A whirlwind March 23 bankruptcy court hearing concluded with embattled Austin real estate investor Nate Paul losing control of five legal entities — each of which controls valuable real estate — to a Chapter 11 trustee.
Another three entities were placed under the control of a chief restructuring officer who will help shepherd them through bankruptcy. In total, eight entities were placed under some level of independent stewardship — with one overarching goal: "I don't want Mr. Paul to have control of the cash, period," said U.S. Bankruptcy Judge Tony Davis.
Paul and his firm World Class, which describes itself on its website as a "multi-billion dollar holding company" for real estate, have faced a series of lawsuits, bankruptcies and foreclosures in the wake of a 2019 raid of its Austin headquarters by federal investigators. Though no charges have yet resulted from the raid, the company's "business reputation was severely damaged, and their business affairs were severely compromised," Paul alleged in a lawsuit filed against the FBI in October.
He has declined multiple requests for interviews since that time.
The latest court actions were partially in response to a series of unexplained transfers out of company bank accounts. Casey Roy, a representatives from the U.S. Trustee's office, argued in at least one instance in favor of converting the case into a Chapter 7 bankruptcy, which typically results in a liquidation of assets.
Regarding a shell company called WC Met Center LLC, which owns roughly 48.5 acres in Southeast Austin most recently valued for tax purposes at more than $68 million, Roy said recent transfers appeared to show about $800,000 being moved out of the LLC to World Class Holdings. WC Met Center is one of the entities now under the control of a Chapter 11 trustee.
In another instance, involving a shell company that owns a 34-story high-rise in Dallas, two unexplained transfers were found by an attorney representing the lender. When pressed by Davis about what happened to the money, World Class attorney Mark Ralston of Fishman Jackson Ronquillo PLLC replied that he didn't know. Davis also appointed a Chapter 11 trustee to oversee that case.
The installation of a Chapter 11 trustee is extremely unusual, according to sources with knowledge of bankruptcy law. The U.S. bankruptcy code states that the appointment of a Chapter 11 trustee can occur “for cause including fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management."
Davis didn't specify why exactly a Chapter 11 trustee was appointed in these instances, but a primary topic during the hearings was the recent unexplained transfers.
Bankruptcy expert Steve Sather of Barron & Newburger PC, who was not briefed on the specifics of the World Class cases, noted that trustees are generally assigned when there is a viable business or viable assets, "but the debtors' management can't be relied upon to faithfully steward the process." CROs fulfill similar duties, though Sather described the role as a "trustee lite."
“In theory they are both independent fiduciaries. However, a Chapter 11 trustee completely replaces management. The old regime is completely ousted," Sather said. “Generally the CROs tend to be restructuring consultants, people who are turnaround management professionals.”
Some of the cases discussed March 23 appeared close to resolutions. For instance, Ralston said World Class has "available cash to pay all costs in full" related to the bankruptcy case of WC South Congress Square LLC, which owns a valuable six-acre property just south of Lady Bird Lake, along South Congress Avenue. Financing had previously been approved in the case, and Davis relayed his expectation that the case be "wrapped up in a month." A chief restructuring officer was placed in control of the entity in the interim.
A follow-up hearing has been scheduled for April 20 to check on the progress of the cases.
Combined, the eight shell companies discussed at the hearing own properties with combined assessed values of at least $141 million, according to appraisal records — and those public appraisals are often far below market value. In Austin alone, the entities own at least 76 acres, some of it prime downtown development land.
Map: Check out the Austin real estate now under control of independent fiduciaries
Below is a breakdown of the properties owned by all eight World Class LLCs that were part of the March 23 bankruptcy hearing.
The following entities have been placed under the control of a Chapter 11 trustee
• WC Met Center LLC:Owns 7620 Metro Center Dr., a 3.6-acre property most recently appraised by TCAD at $9.1 million; 7401 E. Ben White Blvd., a 19.5-acre tract most recently appraised at $38.3 million; and 8210 E. Riverside Dr., a 25.4-acre parcel most recently appraised at $20.8 million.
The entity filed for bankruptcy in September. The bankruptcy does not involve the wider MetCenter, a sprawling business park of low-rise industrial buildings west of Austin-Bergstrom International Airport. World Class bought into MetCenter in 2018. The WC Met Center LLC bankruptcy is tied to a roughly $48 million loan from April 2018, according to Travis County documents.
• 6th and San Jacinto LLC: Owns 222 E. Sixth St., a 5,248-square-foot building in downtown Austin that is the listed location of Recess Arcade Bar. It was most recently appraised at $4.15 million. The entity filed for bankruptcy in December.
• WC 511 Barton Blvd. LLC: This entity owns 2.1 acres at 511 Barton Blvd., just south of Lady Bird Lake. It was most recently appraised at $4.52 million. The entity also filed for bankruptcy in December.
• WC 717 N Harwood Property LLC: Owns a 34-story Dallas tower located at 717 N. Harwood St. It was most recently appraised at $51.3 million, according to Dallas County records. The entity filed for bankruptcy in August 2021.
• WC Manhattan Place Property LLC: This entity owns property in Harvey, Louisiana. Jefferson Parish records show that it owns three parcels most recently appraised at about $2.3 million.
The following entities have been placed under the control of a chief restructuring officer, or CRO
• WC South Congress Square LLC: Owns 105 W. Riverside Dr., 1.02-acre parcel most recently appraised at $6.95 million; 500 S. Congress Ave., 4-acre parcel most recently appraised at $26.5 million; and 510 S. Congress Ave., a 1-acre parcel most recently appraised at $7.25 million.
World Class in August obtained refinancing for the site through New York-based Kennedy Lewis Investment Management. Sources have previously suggested the combined six-acre site could fetch as much as $450 to $500 per foot on the open market. World Class suggested in an April 2020 bankruptcy court filing that an appraisal conducted by Ankura Consulting Group LLC valued the site at "approximately $85 million."
• WC 3rd and Trinity LP: Owns 309 E. Third St., building home to Fogo De Chao, the Brazilian steakhouse chain. It was valued in 2021 for tax purposes at $11.6 million. The entity initially filed for bankruptcy in April 2021.
• Arboretum Crossing LLC: This entity controls nearly 20 acres off Research Boulevard in North Austin, including the Arboretum Crossing shopping center. The LLC filed for bankruptcy in July 2021. The properties it owns were most recently valued by TCAD at more than $27 million.
The March 23 hearing occurred roughly 24 hours after Paul's Great Value Storage was purchased out of bankruptcy for $588 million, a deal that's set to net him at least $95 million.
The sale of Paul's 64 self-storage facilities was proof of the value of his vast real estate portfolio, which he amassed over the past decade-plus while touting a buy-and-hold investment strategy. But there's clearly still pressure on Paul's holdings, ranging from prime downtown Austin development sites to suburban shopping centers and beyond.
Paul was dubbed a wunderkind for amassing an envious real estate empire before turning 30. At one point, he had enough capital to put in billion-dollar bids for sites such as the famed Plaza Hotel in New York. Just a few years later, Paul finds that empire being picked apart by some of the most active and deep-pocketed real estate investors operating in Austin. World Class has undoubtedly spent millions of dollars battling lenders, fighting off foreclosures and navigating the bankruptcy process for dozens of properties.
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