Austin landlord Nate Paul’s World Class Holdings just put more properties into bankruptcy to fend off a foreclosure attempt by its lender Karlin Real Estate.
A corporate entity tied to 11 of World Class’s commercial properties in North Austin filed for Chapter 11 bankruptcy protection in federal court in Texas on Monday.
The bankruptcy filing comes just a week after a New York Supreme Court Judge issued an injunction to temporarily halt Karlin’s Uniform Commercial Code foreclosure sale. The judge ruled the foreclosure sale was not commercially reasonable. World Class said at the time its plan was to refinance its debt.
Paul, a millennial who amassed one of the largest real estate portfolios in Austin, has been in a legal battle with Karlin and his other lenders who say his firm defaulted and are seeking to foreclose.
The latest bankruptcy pertains to an office complex at: 1836 Kramer Lane, 1908 Kramer Lane, 1901 West Braker Lane, 1909 West Braker Lane, 1817 West Braker Lane, 11109 Metric Boulevard, 11101 Metric Boulevard, 11009 Metric Boulevard, 11500 Metric Boulevard, 1910 West Braker Lane, and 2100 Kramer Lane.
Karlin, an Los Angeles-based investment firm, held a $29 million mezzanine loan on World Class’s North Austin properties. It also recently acquired the $63 million senior mortgage from JPMorgan.
Paul’s lawyers and representatives argued that Karlin acquired the loans with the sole goal of taking ownership of World Class’s valuable assets.
“Karlin showed its hand by purchasing the senior mortgage – only one day before the scheduled foreclosure sale – and refusing to cooperate with time necessary to allow a full repayment of both the senior and mezzanine loans,” a spokesperson for World Class Holdings said in a statement.
Karlin’s attorney, Mitchell Karlan of Gibson, Dunn & Crutcher, said that Paul and his firm could have paid back the loans at any point and had been in default for a long time.
“They have our wire transfer instructions,” said Karlan. “They can just repay the loan.”
Filing for Chapter 11 bankruptcy is a common move among real estate debtors facing foreclosure. The bankruptcy process stops the foreclosure and gives the debtor more time to refinance or sell its properties.
It’s a tactic that is especially common when a company is faced with a UCC foreclosure since it can bypass traditional court processes. To file for a UCC foreclosure, the lender has to initiate a foreclosure sale under certain parameters to allow other bidders a chance to acquire interests in the property. Often, the existing lender ends up acquiring the property through a credit bid or a bid using its existing debt.
The World Class corporate entity that filed for bankruptcy, WC Braker Portfolio, listed $100 million to $500 million in assets and $50 million to $100 million in liabilities in its filing.
The bankruptcy is already off to a rough start. Bankruptcy Judge Tony Davis issued an order to show cause as to why a court-appointed Chapter 11 trustee should not be appointed to manage the bankruptcy. In a previous case involving a World Class affiliate, a U.S. Trustee said that the debtor had not filed monthly operating reports or paid Trustee fees in several months. The World Class affiliate also filed operating reports that suggest it made transfers of cash without the lender’s or court’s approval, according to Judge Davis.
Paul built a massive portfolio of Austin commercial properties before the age of 30. In recent years his real estate assets have dwindled because of foreclosures while others became entangled in bankruptcies. There was also an FBI raid in 2019 on his office and personal residence. Paul later sued the FBI.
Paul recently told The Real Deal he is plotting a comeback after selling 64 of his self-storage properties through bankruptcy for $588 million. He said he will likely continue to invest in areas where he already has a presence such as self-storage.