Once considered a cornerstone property of real estate holding company World Class Holdings, WC 5th and Waller, LLC filed for Chapter 11 bankruptcy on May 4, 2021 — continuing the financial struggles for the Austin-based firm which date back to a federal raid on its headquarters in August 2019.
Since the raid, World Class has filed at least 24 bankruptcies over its real estate assets, and it continues to deal with significant lawsuits and threats of foreclosure on a number of its properties.
The 5th and Waller property was originally envisioned as “a unique single-story creative office project located in the heart of trendy East Austin,” with World Class calling it “a wide-open canvas for a creative user to create a workplace to attract top talent in one of Austin’s most desirable locations.”
World Class’ project brief on the property further noted that it viewed 5th and Waller as “an ideal flagship location,” emphasizing that its position in East Austin offered “an alternative to Downtown Austin’s high-rise office,” along with “an unparalleled branding opportunity with prominent building signage and visibility directly across from Plaza Saltillo” — theoretically aiming to attract outside businesses looking for “an attractive opportunity for a company with a desire for a strong presence in the Austin market.”
As this part of World Class filed for Chapter 11 bankruptcy, there is hope for the overall corporation (with its individual subsidiaries) to be able to restructure itself — and, as it continues to stave off foreclosures and more damaging bankruptcies, it is apparent that reorganization is the goal.
Chapter 11 bankruptcy is considered “reorganization” bankruptcy, as debtors most often propose a plan of reorganization and restructuring in order to pay off their creditors over time and continue to maintain their business.
Though it doesn’t go into detail, World Class’ 5th and Waller filing listed less than 50 creditors along with between $1 million and $10 million in liabilities. It also estimated its assets between $10 million and $50 million.
As it has acquired properties, World Class has continually sought to form new limited liability companies to serve as the legal owner of one or more particular assets, all of which are controlled by, yet are separate from, World Class itself.
Though the company is tight-lipped about its debts, available documents do show that a number of currently bankrupt Word Class properties owe significant amounts to contractors. While 5th and Waller disclosed $2,598 in debts to Central Texas’ Waterloo Surveyors, Inc., other recently bankrupt World Class entities continually list contractors among its largest unsecured claims.
Since 2013, World Class has also faced more than 20 liens totalling nearly $1.7 million filed against it by contractors alleging non-payment.
World Class’ defaulted loans are likely major contributors to recent bankruptcies
Though World Class’ 5th and Waller property is particularly notable given its prominence for the company and its original “flagship” prestige status, the company has been attempting since 2020 to restructure debt related to more than two dozen of its properties.
Though a 2017 report by Forbes detailed that World Class held $1.2 billion in real estate assets, by October 2020 a number of lenders had moved to foreclose on what was then $258 million in overdue loans.
At the time, these foreclosures were staved off by various Chapter 11 filings on at least 20 properties. Chapter 11 bankruptcy includes an automatic stay — a period of time during which all asset collections, foreclosures, and repossessions of property are suspended and cannot be pursued by creditors.
A December 1, 2020, report by the Austin American-Statesman noted the timing of these bankruptcies, pointing out that many of them have come “just before scheduled foreclosure sales were to proceed.”
A separate report from the American-Statesman went into further detail, stating: “Most of [World Class’] 20 real-estate entities that have filed for Chapter 11 bankruptcy protection since [November 2019] did so either the day of or the day before scheduled foreclosure auctions.”
“For […] one company, to have so many things go into default at around the same time, I have never seen anything like it. I’d have to go back to 2006 or 2007 (during the U.S. housing crisis) for anything comparable.”
Aaron Amuchastegui, CEO, Roddy’s Foreclosure Listing Service
Avoiding foreclosure has been a significant focus for World Class
Though it isn’t immediately apparent whether the 5th and Waller property faced foreclosure, this is a tactic that World Class has been using to its advantage in other more recent filings. World Class entity WC 3rd and Trinity avoided foreclosure by filing for Chapter 11 bankruptcy on April 6, 2021.
World Class has, surprisingly, financially benefited from the COVID-19 pandemic — and perhaps, simply luck — in its actions to avoid foreclosures. As foreclosure proceedings continued unabated during the early stages of the pandemic, World Class was not able to avoid all of the filed foreclosures: A December 1, 2020, foreclosure sale resulted in a number of World Class properties being acquired by a lender who had been owed nearly $22 million.
However, foreclosure proceedings in Texas’ Travis County were temporarily suspended from December 15, 2020, to April 21, 2021, which provided a cushion for World Class — which was facing at least 13 possible foreclosures at the time.
Even as foreclosures were allowed to resume, and World Class faced three foreclosure sales on May 4, 2021 (two of which were successful), the sale of the notable Northwest Austin office complex that once housed 3M failed as its winning bidder could not complete the sale.
So far, the threat of World Class’ foreclosures remains limited to its Texas holdings, but there is cause for concern regarding its nationwide assets.
Great Value Storage, a company owned by World Class head Nate Paul, filed for Chapter 11 bankruptcy in Delaware on April 13, 2021, in order to protect its 64 locations across 10 states.
Reacting to the huge number of bankruptcies and foreclosures facing World Class, Roddy’s Foreclosure Listing Service CEO Aaron Amuchastegui reacted with incredulity.
“For […] one company, to have so many things go into default at around the same time, I have never seen anything like it,” Amuchastegui said. “I’d have to go back to 2006 or 2007 (during the U.S. housing crisis) for anything comparable.”
World Class owner Nate Paul faces intense scrutiny amidst lengthy FBI investigation, links to embattled Texas Attorney General
Though its battles with financial issues have given World Class a significant amount to handle, its owner Nate Paul is dealing with his own highly-publicized struggles.
Though criminal charges had not yet been filed in October 2020, FBI and US Department of Treasury agents raided both Paul’s home and World Class’ Downtown Austin headquarters in August 2019.
While the truth has been kept sealed, reports have detailed rumors of Paul’s suspected illicit dealings. For example, a source told the Austin Chronicle in January 2021 that “[Paul would] skim money off the top of his self-storage holdings, let the facilities run down, and then these profits would be used to buy other pieces of real estate.”
Though documents and assets were seized as part of the raid, it’s not been made clear what potential wrongdoing World Class or Nate Paul was raided or is being investigated for. However, according to the Austin Chronicle, Paul has claimed that the raid itself was the result of criminal activity and impropriety on the part of the federal government.
In addition, an October 2020 report by the Houston Chronicle detailed allegations by former aides to Texas Attorney General Ken Paxton which claimed that Paxton appointed a special prosecutor to target those who opposed Paul, who had donated $25,000 to Paxton’s 2018 reelection campaign.
According to the report, those targeted may have included federal agents who were involved in the raid on Paul’s home and World Class’ office. Paxton confirmed that he had directed an investigation involving Paul into what he noted were “allegations of crimes relating to the FBI, other government agencies and individuals,” while also claiming that any allegations of wrongdoing are false.