Nate Paul is starting to lose pieces of his real estate empire.
A handful of properties that had been controlled by the Austin businessman and his company, World Class Property, were acquired during a foreclosure sale Tuesday at the Sweatt Travis County Courthouse by a lender owed about $22 million in delinquent debt.
The loss of the properties — which include the downtown site that was at one time home to Carmelo's Italian restaurant — represents just the tip of the iceberg in terms of the potential financial woes facing Paul, who also is a central figure in an ongoing controversy regarding allegations of corruption against Texas Attorney General Ken Paxton.
Since late last year, lenders to Paul and his company have tried to foreclose on a combined $258 million in what they contend are overdue loans made to more than two dozen Texas-based real estate entities that Paul controls, according to a review by the American-Statesman.
Until this week, however, Paul had managed to forestall his lenders, often by filing for Chapter 11 bankruptcy protection on the limited liability entities that technically own his various real estate assets. Many of the bankruptcies — which automatically halt efforts to collect overdue debt — have come just before scheduled foreclosure sales were to proceed.
The loss of properties that Paul suffered Tuesday exemplifies the limits of that strategy.
His attorneys filed bankruptcy in November 2019 on four Paul-controlled entities that own the properties — named 900 Cesar Chavez LLC, 905 Cesar Chavez LLC, 5th and Red River LLC and 7400 South Congress LLC. But after a year without a viable plan to make good on the delinquent debt, the automatic stay from bankruptcy court that prevented foreclosure was lifted last month, enabling this week's auction to take place.
The lender to all four — an entity called ATX Lender 5, which is an affiliate of real estate firm Stonelake Capital Partners — was the sole bidder Tuesday, winning the properties for $17.8 million, although no money changed hands because the lender was owed more.
Paul wasn't present at the foreclosure sale, and he didn't respond to a request for comment afterward.
But Mark Taylor, an attorney working for Paul, called the foreclosure sale invalid and said he plans "to pursue appropriate relief."
Taylor said everyone in attendance before the sale began was "informed by county officials that they were not authorized to proceed with a foreclosure auction" because of coronavirus-related crowd restrictions "and were instructed to disperse from the Travis County Courthouse." But he said the lender pushed for the sale to go forward anyway.
Kristen Dark, Travis County sheriff's office public information officer, said deputies at the scene merely "sought voluntary compliance with social distancing and mask wearing."
But later Tuesday, county spokesman Hector Nieto told the Statesman that the Travis County fire marshal's office notified the participants "they were exceeding capacity and should disperse," although he couldn't immediately say if fire marshal personnel tried to prevent the sale from going forward.
"The Travis County Fire Marshal's office was called out to an event at the county courthouse that exceeded gathering limitations set by the governor's and Travis County's most recent COVID-19 orders," said Nieto, adding that he wasn't certain who called the fire marshal regarding the event.
Jonathan Pelayo, an attorney for ATX Lender 5, said the sale took place properly.
"The foreclosure sale was conducted in accordance with Texas law," Pelayo said. The Paul-controlled entities "were given more than a year (after filing bankruptcy) to reorganize, sell their properties, or refinance their debt."
Combined, the properties are valued on Travis County tax rolls at about $22.8 million, but various court proceedings have pegged their market value at $42.5 million to nearly $60 million.
Still, Paul is facing the prospect of an even bigger blow on the horizon.
An entity he controls called Silicon Hills Campus LLC — which owns the 156-acre former 3M campus in Northwest Austin — has been in bankruptcy since January without winning court approval for a plan to make good on a delinquent $64 million promissory note. The campus is valued at about $88 million on tax rolls, but a court document filed in September 2019 pegged the building and attached power plant as worth in excess of $200 million.
In late November, U.S. Bankruptcy Judge Tony Davis lifted a stay that potentially would have allowed the property to be sold in a foreclosure auction early next month. On Tuesday, however, he approved a motion by Paul's attorneys that appears to give Silicon Hills Campus some extra time — until Jan. 31 — to come up with a plan of its own.
Separately, Paul is at the center of a controversy involving Paxton. The Statesman first reported Oct. 3 that seven senior Paxton aides filed a criminal complaint against their boss, alleging abuse of office, bribery and other wrongdoing stemming from his dealings involving Paul, who is an acquaintance of Paxton's and has been one of his campaign donors.
Paxton has described the aides, who were later joined by the agency's head of law enforcement, as "rogue employees" and said the allegations against him are false. All have since resigned, been put on leave or been fired, prompting a whistleblower lawsuit, according to The Associated Press.
Paul also has disputed the allegations through an attorney.
Still, an informal legal opinion ordered by Paxton this summer involving foreclosure sales is among the actions that raised red flags regarding his relationship with Paul, two senior officials in Paxton's office previously told the Statesman.
Paxton's opinion — rushed out on Sunday, Aug. 2, and advising that foreclosure auctions shouldn't take place if coronavirus-related restrictions limit crowd sizes — was perceived as aimed at protecting some of Paul's properties that were posted for foreclosure just two days later, the officials said.
Amplify Credit Union, which held notes on three Paul-controlled properties and had planned to put them up for auction Aug. 4, halted its proceedings because of Paxton's opinion, Amplify CEO Kendall Garrison told the Statesman in October.
The opinion was "provided to us by (an attorney for World Class) that Monday," Garrison said.