Nightingale Misappropriated Millions From Crowdfunding Investors, Fiduciary Says

When Nightingale Properties raised more than $50M in equity to acquire a massive Atlanta office complex last year, it was the highest-dollar campaign in real estate crowdfunding site CrowdStreet’s history.

Most of that money is now missing, an independent fiduciary told investors on Friday, alleging that Nightingale and its CEO, Elie Schwartz, misappropriated the funds.

“We believe that Elie Schwartz and Nightingale have demonstrated a blatant disregard for legal, ethical, and moral standards,” a CrowdStreet spokesperson said in a statement to Bisnow Friday. “When we became suspicious of potential financial misconduct, we alerted regulators and negotiated for the appointment of an independent manager. Financial fraud is a risk we take seriously, and we remain committed to providing investors with the best online real estate investing experience.”

Schwartz and a Nightingale spokesperson didn’t respond to a request for comment.

Nightingale raised $54M on the platform to acquire the 915K SF Atlanta Financial Center in Buckhead and $9M for an office building in Miami Beach called Lincoln Place. Last month, CrowdStreet told investors it was appointing an independent manager, Atlanta-based auditor Anna Phillips, to take over the entities that raised the funds.

In a webinar with investors Friday, a recording of which was obtained by Bisnow, Phillips said millions of dollars were almost immediately transferred to entities Schwartz controlled, in direct violation of CrowdStreet’s policies.

“The bottom line is that the money that was raised by both entities has been misappropriated,” Phillips said during the webinar. “There are certainly plenty of red flags that are indicators of fraud, but I need more facts. And we'd like to talk to Mr. Schwartz before I can confidently label it as fraud and pursue it in the courts.”

Both the Atlanta and Miami Beach entities filed for Chapter 11 bankruptcy in Delaware on Friday — the only creditor listed in the filings was CrowdStreet, but hundreds of investors with fractional stakes in the entities are listed as equity security holders, according to the filings.

Phillips told investors that she will either reach a settlement with Nightingale and other unnamed third-party entities to return the more than $60M raised on CrowdStreet for both buildings or resort to litigation.

“With our investors as our utmost priority, we initiated this investigation and are extremely shocked and angered by Nightingale’s actions,” CrowdStreet’s spokesperson said in a statement. “Every deal on our platform — more than 770 since inception — is subject to a thorough and objective review, including sponsor screening and financial vetting.”

The revelation that funds have been misappropriated is a bitter pill to swallow for CrowdStreet and investors in the campaigns, which had a $25K minimum investment — much smaller than a typical commercial real estate equity investment. 

A fund for which CrowdStreet acts as fiduciary invested approximately $5.3M in the deals, and several CrowdStreet employees personally invested as well, Phillips said. CrowdStreet didn't collect any deal fees and hasn't received a refund, she added.

In May 2022, Nightingale launched the crowdfunding campaign to acquire Atlanta Financial Center, an office complex that straddles Georgia 400, for $182M, a price that would have represented a $78M loss for its owner, Sumitomo Corporation of America. Nightingale, at the time of the offering, pitched the deal to investors as a “rare opportunity to acquire a trophy office at a steep discount.” 

The opportunity drew in 654 investors who put $54M of their equity into the property, Phillips said. One investor Bisnow spoke to put $200K into the campaign — money that still hasn’t been located.

“It just seemed like an outstanding investment,” said the investor, who asked to remain anonymous. “The story that [Nightingale] told was compelling.”

In November, Nightingale launched another campaign, this time hoping to get investors to put equity into 1601 Washington Ave., a 110K SF office building in Miami Beach it acquired in 2016. It raised $9M from 167 investors for the Miami Beach property, Phillips said.

Approximately $8M raised for Atlanta Financial Center was transferred to third parties, including an affiliate of Schwartz, Phillips found, and an additional $3.75M was transferred to third parties out of the Lincoln Place entity to two unidentified affiliates Schwartz controls.

Nightingale did return $9M to some CrowdStreet investors in the Atlanta Financial Center transaction after they started asking for refunds, Phillips said. 

All that is left in the account of the Atlanta Financial Center entity is $125K, Phillips said. Just $1,500 is in the Lincoln Place account.

“We've been trying very hard to obtain more information, and to date, all we have is some bank reporting … and we don’t even have all of it yet,” Phillips said. “So there's much more needed, not the least of which is the books and records of the company.”

Phillips added that putting the entities into bankruptcy would “try and create some urgency on the part of Mr. Schwartz and/or Nightingale to get us more information to complete the picture of what happened, and more importantly, where the funds went.”

The CrowdStreet saga is far from the only trouble facing Nightingale. Founded in 2005 by Schwartz and Simon Singer, whose attorney said he is no longer involved with the firm, it has amassed a large portfolio of office buildings in New York, Philadelphia, Miami and Chicago, but several of its investments have gone sour.

Nightingale is facing foreclosure on a Brooklyn property known as the Whale Building, and its lender sued Schwartz this week, accusing him of violating guarantees on the $88M mortgage backing the building. Its boutique office building in SoHo at 300 Lafayette St. — the office portion of which is fully leased to Microsoft — is also the subject of a foreclosure suit.

Phillips said any monies recovered from Nightingale would be evenly distributed to the investors. Phillips also told investors that she preferred to reach a settlement with Nightingale since the process could be faster and cheaper than going through the courts. But she did not rule out litigation.

“Counsel for Mr. Schwartz says his client intends to present a proposal to repay investors over time. We have not yet seen any such proposals,” she said. “And even if he presents a proposal of that nature, we have to investigate it to make sure that it makes sense, it's fair and appropriate.”

Phillips, a former Cousins Properties and Mesa Capital executive who is acting independently from CrowdStreet, said that even though CrowdStreet is funding the auditing and bankruptcy fees, the firm isn’t immune to litigation on behalf of the investors. She also said the Securities and Exchange Commission and other unnamed government agencies have been notified of the findings and “appear to be following the situation extremely closely.”