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Bankruptcy filing forestalls foreclosure on former 3M campus in Austin

The former 3M corporate campus in Northwest Austin has averted foreclosure.

The entity that owns the property, which is controlled by Austin real estate investor Nate Paul, on Jan. 7 filed for Chapter 11 bankruptcy protection. That filing came shortly before the 156-acre property had been scheduled for a foreclosure auction,

It was the sixth bankruptcy filing since November to stave off potential foreclosure on properties owned by entities controlled by Paul and his World Class Property Co.

The latest Chapter 11 filing was made at 10:16 a.m. Tuesday in the U.S. Bankruptcy Court for the Western District of Texas on behalf of the debtor, Silicon Hills Campus LLC. The listed address for Silicon Hills Campus is 814 Lavaca Street, which is the headquarters for Nate Paul's World Class Property, a privately held real estate investment firm with numerous holdings in Austin.

In August, agents from the FBI and U.S. Department of Treasury searched World Class' downtown headquarters. Those agencies have declined to comment on the operation.

The new bankruptcy filing came as the monthly foreclosure auction was underway on the steps of the Travis County Courthouse on Guadalupe Street. The former 3M campus at 6801 River Place Blvd. was scheduled to be auctioned between 1 p.m. and 4 p.m. Tuesday.

Had the foreclosure taken place, it would have ranked with some of the more significant foreclosures in the region, local real estate experts said.

World Class agreed to buy the campus in 2017 and closed on the sale in early 2018.

The bankruptcy petition lists the estimated assets of Silicon Hills Campus at $100 million to $500 million and estimated liabilities at $50 million to $100 million.

Creditors holding the largest unsecured claims include the law firm of Jackson Walker LLP, with nearly $125,000 owed, followed by the architecture firm Gensler, which is owed about $107.000, according to the court filing.

Morris Weiss, attorney for Silicon Hills Campus, did not respond Tuesday to an email seeking comment.

A voice message left for Paul and Brian Elliott, World Class Property's corporate counsel, was not returned, and no one answered the door at World Class' downtown headquarters Tuesday.

A court document filed in September by Silicon Hills Campus said the former 3M property has a current value in excess of $100 million. Another reference in the same document says the 1.3-million square foot building and attached power plant have a value in excess of $200 million, against a loan balance of $60 million.

The lender, Tuebor REIT Sub LLC, had moved to foreclose after Silicon Hills Campus defaulted on its original $64 million loan on the property, according to court filings

In late September, State District Judge Tim Sulak temporarily halted a previously scheduled foreclosure sale. He also granted Tuebor's request to appoint a receiver to take control of the property to ensure its upkeep and maintenance.

On Dec. 30, State District Judge Dustin Howell denied Silicon Hills' motion to halt another scheduled foreclosure, setting the stage for the property to be auctioned Tuesday, although the bankruptcy filing averted that.

David Armbrust, a real estate attorney who has handled numerous large foreclosures over several decades of practicing law, told the Statesman in September that "foreclosures are usually a sign of a deteriorating economy but I do not see any signs of that right now. A large foreclosure such as the old 3M campus just does not fit with what we are seeing in the robust overall Central Texas economy. There must be other underlying factors."

In early November, Paul averted foreclosures on several other properties he owns through other business entities by filing for Chapter 11 bankruptcy protection. Those entities are 5th and Red River LLC; 7400 South Congress LLC; 900 Cesar Chavez LLC; and 905 Cesar Chavez LLC.

In the bankruptcy filings, World Class Property valued the properties held by the four entities at a combined total of more than $42.6 million. It bought them in fall 2018, according to court filings, taking on $22.9 million in debt from U.S. Real Estate Credit Holding III-A LP, the original lender, to finance the deals.

Elliott, corporate counsel for World Class Property, said in November that the bankruptcy filings stemmed from a dispute with ATX Lender 5 LLC, which purchased the debt on the properties in September.

The bankruptcy filings have "no material effect on the overall business of World Class as these properties represent less than 2% of the properties owned by World Class and its affiliates," Elliott said in November.

Jonathan Pelayo, an attorney for Locke Lord LLP, which is representing ATX Lender 5, said in November that the bankruptcy filings were an effort by World Class to forestall pending foreclosures.

"The truth of the matter is that World Class has not made a loan payment in over five months," Pelayo said. "The loan is in default and has been accelerated. We have been in constant communication with World Class's counsel since acquiring the loan, and have provided World Class with numerous loan payoff statements."

Another entity controlled by World Class Property, WC 56 East Avenue LLC, also filed for bankruptcy protection on Dec. 2.

Tribune Content Agency