Nate Paul is plotting his comeback.
The former wunderkind of Austin real estate just sold a massive portfolio of self-storage properties out of bankruptcy, leaving him with enough cash after repaying creditors, he says, to pursue new opportunities and revisit old ones.
While the size of Paul’s war chest has shrunk after years of foreclosures and battles with lenders, his ambitions are as big as ever.
“We’re back,” Paul said in an exclusive interview with The Real Deal. “We’re looking for exciting opportunities. We have a large amount of capital to go out there and invest.”
By the age of 30, Paul, now 35, amassed a real estate empire valued by Forbes at $1.2 billion. If he manages to rebuild his fortune, it would be one of the great business comeback stories. Though real estate is an industry known for second chances, Paul’s path back to the top has more complications than most, including pending litigation and foreclosures, and plenty of burned bridges among business partners and lenders.
The sale of nearly all of Paul’s self-storage portfolio — 64 properties that had been the cash cow of his holdings — for $588 million will leave him with at least $130 million and as much as $178.8 million, according to a spokesperson. While Paul offered few details about his plans, he said his firm, World Class Holdings, likely will continue investing in the self-storage industry and he is looking at properties where he already has a presence, including Austin and Los Angeles, where the company has self-storage properties as well as creative office space, he said.
“There are certain asset classes where we have a core competency, like self-storage, where we expect to continue to make significant investments,” he said.
The amount of Paul’s or his firm’s existing debt is unclear, but in 2020, creditors claimed they were owed roughly $135 million through 16 bankruptcies tied to 28 properties, Austin Business Journal reported.
The extent of Paul’s current portfolio also remains unclear, though a spokesperson said that about 95 percent of World Class Holdings’ assets are wholly owned. It’s also unknown which of his holdings may be at the center of ongoing litigation. He is still in court on a number of properties which he put into bankruptcy to fend off foreclosures.
“We’re back doing exactly what we did prior, which is buying, developing, and executing on a strategy that has worked tremendously well,” said Paul. “We’ll be doing it for many decades to come.”
A University of Texas at Austin dropout, Paul cut his teeth in real estate buying self-storage facilities during the depths of the financial crisis. His bet on the staid sector proved lucrative, and he soon began amassing commercial properties around Austin, such as the Galleria Oaks shopping center.
Paul’s source of funding remained a topic of speculation in Austin, though he was able to draw the interest of Robert Smith of the private equity firm Vista Equity Partners, who invested tens of millions of dollars in five of his deals, according to Forbes.
As his portfolio grew, so did Paul’s vision, telling media outlets that he wanted to be “the youngest self-made real estate billionaire.”
He became a prominent figure in Austin, where his black World Class signs could be seen all over town. Paul himself cruised around in a Bentley, while tabloids reported his attendance at Leonardo DiCaprio’s birthday party.
Over the years, Paul acquired 20 acres off Research Boulevard in North Austin, which includes the Arboretum Crossing luxury shopping center; 13 office buildings in North Austin; a 34-story tower in downtown Dallas; and sites along South Congress in Austin.
But it was his purchase of the 1.3 million-square-foot campus of the multinational materials conglomerate 3M in Austin in 2018 that really turned heads. The company was already planning to move out, and Paul said his plan was to buy and hold the asset for the long haul. That property, valued at $100.9 million, was acquired out of foreclosure last year by the Los Angeles-based development group Karlin Real Estate.
Paul suggested, without offering details, that he believes he could regain the site that he lost in foreclosure.
“I feel like it’s a phenomenal asset and something where we see great long-term value,” he said.
Fall and comeback
The first cracks in Paul’s empire began to appear around 2019, when the FBI and the U.S. Department of Treasury raided his personal office and home.
Former employees of Texas Attorney General Ken Paxton filed a whistleblower complaint alleging that Paxton abused his office to give favors to Paul. Paxton has denied the allegations. Paul later sued the FBI, arguing that the raids violated his civil rights and harmed his businesses.
“The hysteria and kind of the concern that came from that without a doubt had an impact,” said Paul. “There were a lot of folks that were concerned that that happened, as were we. It’s very unfortunate to have a situation like that.”
Since then, World Class has filed dozens of bankruptcies as it staves off foreclosures from its lenders. In 2019, a debt fund alleged that Paul had defaulted on a $64 million loan secured by the 3M site by failing to pay it off before it matured and failing to make payments as a guarantor.
Paul says the financial issues were not his own doing. He blames opportunistic investors that bought his loans at a time when parts of his portfolio had a dip in occupancy and revenue to take control of his properties.
Turnbridge Equities, which bought one of the World Class loans after World Class stopped making payments, said the firm expected to get paid back through a refinancing or sale.
“Nate has a long history of pointing fingers at others for his own issues rather than just following the rules,” said Turnbridge founder Andrew Joblon.
Paul’s financial issues reached a boiling point when an auction last summer was disrupted by protesters outside the courthouse upset about nine foreclosure auctions tied to Paul’s properties. The discordant demonstrators chanted, “Illegal sales!” and “We want pizza!’’ according to ABJ. Paul denied any involvement.
Paul now says that many of those financial issues are in the past.
“I feel very confident in the way our positioning is now with some of those obviously realizing through sales and generating substantial gains,” said Paul. “Some of the others, we’re refinancing to move away from loans that were purchased by third parties.”
Over the past three years, World Class has filed at least two dozen bankruptcy cases, though a few have since been resolved, according to ABJ.
In a recent case where Paul is fighting for control over a handful of properties, a Texas court ruled against him. On March 23, U.S. Bankruptcy Judge Tony Davis ordered that Paul would have to cede control of five companies tied to several World Class properties — including the downtown Dallas skyscraper and a 19.5-acre tract in southeast Austin — after a U.S. trustee alleged that Paul was moving money between companies without the court’s approval, according to ABJ.
He also lost control of three other entities to a chief restructuring officer that will oversee the companies through bankruptcy.
“I don’t want Mr. Paul to have control of the cash, period,” Davis said during the hearing, according to ABJ.
Paul insists he is looking forward rather than back.
“Are there things that I wish could have been done differently or some regrets?” Paul said. “Yeah, there are, but I really focus now on how can we continue to go out there and make the best decisions.”