March 21, 2023

After some fits and starts, a downtown site near the Austin Convention Center once again appears on the verge of being purchased out of bankruptcy so it can be turned into a skyscraper.
DHA Capital LLC has been approved to buy the Fogo de Chão building at 309 E. Third St. for $20.1 million, according to a Sept. 20 order from U.S. Bankruptcy Judge Tony Davis — yielding signs that yet another property is being wrestled away from embattled real estate firm World Class Holdings and its owner, Nate Paul.
The judge’s order suggested that parties previously selected to close on the purchase — including a winning bid from Paul’s team — “have declined to do so,” terminating their purchase rights.
After the top two winning bidders from the July auction failed to close, other qualified bidders were invited to re-bid on the site. DHA’s $20.1 million offer was accepted, and it now faces an Oct. 10 deadline to close. Sam Affanhe, the broker representing DHA Capital in the deal, said “the money is there” to close the deal.
DHA Capital is a real estate development and investment firm formerly of New York but now based in Austin. The firm’s managing partner, Daniel Hollander, declined to comment for this story.
The last remaining hangup: 3rd TRI 2020 Ltd., a company affiliated with real estate developer Sandy Gottesman, has the right of first refusal to buy the property. 3rd TRI has until 11:59 p.m. on Sept. 30 to exercise its right, according to the Sept. 20 order. 3rd TRI would then need to close the sale by Oct. 10.
It’s unclear how 3rd TRI might handle its right of first refusal. However, DHA is attempting to work with Gottesman to involve him in a partnership that would give him a stake in any development, Affanhe said.
A representative for 3rd TRI 2020 said they were not in a position to comment at this time.
Sources familiar with the site told Austin Business Journal the property could support about 440,000 buildable square feet or a 50-story tower. DHA Capital would likely build a vertical mixed-use development at the site, with retail on the ground floor and condos or apartments above. The firm has primarily focused on multifamily developments in New York, according to its website.
“We would anticipate being able to start ground work and construction within a year, year and a half,” Affanhe said.
The current tenant, Fogo de Chão, plans to vacate the site in the near future and is “pretty far along in their plans to relocate to The Austonian” a couple of blocks away, Affanhe said. Fogo de Chão is taking over the ground-floor space in the condo tower previously occupied by Second Bar + Kitchen, which left in 2020.
If completed, the sale of the restaurant site would mark a surprising turn of events for an attractive piece of real estate.
Until late last month, the site appeared destined to fall back under the control of Nate Paul‘s World Class. Now, it represents the second World Class bankruptcy case this month in which a Chapter 7 trustee decided to reopen the bidding process following failed sales.
Paul could not be reached for comment.
Through a holding company called Rising Tide Investments LLC, Paul won the auction for the Fogo de Chão building with a $39.3 million bid. But Rising Tide in late August informed the court that it wasn’t going to proceed with the purchase. That opened the door for 3rd TRI to exercise its right of first refusal to purchase the site for $39.2 million. 3rd TRI 2020 declined, meaning backup bidder NIA ATX LLC could close on the site for $39.2 million.
But DHA is in pole position because the NIA ATX sale is also not proceeding. However, an attorney for the company on Sept. 19 pushed back against the notion that his client backed out of the deal.
“What I know directly from my client is that the trustee never signed and returned an asset purchase agreement,” said Seth Meisel of DuBois Bryant & Campbell LLP. “We’re now evaluating the options that we have.”
According to a Sept. 12 filing from attorney Brian Cumings of Graves Dougherty Hearon & Moody PC, who is representing Chapter 7 Trustee Randolph Osherow, NIA ATX informed the trustee in late August that “it would not close on the purchase” of the property. But once the trustee began soliciting new offers from qualified bidders, including DHA, he received at $23 million offer from NIA ATX. However, the company’s prior decision to “refuse to close” on its $39.2 million backup bid led the trustee to “conclude that they cannot be trusted” as a purchaser of the property, according to the Sept. 12 filing.
DHA’s second-chance bid was ultimately accepted, with the $20.1 million purchase price representing nearly half of Rising Tide’s bid.
The sale proceeds will, at the time of closing, be used to pay back the lender, along with any delinquent property taxes.
If neither DHA Capital nor 3rd TRI close on the property, lender KL Horns UP LLC — an affiliate of New York-based Kennedy Lewis Investment Management LLC — could proceed with closing its bid “equal to a credit bid of its post-petition loan … plus cash in an amount sufficient, with any cash on hand, to satisfy all allowed administrative, priority and general unsecured claims of the debtor’s estate,” according to the Sept. 20 order.
In that event, KL Horns Up would have until Nov. 4 to close on the property. The lender was owed roughly $6.8 million as of the Sept. 12 bankruptcy filing, though the debt is “subject to default interest rate and grows daily and rapidly.”
The World Class entity that owned the property, WC 3rd and Trinity, filed for bankruptcy in 2021. The property was most recently valued for tax purposes at about $11.5 million.
DHA Capital has targeted World Class property in the past; in May, it received bankruptcy court approval to spend $95 million on a prime redevelopment site at the intersection of Third Street and Congress Avenue.
That $95 million deal has yet to close because the parties await the results of a lawsuit brought before the Texas Third Court of Appeals. A title company can’t write a policy on the property until outstanding ownership claims are resolved.
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