Forbes - - CONTENTS - by nathan VARDI

Young Texas real es­tate mogul Nate Paul has quickly amassed a bil­lion-dol­lar port­fo­lio and an $800 mil­lion net worth. Imag­ine what he’ll do when he turns 31.

un­like other suc­cess­ful Mil­len­nial entrepreneurs, Nate Paul is not a T-shirt or hoodie kind of guy—his uni­form is a suit. He has worn one to work, usu­ally with a vest, ev­ery day since he dropped out of col­lege nearly ten years ago. “I al­ways wanted peo­ple to take me se­ri­ously,” the Texas real es­tate prodigy says. “Part of it is you have to look older.”

At 5’11”, with a stocky build and a two o’clock shadow, Paul cer­tainly looks as though his odome­ter has long since passed 30 years old. But that’s not why the real es­tate bro­kers who clamor to meet him take him se­ri­ously. They try to get in the elevator that rises to the top floor of Austin’s tallest com­mer­cial sky­scraper, up past the of­fices of billionaire-run pri­vate equity firms, be­cause Paul is the big­gest buyer and owner of land for de­vel­op­ment in the city. And Texas isn’t big enough for his am­bi­tion.

Paul’s World Class Hold­ing, which he started build­ing in 2007, has $1.2 bil­lion in as­sets, ac­cord­ing to a doc­u­ment ob­tained by Forbes. That port­fo­lio in­cludes 120 prop­er­ties in 17 states from Cal­i­for­nia to New York, but most are in eco­nom­i­cally vi­brant Texas. World Class Hold­ing owns 10 mil­lion square feet of com­mer­cial real es­tate that ranges from of­fice space to re­tail to self-stor­age. And al­though he once bid $800 mil­lion for Man­hat­tan’s Plaza and Dream ho­tels, Paul is no Texas Trump—he doesn’t own a sin­gle tro­phy build­ing and his name is not on any of his prop­er­ties. “My as­sets are not sexy,” the 30-year-old says proudly. “I mean, I own lots of stor­age. But I love my as­sets.”

For good rea­son. Paul, who re­tains 100% of the com­pany, is not over­lever­aged ac­cord­ing to fi­nan­cial doc­u­ments, and none of his debt is at the hold­ing-com­pany level. Based on his hold­ings inside and out­side the com­pany, Forbes es­ti­mates that Paul’s net worth is $800 mil­lion. If com­mer­cial real es­tate prices stay strong, he could be a billionaire soon.

It’s a par­tic­u­larly im­pres­sive tra­jec­tory when you con­sider that real es­tate is fa­mously a dy­nas­tic busi­ness and Paul is the son of an ob-gyn. Com­pli­cat­ing things fur­ther, he is the son of In­dian im­mi­grants in over­whelm­ingly white Austin.

From the be­gin­ning, Paul set out to build his port­fo­lio as an op­er­a­tor and an in­vestor. In or­der to buy, he hit up his ob­ste­tri­cian fa­ther’s bud­dies, charmed high-net-worth in­di­vid­u­als, and then landed pen­sion and in­sur­ance money. He raised funds in dozens of part­ner­ships to do deals and kept up­wards of 50% of the prof­its. With the $25 mil­lion he started rais­ing from the Austin Po­lice Re­tire­ment Sys­tem in 2009, he pro­duced an an­nual (and now fully re­al­ized) in­ter­nal rate of re­turn of 24.8%, net of fees.

Now Paul is get­ting ready to dou­ble down on his early suc­cess. He has spent much of the past year re­cap­i­tal­iz­ing his busi­ness, cash­ing out limited part­ners (such as the Austin Po­lice Re­tire­ment Sys­tem) and tak­ing full own­er­ship of many of World Class’ part­ner­ships, of­ten us­ing debt and his own ac­cu­mu­lated cap­i­tal. He then rolled up all the prop­er­ties he could into his new hold­ing com­pany, which is at­tempt­ing to raise $1 bil­lion of pre­ferred equity in the com­ing year. Paul thought about try­ing to raise a pri­vate equity fund, but what he re­ally wants is per­ma­nent cap­i­tal, which would al­low him to get off the tread­mill that re­quires him to sell as­sets to achieve ex­its for his in­vestors ev­ery few years. “I am think­ing with a 30-year time hori­zon,” Paul says. “I ac­tu­ally have a 30year amor­ti­za­tion and will be around.”

“From an in­vest­ment per­spec­tive his re­turns have been spec­tac­u­lar, and he does a good job re­turn­ing cap­i­tal early,” says Robert Smith, an Austin pri­vate equity billionaire who has in­vested tens of mil­lions in five of Paul’s deals. “I look at what Nate has ac­com­plished; he has thought very strate­gi­cally about ar­eas like stor­age and the Austin mar­ket­place.”

Joseph Lie­mandt, founder and CEO of Austin’s Tril­ogy Soft­ware, adds, “His gen­eral busi­ness acu­men is un­be­liev­able, and he is al­ways talk­ing about the long term.” Lie­mandt, a close friend of Paul’s who, at 27, ap­peared on a 1996 Forbes cover high­light­ing the wave of young tech entrepreneurs, says, “He is dra­mat­i­cally more ma­ture than I ever was—no­body thought he was 23 when he was 23.”

Driv­ing around his home­town in a Bent­ley, Paul proudly points out key de­vel­op­ment prop­er­ties he owns in the heart of Austin. There is the park­ing lot and two-story

“From an in­vest­ment per­spec­tive his re­turns have been spec­tac­u­lar, and he does a good job re­turn­ing cap­i­tal early,” says Austin billionaire Robert Smith.

build­ing be­ing leased by Google Fiber sit­ting on 1.3 acres ad­ja­cent to the city’s tallest build­ing. The fam­ily who owned it for 70 years knew Paul and called him with four days left in 2012, say­ing they would sell it to him for a good price if he could close by the end of the year. A block away he owns an­other low-rise build­ing, which he bought for $5 mil­lion in 2011, lur­ing a Cap­i­tal Grille restau­rant to the site. Paul drives to­ward an­other two prop­er­ties near the Austin Con­ven­tion Cen­ter. Over­all, he has ac­cu­mu­lated en­ti­tle­ments to build 6 mil­lion square feet in down­town Austin.

Mak­ing his way south­east to the pop­u­lar Rainey Street district, where his­toric bun­ga­lows have been con­verted into funky bars, Paul points out a prop­erty zoned for 730,000 square feet that he bought for $10 mil­lion two years ago and will soon be va­cant. He pur­chased an­other prop­erty down the road last year that has only a small build­ing with an IHOP as a ten­ant. “Imag­ine if you are a tech com­pany that wants to be in down­town Austin—this is a su­per­cool area to be in,” says Paul, vow­ing to start build­ing an of­fice within a year.

Vic­to­ria, Texas, where Paul was born, is about a two-hour drive from most of these prop­er­ties. As the youngest child of im­mi­grants, Paul was raised to be­lieve that school was a pri­or­ity for him and

The ru­mors in Austin would trickle back to Paul—that he was backed by Chi­nese money, an In­dian con­glom­er­ate or a billionaire in Dubai.

his two older sib­lings. Born Natin, he short­ened his name to Nate, but that didn’t ex­actly help with as­sim­i­la­tion. Peo­ple in small-town Texas of­ten thought he was His­panic, and young Nate would not cor­rect them. “Peo­ple look at you and you are not white, you are not black, you are some­thing in be­tween,” he re­calls. As a kid he was “al­ways sell­ing some­thing, try­ing to do some sort of busi­ness”—work­ing as a DJ, sell­ing rub­ber bracelets, hawk­ing per­son­al­ized wa­ter bot­tles.

Paul left home in 2002 at the age of 15 to at­tend a Catholic prep school in Austin. He played bas­ket­ball, was good at math and started a busi­ness out of a lo­cal Barnes & Noble tu­tor­ing kids from the sub­urbs. At that point, every­thing was go­ing ac­cord­ing to his par­ents’ plan, and Paul even­tu­ally at­tended the Uni­ver­sity of Texas at Austin, where he stud­ied busi­ness. With his sis­ter, Sheena, he even won a busi­ness case-study com­pe­ti­tion in Thai­land. But Paul was rest­less and had al­ready started chan­nel­ing his en­ergy to­ward real es­tate. He would spend hours study­ing fore­closed prop­er­ties, build­ing data sets that in­cluded ap­praised val­ues and loan bal­ances, then head down to the county court­house on the first Tues­day of each month to see how the auc­tions turned out.

Af­ter his fresh­man year, Paul was ready to drop out but knew his mom would take it badly. “My mother would say, ‘Doc­tor or lawyer,’ ” he re­calls in his slight Texas twang. His older sib­lings were firmly on the track their par­ents de­sired— his brother even­tu­ally be­came a plas­tic sur­geon, his sis­ter an at­tor­ney—so Paul de­cided to take a year off with a prom­ise that he would go back to school one day. Rent­ing a base­ment of­fice, he called his firm World Class Cap­i­tal, a name for which he has some­times got­ten grief but re­flects the ide­al­ism of a 20-yearold try­ing to make it. “I just wanted it to be great,” he says.

While Paul may have good tim­ing with the boom­ing econ­omy of Austin—the na­tion’s fastest-grow­ing big city since 2000, with a mount­ing num­ber of high-tech com­pa­nies and jobs— some ini­tially dis­cour­aged Paul from get­ting into the real es­tate busi­ness. And af­ter he started do­ing deals in his early 20s, one prom­i­nent lo­cal real es­tate owner told Paul straight up that he would not do busi­ness with him given his eth­nic­ity. And one banker re­fused to lend to him be­cause of a bad ex­pe­ri­ence she claimed to have once had with an In­dian.

“The ad­ver­sity I faced in build­ing my busi­ness pales in com­par­i­son to the chal­lenges that my fa­ther faced as an In­dian im­mi­grant in the ’70s and ’80s liv­ing in Vic­to­ria, Texas,” he says.

The first prop­erty Paul ac­quired, in 2007, was a 13-unit apart­ment build­ing in south Austin that he bought for $1.1 mil­lion from a cou­ple get­ting di­vorced. Backed by a lo­cal fam­ily that owned a mort­gage com­pany, Paul planned to sell the units in­di­vid­u­ally, but he found a buyer who was ready to pay $1.6 mil­lion for the whole build­ing 90 days later. With the prof­its from that sale, he bought five stu­dent hous­ing apart­ment build­ings in the West Cam­pus neigh­bor­hood around UT to­gether with money put up by the mo­ti­va­tional speaker and mar­keter Paul J. Meyer.

Paul re­turned to school in his sopho­more year, try­ing to bal­ance classes with World Class, but by the sum­mer of 2008 he knew was done. He told Mom he was drop­ping out. “At that point, I went in with a mind-set that I had to make it work,” he says. He had sold his re­fur­bished stu­dent-hous­ing as­sets in the first half of 2008, not be­cause he saw the real es­tate cri­sis com­ing but in or­der to build a track record. To at­tract new in­vestors, he wanted to show that he could per­form.

When Lehman Brothers col­lapsed later that year, Paul had cash on hand and no debt, so he went to work build­ing a port­fo­lio. He started buy­ing stor­age as­sets, land in Austin, a ma­rina on nearby Lake Travis and a build­ing be­ing used by a call cen­ter in south Austin that he turned into a re­tail space for Dol­lar Gen­eral and two other ten­ants. “I was buy­ing at the pit of the cri­sis,” he says. “In many of those deals, there was no other bid­der.” As a re­sult, Paul has op­er­ated al­most ex­clu­sively in a low­in­ter­est-rate en­vi­ron­ment with steadily ris­ing prices.

In early 2009, Paul was ready to pitch the Austin Po­lice Re­tire­ment Sys­tem in an ef­fort to land his first in­sti­tu­tional in­vestor. He was so ner­vous that he threw up be­fore his first meet­ing with the board, re­gain­ing his com­po­sure to ar­gue force­fully that the pen­sion should in­vest in an area it knew. “I stud­ied your port­fo­lio—how do you not own any as­sets in Austin?” Paul asked them. “It’s the fastest-grow­ing city in Amer­ica.” He pointed out that the pen­sion had in­vested in New Eng­land of­fice build­ings and Jp­mor­gan’s In­dia Prop­erty fund, so why not its own back­yard? “My big­gest con­cern with him was the kid was 22 years old,” says Art Al­faro, Austin’s city trea­surer, who has been a trustee of the po­lice pen­sion since 2000. “He had ex­cel­lent pre­sen­ta­tion skills. We got com­fort­able. It was a plus that he was a lo­cal in­vestor.”

The pen­sion fund agreed to go in with Paul on a deal-by-deal ba­sis start­ing with a $2 mil­lion equity check he used to buy a dis­tri­bu­tion cen­ter in north Austin for $4.5 mil­lion. In a move that showed he was think­ing big­ger than Austin, Paul used some of the pen­sion money to in­vest out­side the state, start­ing with the dis­tressed debt of an of­fice prop­erty

in Or­lando, Florida, which he bought for $2.7 mil­lion and sold in 2012 for $6.4 mil­lion. Those kind of re­turns meant the pen­sion plan kept in­vest­ing more cap­i­tal. Paul also raised money from the Texas Med­i­cal Li­a­bil­ity Trust and a group led by Har­vey Book­stein, a prom­i­nent Los An­ge­les ac­coun­tant who sug­gests real es­tate in­vest­ments to his high-net-worth clients. Book­stein says his group has in­vested $100 mil­lion in six deals with World Class that were struc­tured in a way that let Paul keep 50% of the prof­its on de­vel­op­ment deals and 25% on ex­ist­ing build­ings af­ter Book­stein’s group made an 8% to 10% re­turn.

Paul specif­i­cally searched for dis­tressed op­por­tu­ni­ties and rolled more of his own ac­cu­mu­lated cap­i­tal as the deals kept com­ing. In 2011, he bought a $19 mil­lion de­faulted mort­gage on a 180,000-square-foot shop­ping cen­ter out­side of Min­neapo­lis for $3 mil­lion. He fore­closed on it, took over op­er­a­tions and pro­ceeded to lease the va­cant re­tail space. “I ended up with the prop­erty since I was the only bid­der will­ing to go tour a shop­ping cen­ter in Min­neapo­lis in freez­ing tem­per­a­tures in Novem­ber and could close in ten days,” he says.

Around the same time, Paul started putting a lot of the money he raised into self-stor­age. A deeply frag­mented in­dus­try, stor­age has be­come pop­u­lar with in­sti­tu­tional in­vestors that see it as re­ces­sion-re­sis­tant and a cash-flow ma­chine.

As in all his other deals, Paul be­came an owner-op­er­a­tor. He started in Austin, but one of his first stor­age deals was a $2.9 mil­lion in­vest­ment in a de­faulted mort­gage on a fa­cil­ity in a Chicago sub­urb that Paul grabbed, leased up and later sold to pub­licly traded Sovran Self Stor­age for $7.2 mil­lion. He would buy from mom-and-pop own­ers in Colorado or Ohio who didn’t even have a web­site, or build new stor­age sites in ar­eas of Los An­ge­les where it was hard to get per­mits, mak­ing it tough for com­peti­tors to emerge.

Paul’s stor­age play­book in­cluded slap­ping a fresh coat of green paint on a build­ing and clearly brand­ing each fa­cil­ity with the Great Value Stor­age name, boost­ing sales with an on­line reser­va­tion sys­tem and in­stalling rev­enue man­age­ment that would ad­just prices based on de­mand. Even­tu­ally, Paul held 35,000 stor­age units at 69 sites across the na­tion. “It’s a lot like mul­ti­fam­ily hous­ing,” he ex­plains. “Yet be­cause a lot of peo­ple don’t have the ex­per­tise in run­ning it there is a dis­par­ity in value. We know how to run them bet­ter.”

When you are a twen­tysome­thing In­dian-amer­i­can man buy­ing every­thing in sight in the cap­i­tal of Texas, peo­ple start talk­ing. The ru­mors in Austin would trickle back to

Paul—that he was backed by Chi­nese money, an In­dian con­glom­er­ate or a billionaire in Dubai. In a town that is home to Michael Dell and his com­pany, billionaire John Paul De­jo­ria, Whole Foods and the South by South­west fes­ti­val, “Nate Paul” was by far the most-searched phrase on the Austin

Busi­ness Jour­nal’s web­site in 2014. “Is this guy for real?” the pub­li­ca­tion asked the next year in a head­line.

Paul’s grow­ing pains gen­er­ated more gos­sip. In 2013, there was a New York Post item about Paul buy­ing ex­pen­sive bot­tles of cham­pagne at Leonardo Di­caprio’s 39th birth­day party. Then for­mer em­ploy­ees of the Austin rooftop bar and pool lounge that Paul owns sued him, claim­ing the bar cheated them out of tips. Paul says he did noth­ing wrong, and the case was pri­vately set­tled in 2014. One of Paul’s in­vestors, Texas oil­man Michael Macs, sued World Class af­ter crude crashed in an ef­fort to quickly re­trieve some $15 mil­lion he had in­vested with the firm. A judge tossed the law­suit to ar­bi­tra­tion, and the duo set­tled.

There has also been some noisy em­ployee turnover at World Class. In his high­est-pro­file hir­ing, Paul lured five for­mer Credit Suisse bankers to build a debt plat­form, but two left within months. “World Class is not for ev­ery­one,” Paul says. “I re­ward those who do well. And the peo­ple who don’t live up to what I ex­pect, there is no place for them at my com­pany.”

And of course he has plenty of ad­mir­ers. “The only rea­son I moved to Austin is to be closer to Nate,” says Avery Bradley, a guard for the Bos­ton Celtics who got to know Paul while at the Uni­ver­sity of Texas. “When I get ready for a game, I think of how hard Nate works—he works all the time—and it pushes me. I want to be around that.”

What Paul is work­ing on will keep shock­ing peo­ple in Austin. In June, he struck deals to buy 3M’s 158-acre Austin cam­pus, which has been ap­praised by the county at $80 mil­lion, and an­other 6 acres of land just south of down­town Austin. Last year, for $85 mil­lion he scooped up 13 of­fice build­ings in north Austin that house out­posts of Al­ler­gan and In­te­gra Life­sciences. In all these deals, Paul as­serts, long­stand­ing re­la­tion­ships and his abil­ity to move fast se­cured him ex­cel­lent prices. He says his ne­go­ti­a­tions are short and he doesn’t bar­gain over price. Those 6 acres in down­town Austin come with a land lease that doesn’t ex­pire for more than two years, and Paul was will­ing to pay now and wait—but he made a take-it-or-leave-it of­fer.

In­deed, Paul has puz­zled many in Austin for se­cur­ing choice pieces of land and not de­vel­op­ing them dur­ing a go-go real es­tate mar­ket. He an­nounced plans for a $100 mil­lion, 39-story apart­ment tower on a prime lot he owns next to the Four Sea­sons Ho­tel but aban­doned the project as other apart­ment con­dos went up around town. Paul has cov­ered the plot’s ex­penses by rent­ing it dur­ing South by South­west to Sony and Vice Me­dia, which used it to put on con­certs fea­tur­ing Snoop Dogg and Lady Gaga. For now, Paul says he wants to fo­cus on of­fice space.

If Don­ald Trump can pass tax re­form elim­i­nat­ing state tax de­duc­tions, Paul’s long-term bet on Austin, where there is no state in­come tax, might look even bet­ter. “While ev­ery­one else was go­ing ver­ti­cal I went hor­i­zon­tal,” he says. “We feel we kind of cor­nered the mar­ket on po­ten­tial of­fice space in down­town Austin.”

Paul’s high­est-pro­file ac­qui­si­tion came out­side of Austin in 2014, when he bought the down­town Dal­las sky­scraper known as the KPMG Cen­tre. Lenders had taken con­trol of the build­ing through fore­clo­sure, and KPMG was mov­ing out. Paul bought it for $43 mil­lion, mostly with debt, know­ing ten­ancy would go down to 14% once KPMG left in 2015. Paul spent an­other $35 mil­lion ren­o­vat­ing the 1980s build­ing so it would look like a place a tech com­pany might want to call home. The lobby was re­mod­eled with an open lay­out, and a com­mu­nity workspace was built on the se­cond floor fea­tur­ing Wi-fi, mod­ern board­rooms and pri­vate meet­ing ar­eas. Paul then got three out-of-town soft­ware com­pa­nies to move their head­quar­ters there and re­cruited two other ten­ants, help­ing push oc­cu­pancy to 70%.

At the an­cient age of 30, Paul is ready to go even wider. He re­cently opened an of­fice in Man­hat­tan’s GM Build­ing, run by his sis­ter, Sheena, who left her law ca­reer in 2013 to join her brother at World Class, where she is chief op­er­at­ing of­fi­cer. Sit­ting in its board­room, Paul talks about his de­ci­sion to con­sol­i­date his real es­tate hold­ings in a hold­ing-com­pany struc­ture. He says one of his in­spi­ra­tions for the move works just 31 floors above. Many years ago, Carl Ic­ahn or­ga­nized his di­verse hold­ings in a sin­gle in­vest­ment ve­hi­cle that he com­pletely con­trols and raised per­ma­nent cap­i­tal around it. A board­room deal toy from Septem­ber 2016 show­ing $260 mil­lion of loans from Ares Cap­i­tal points to how Paul has put this plan to­gether. Paul says the debt was partly used for his re­cap­i­tal­iza­tion but doesn’t want to go into too many de­tails. His com­pany is pri­vate, and Nate Paul in­tends to keep it that way.

“I re­ward those who do well,” Paul says. “And the peo­ple who don’t live up to what I ex­pect, there is no place for them at my com­pany.”

Dress­ing the part: The 30-year-old Paul started wear­ing suits as a teen so peo­ple would take him se­ri­ously. His sis­ter even bought him a pair of suit pa­ja­mas—and she was only half-kid­ding.

The world of World Class Hold­ing: Paul’s prop­er­ties in­clude the 3M com­plex in Austin, the for­mer KPMG Cen­tre in Dal­las and Great Value Stor­age fa­cil­i­ties in ten states.

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