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Judgment Day

Nate Paul, the former wonder boy of Austin development, faces an FBI indictment and is at the heart of Texas’ biggest political scandal. Can he ever recover?

Photo-Illustration by Paul Dilakian/ The Real Deal
Photo-Illustration by Paul Dilakian/ The Real Deal

People who know Nate Paul speak of him as a shrewd, occasionally sweaty dealmaker with a great eye for opportunity, a penchant for expensive cars and balls of steel. 

A son of Austin, Paul has always run his company, World Class Holdings, with the ambition of a national player — he had the bombast of New York, the flair of Miami, the hustle of Hollywood and the self-assured persistence of a Texan. He made it onto Forbes’ “30 Under 30” list, had the backing of bigwigs like private equity mogul Robert Smith and kept an office at New York’s GM Building. 

That was the rise. Equally spectacular was the fall. 

In 2018, Paul began defaulting on hundreds of millions of dollars in loans. The following year, the FBI raided his office and home, spooking lenders and compounding his legal exposure. The investigation came to a head this June as a grand jury indicted Paul on eight counts of lying to financial institutions, charges that threaten $180 million in damages and 240 years in jail, not to mention wiping out his reputation. 

And after emerging at the center of bribery allegations against Texas Attorney General Ken Paxton, Paul might get the most politically resilient state AG in the country impeached by his own party. 

“You don’t have to be Nostradamus to assume that they’re going to try to flip Nate Paul,” Dan Cogdell, one of Paxton’s attorneys, said shortly after Paul was booked into Travis County Jail in June. 

Paul’s chutzpah and grit are the only things keeping him from the abyss. Is he Icarus or Trump? Will the sun melt his wings, or will it just leave him with a scar and great stories to tell?

Dragnet

Paul’s dance with the feds began in earnest on Aug. 14, 2019, when FBI agents raided his home and offices. The investor spent the following three years in a kind of limbo — not charged with any crimes by the FBI but visibly in its crosshairs, scaring off banks and leaving his business “severely damaged,” he would later assert in court. 

Criminal investigations are investor repellents. In the years since the raid, Paul has been forced to put more than two dozen of his ownership entities into bankruptcy, staving off foreclosures as creditors came knocking. In grinding court battles, he appeals decisions against him like second nature and, his opponents allege, uses the bankruptcy process as a lifeline to buy time and delay foreclosure sales. 

In thousands of pages of filings and hours of depositions, Paul has trudged through the legal swamp, still to lose some of his most valuable properties, including an Austin assemblage on South Congress bought at auction by Related Companies for $65 million. He sold a large portion of his self-storage business, Great Value Storage, for $588 million at another bankruptcy auction. At the time of the sale, it was one of the most valuable pieces of his empire, representing a quarter of World Class’ total holdings. 

“You don’t have to be Nostradamus to assume that they’re going to try to flip Nate Paul.”
Dan Cogdell, attorney for Texas AG Ken Paxton

The storage sale may have been a rare bright spot in that period. World Class said it expected to earn at least $130 million from the sale after paying back creditors. 

When punched, Paul punches back: He has countersued many of his adversaries and even sued the agents involved in the raids, arguing that they harmed his business and violated his constitutional rights. The court dismissed the case, a decision Paul has appealed.

In his biggest legal battle before June’s indictment, Paul waged a scorched-earth fight against an Austin nonprofit. The fallout from that quarrel may now bring down one of Texas’ strongest politicians. 

The lawsuit between Paul and the Mitte Foundation, which was filed in 2018 and is still ongoing thanks to several appeals, stems from a 2011 investment the foundation made in two Paul-controlled LLCs for downtown sites he said he planned to either sell or develop. In 2018, Paul allegedly refused to provide financial information about the partnership, leading to a prolonged legal dispute that has snagged Texas’ embattled Attorney General. 

The Mitte case “is just staggering, in the number of people it has ensnared, the other litigation it has generated,” said Seth Kretzer, a Houston attorney who was the court-appointed receiver in a separate Paul bankruptcy case (and who Paul has also sued). 

The real intrigue began when the first trial ended. In July 2021, the court ordered Paul and the LLCs to pay Mitte $1.9 million. While Paul appealed that decision, he ponied up the $330,000 he owed. But by the following May, he had not paid the share owed by the two entities he controlled. The court clamped down on Paul’s ability to move assets into and out of the LLCs and required him to report any time he moved $25,000 out of them.

In approving the order, the court specifically wrote that if it did not restrain Paul and his LLCs, they were “likely to dissipate or transfer assets to avoid satisfaction of the Judgment.”

Sure enough, that fall the foundation accused Paul of secretly transferring $100,000 to NBA player and World Class investor Avery Bradley. Paul testified to the court that he understood the injunction order and had not made any such illicit transfers. The foundation said he had lied under oath and filed false reports, and asked that the court hold him in contempt. 

In a subsequent hearing, Paul admitted to making the $100,000 payment, but said he didn’t know that failing to report the payment violated the injunction. He added that he didn’t personally owe Bradley the money, but one of his companies did.

At the hearing, Paul claimed he only had two personal bank accounts: a Chase account with $5,800 and an empty RBC Wealth account.

The court did not take pity on him, saying he had told “pervasive and inexcusable” lies. The judge found Paul in civil and criminal contempt and ordered him to spend 10 days in Travis County jail. Paul challenged the order and an appeals court reviewed it, but mostly ruled in favor of the judge. He appealed again, to the Texas Supreme Court, leaving him in the clear at least for the moment. But if the high court agrees with the trial judge, the consequences could haunt Paul. 

“Any time he testifies for the rest of his life, that’s admissible as a crime of moral turpitude,” Kretzer said. It would allow his courtroom opponents to immediately question his reliability on the witness stand.

The Mitte case has taken on new importance as the Texas House of Representatives has voted to impeach Paxton over a long bill of charges, one of which includes violating the duties of his office by directing employees to intervene in the suit on Paul’s behalf. 

Texas Attorney General Ken Paxton

For the most part, Paul seemed to be politically connected in the same vein as other major real estate players. While all but two of his political donations went to Republicans, he never seemed overtly ideological. Even his $25,000 donation to Paxton wasn’t out of whack: Jerry Jones gave Paxton $200,000, Monty Bennett gave him $100,000, and H. Ross Perot Jr. of residential giant Hillwood gave him $50,000, to name a few. 

But as Paul’s legal woes mounted, he began to lean on Paxton more egregiously, according to whistleblower reports and the impeachment charges brought against the attorney general in May. In return, Paul allegedly renovated Paxton’s Austin home and hired his mistress as a project manager.

The favors sought, according to the House investigation and whistleblower report, include asking for information about the FBI’s probe into Paul and for the attorney general’s office to intervene in the Mitte case. 

According to the investigations, Paul had enough pull to get results. Several former employees of the attorney general’s office accused Paxton of pressuring the foundation to settle “on terms favorable” to Paul. They claimed they’d never seen Paxton so personally involved in a case, allegedly telling top agency lawyers that he wanted to appear personally in court, the Texas Tribune reported.

In another instance, Paxton is accused of pressuring staff to issue an AG opinion that would help Paul stop scheduled foreclosure auctions. 

Show and sell 

In 2005, Natin Paul Enterprises was a one-man operation run out of the hallways of St. Michael’s Academy in Austin. A 17-year-old Nate, the son of Indian immigrants, was renting out DJ equipment and selling custom water bottles and wristbands, using a cell phone, a laptop computer and a PDA. He spun music at home games for Austin’s Arena Football League team, the Wranglers. He loved a party, sports and a deal.

Ten years later, Paul was much the same person. His business, though, had evolved into World Class Capital Group, based atop the Frost Bank Tower, at the time Austin’s premier commercial building. Though recent allegations of falsified financial statements call his numbers into question, Paul told the Austin Business Journal at the time that his empire spanned about 9 million square feet in 16 states.

By 2018, Paul controlled several of Texas’ most iconic buildings, including the 3M campus in North Austin and KPMG Centre in Dallas. He also owned a major self-storage portfolio with a reported 57 facilities. His fleet would eventually include a Bentley Mulsanne, a Lamborghini Huracan and a Ford F-250 Super Duty truck, according to court documents. 

He still loved a party: He popped champagne at Leonardo DiCaprio’s 39th-birthday party and owned Rio, one of Austin’s hottest clubs. He still loved sports: His investor Bradley was a star UT Austin guard who went on to play for the Boston Celtics and other teams. Paul brought in former UT and Kansas City Chiefs running back Jamaal Charles to work in business development at World Class and its flex office subsidiary, NowSpace. 

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During World Class’ acquisition tear, the firm hung black banners on its properties with variations of the phrase “Another World Class Project,” shouting its ambitions to build half of Austin. Forget Silicon Valley’s hoodie mentality — Paul was always in a suit, anxious to be taken seriously, he told the American-Statesman.

Paul’s chroniclers carried an undercurrent of doubt. A largely triumphant Austin Business Journal profile in 2015 was titled “Is this guy for real?” Aside from surprise at his youth and his speed, sophisticated players started to look more deeply at his buy-and-hold strategy. 

Sources active in the Austin market acknowledged that Paul had a great eye for development sites. But World Class has not developed a single multifamily, hotel or office building from scratch, Paul admitted in a deposition. 

So what has World Class actually built outside of self-storage projects? When pressed, the only ground-up structure Paul named in the deposition was a roughly 15,000-square-foot Walgreens in Plano. The firm also worked on two three-story adaptive reuse projects, the Rio club at 6th and Rio Grande and the Capital Grille at the former Spaghetti Warehouse building at 117 West 4th Street.

Even with one of the city’s most valuable development portfolios, it hasn’t actually developed much. 

“I mean, you can’t just hold forever,” one insider said of the strategy. 

That means hefty tax bills, but no big return in cash flow, for valuable assets like the parking lot at the corner of Fifth Street and Red River Street in downtown Austin. The lot is a blank slate at the nexus of the city’s central business district, its culturally rich east side and development-rich Rainey Street. 

Paul scored the property at a discount, talking the listing brokers down $10 million from their $26 million asking price in just a couple of months of negotiations. 

The sellers, a team of Houston investor Allen Harrison Company and a Chinese capital partner, were “under a time crunch to sell,” according to the deposition, as Beijing cracked down on Chinese firms splashing cash abroad. 

Paul lost the property to his lenders, Houston private equity firm Stonelake Capital Partners, but not before a pitched foreclosure battle. That fight followed a familiar legal strategy for Paul, in which he narrowly avoids a quick loss in favor of a much longer one, putting the ownership entities into bankruptcy just before a first scheduled auction. 

And even after the bankruptcy, Paul was still teasing a skyscraper for the property.

“At some point about a month ago,” Paul was asked in a deposition, “you posted on LinkedIn a picture of a conceptual design, I guess, of 5th and Red River.”

“Correct, I did,” Paul responded. 

“And that was posted after the bankruptcy was filed. Right?” the lawyer asked.

“That’s correct.”

“And you wrote, quote, ‘An iconic tower is coming to Downtown Austin at the corner of 5th Street and Red River. Over 600,000 square feet, spectacular views, and an irreplaceable location. Downtown Austin is about to get a lot more interesting.’”

“What were you talking about?” the lawyer asked, disbelieving. “What’s coming soon to that location when the entity that owns it is in bankruptcy?”

(Subtext: Are you full of shit?)

“It’s real estate 101,” Paul said. “You’ve got to market your properties.”

The final battle 

At 4:25 pm on June 8, Paul was booked into Travis County Jail. It wasn’t exactly a perp walk — there are no photos of the arrest — but ever since that Thursday afternoon, Paul has been treated like any other accused criminal. 

Authorities took a mug shot of a man with ruffled hair and a thousand-yard stare. He appeared in court the following morning in handcuffs, jeans and a blue shirt, with shackles constraining his ankles just above a pair of Air Jordans. After a brief hearing, Paul was released under orders to turn in his passport and not possess a firearm or leave Texas without the court’s approval. 

An attorney for Paul told a local NBC affiliate that his client denies all allegations and plans to plead not guilty. Shortly afterward, he sought permission to delay his arraignment until the end of June so he could finish assembling his defense. In the battle of his life, Paul will no doubt assemble a top tier legal team. He has already brought on David Gerger, the white collar defense specialist whose past clients include Enron’s CFO and the BP engineer tried for pollution and manslaughter in the Deepwater Horizon blowout. 

To those that have exhibited disdain towards me: Sorry, I’m not going anywhere.”
Nate Paul

In his request for more time, one of Paul’s attorneys, E.G. Morris, said Paul “anticipates [it] will be a complex case.” Three days before the arraignment was set to occur, Paul entered a not guilty plea and waived his right to appear in person as his charges are read. 

The line between bullshit and bravery runs particularly thin in real estate, but if the FBI’s indictment is to be believed, Paul got by for years on the former. 

He allegedly sent crudely doctored bank statements to financial institutions to persuade them to loan him money, according to the indictment. Targets included Ladder Capital, a real estate investment trust with nearly $6 billion in assets under management, and LoanCore Capital, a fund owned in part by Singapore’s GIC and the Canada Pension Plan Investment Board. 

As Paul sought a $33.6 million loan for a South Congress office building, for instance, he allegedly sent an affiliate of LoanCore an account summary purporting to have $14.2 million in the bank, when the account only held around $12,000. He did the same thing a year later as he sought a $48 million loan for other Austin properties, sending the LoanCore affiliate an account summary that showed $18.5 million in an account that only actually held $12,000, according to the indictment. 

Paul has known this day might come for years. In a 2016 piece he wrote for HuffPost, he noted that history is littered with wunderkinds who flopped:

In business and investing, cautionary tales are everywhere — from the one-hit wonder Wall Street fund manager who delivers one knockout year and then flames out, to the Silicon Valley rising star who builds a killer app and is never heard from again. Those of us who have achieved success at a young age should be terrified by these examples.”

Representatives for Paul declined multiple requests to comment for this story. Paul has grown increasingly distant from the press as its tone toward him has darkened over the years. An attempt to visit his house ended at the sealed entryway to his gated community. 

But some glimpses into his mind exist.

For seven years, Paul has been posting a grab bag of motivational quotes, self-affirmations and deal announcements on LinkedIn. He shares thoughts from philosophers, business leaders, athletes and politicians. The posts often allude to his haters, who will either be outworked, outlasted or outplayed. A favorite is Sun Tzu’s admonition to “let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.” At least three times, he has shared Teddy Roosevelt’s “Man in the Arena” speech. 

More than any other emotion, though, Paul posts about determination. #Relentless appears under more than 100 of the posts. His most recent quote was a rare original:

“To those that have exhibited disdain towards me,” he wrote in April, “sorry, I’m not going anywhere.”

He hasn’t posted on the platform since.

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