raised by ordinary investors. It also received $ 35 million in short-term financing from Axonic Capital, a New York hedge fund specializing in commercial real estate transactions. The loan from Axonic was used to complete the purchase while Nelson Partners raised money from investors.

Nelson Partners had to repay the bridge loan, plus interest, to Axonic using money raised by investors such as Ms. Martinez was collected. But Mr Nelson’s firm did not repay the loan, according to court documents. In February 2020, Axonic informed Nelson Partners, and he informed him in May last year that he was declaring Nelson Partners in default and taking control of the building.

Mr. Nelson opposed Axonic’s action, but according to the lawsuit, he did not inform investors about his dealings with the hedge fund. In April 2020, Nelson Partners stopped paying monthly cash dividends to investors and informed them that it would have to save cash during the pandemic if students and their parents stopped paying rent. Mr. Nelson’s firm also received a loan of just over $ 1.2 million from the Small Business Administration’s Paycheck Protection Program.

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