Austin investor Nate Paul and his firm World Class have halted a Uniform Commercial Code foreclosure sale on an office campus in the Texas capital, which World Class says will allow it to refinance.
A New York judge approved World Class’ request last week for a preliminary injunction to keep ATX Braker — a shell company that Los Angeles-based Karlin Real Estate owns — from proceeding with a scheduled UCC foreclosure sale after determining that the sale was not commercially reasonable. World Class claimed in its initial lawsuit that it didn’t receive proper notice of default or the planned sale of its 13-building office campus in North Austin, called Offices at Braker, and a nearby retail center.
World Class plans to refinance the loan to divorce itself from ATX Braker, officials told The Real Deal. Meanwhile, Gibson, Dunn & Crutcher — the law firm representing Karlin — has filed an appeal on the injunction order.
Paul is an Austin real estate investor who built a billion-dollar portfolio before the age of 30. In recent years, his holdings have dwindled amid multiple foreclosures and bankruptcies and a 2019 FBI raid on his office and residence. The embattled real estate magnate told The Real Deal last month that his plan is to rebuild his empire after selling the majority of his self-storage properties out of bankruptcy.
The original amount of the firm’s mezzanine loan for the office park was $29 million, while there is also a mortgage loan with JP Morgan with a balance of about $63 million, according to court documents.
A spokesperson for World Class said in a statement that there were no missed payments prior to loan maturity. The maturity date was originally March 9, 2021, and it was extended one year, according to court documents. The spokesperson also said the property generates enough cash flow to pay the interest on the loan.
Mitchell Karlan, one of the GDC attorneys representing the lender, said in a statement that Karlin just wants to be paid.
“Mr. Paul borrowed $29 million from ATX, but has failed to pay it back at maturity without any excuse,” Karlan said in a statement. “When we sought to sell our collateral, he ran to court to stop that. We look forward to simply getting our money back. We hope Mr. Paul will honor his obligations.”
Stephen Meister, a powerhouse attorney in New York real estate litigation, is representing World Class and has represented heavy hitters in Manhattan real estate such as Harry Macklowe, Donald Trump and Joseph Moinian.
Meister said in an interview that Paul’s firm is required to post a bond of $690,000, which he doubts will be called on.
“They are in the process of refinancing and repaying both the senior loan and the mezzanine loan that Karlin pays, so even though… the foreclosure sale is stopped during the pendency of this suit, that doesn’t mean World Class won’t pay them back during the pendency,” Meister said.
Meister said there were several reasons why they argued the sale was commercially unreasonable. World Class was precluded from bidding at the scheduled foreclosure sale because it received notice one week ahead of the sale, which was the same day that bidder participation statements were due. He said Paul’s firm also secured a temporary restraining order against ATX Braker earlier this month.
“The whole reason that all these terms were so unreasonable is that Karlin was really angling for the property,” Meister said, adding that’s what they alleged in the suit. “As long as the refinancing takes place, I think Karlin gets what it’s entitled to, which is to be repaid the money that’s owed on this loan.”