The bankrupt Auraria Student Lofts downtown cannot be foreclosed on and sold just yet.
U.S. Bankruptcy Judge Kimberley Tyson ruled Friday that a proposed foreclosure cannot occur, maintaining a stay that has been in place since the lofts went bankrupt in June.
The Auraria Student Lofts is a 125-unit apartment complex above the Curtis Hotel at 1051 14th St., marketed toward students attending the nearby Auraria campus. Its owners, Nelson Partners, have been accused of neglecting it and other student housing complexes across the country.
But Tyson said Friday that Nelson is working to improve Auraria and restructure its company in a way that will allow it to repay the tens of millions of dollars it owes. She gave Nelson credit for hiring contractors to make improvements and brokers to sell the property.
“That is not to say that this was not a close call. The debtor needs to get moving,” Tyson said, referring to Nelson. “I know the debtor has made a (restructuring) plan in a relatively short time but this case needs to move forward to the benefit of all creditors. I will leave it at that.”
Tyson’s decision is a loss for Fortress Capital, which loaned Nelson $46.5 million for its purchase of the property in 2019. Fortress, a national lender, is now owed about $53 million. It has been asking Tyson to let it foreclose on the property since September.
Fortress has accused Nelson Partners of using Chapter 11 bankruptcy protection in bad faith because Nelson filed for bankruptcy on the property 57 minutes before a foreclosure sale in June and because there is no way for it to restructure its business and pay off its massive loan. Meanwhile, the building at 1051 14th St. is declining, according to Fortress.
Nelson, meanwhile, objected to what it called Fortress’s “aggressive” and “opportunistic” attempt to foreclose on Auraria. The building is not declining in value and Nelson is caring for it while looking for opportunities to sell it and repay creditors, according to the company.
Nelson also claims that Fortress isn’t telling the truth about the property’s value. It was purchased for $60 million in 2019 and there have been improvements made since, Nelson says. “Property values have increased, not decreased, since 2019,” it noted in court filings.
Tyson largely sided with Nelson in the dispute Friday. She said it has “a reasonable possibility of a successful reorganization in a reasonable time” and has done a better job attracting tenants lately, but did agree the building has lost some of its value this year.
It was the second time this fall that the judge reluctantly sided with Nelson. In September, Tyson determined the company had mismanaged Auraria Lofts by using students’ security deposits to pay expenses and by keeping low occupancy rates. But she allowed Nelson, rather than a court-appointed caretaker, to manage the property.