Nightingale Sent $3M Of CrowdStreet Investor Funds To Loan Servicing Firm, Filings Show
An Atlanta-based loan servicing and investment advisory firm received more than $3M of the funds Nightingale Properties raised, then allegedly misappropriated, from CrowdStreet investors in its bid to renovate a Miami Beach office building.
Trimont Real Estate Advisors received $3.02M across a series of four payments between Nov. 23, 2022, and March 20, 2023, from ONH 1601 CS Investors LLC, the entity Nightingale created to raise equity for the project on CrowdStreet, according to a schedule of assets and liabilities filed in the U.S. Bankruptcy Court for the District of Delaware last week.
The payments were detailed under a list of equity transfers out of the entity with a description that only said, "3rd party - reason unknown."
Nightingale raised almost $9M in equity to renovate 1601 Washington Ave., a 110K SF office building in Miami Beach it acquired in 2016 for $80M. That campaign came several months after the New York-based investor raised $54M on CrowdStreet with the goal of acquiring the 915K SF Atlanta Financial Center in Buckhead.
The deals never closed, and after Nightingale stopped processing investor refunds and refused to hand over its financial statements, a special fiduciary was tapped by CrowdStreet and approved by the fund's investors to take over the account.
That fiduciary, Anna Phillips, said on July 14 that only $1,500 remained in the 1601 Washington entity's bank account. Earlier that day, she put it into bankruptcy, along with an entity created for the Atlanta Financial Center, which only had $125K left.
Trimont's $3M in payments were the biggest sum any outside party received from the ONH 1601 entity. The second-largest payment, nearly $456K, went to Atlanta-based USI Insurance Services LLC, according to the filing, which was prepared by Chief Restructuring Officer Eric Lee of B. Riley Advisory Services.
“These [payments] are things that are believed to be outside of the normal course of business,” said Monique Hayes, a bankruptcy attorney and partner at law firm DGIM who isn't involved in the proceedings.
“In this case, what they’re saying is they don’t have the access to the information in order to provide a detailed statement of assets and liabilities,” Hayes said. "It may be a completely legitimate transaction, but it is still outside the normal course of the transaction. It’s not a traditional vendor or someone that is normally paid.”
A Trimont spokesperson declined to comment. USI Insurance Services didn't immediately respond to a request for comment.
The filing also detailed six payments totaling just under $6M made between November 2022 and March 2023 to entities controlled by Nightingale and its CEO, Elie Schwartz.
Phillips didn't respond to a request for comment. Spokespeople for CrowdStreet and Nightingale also didn't respond to messages seeking comment.
While the transfers identified in the new filing represent only a fraction of the $54M raised for Atlanta Financial Center and the $8.8M raised for Lincoln Place in Miami Beach, the bankruptcy filing does offer a glimpse into where some of the missing millions went.
In a declaration filed with the bankruptcy, Lee wrote that large sums of money were transferred out of the AFC entity and into personal accounts controlled by Schwartz, the Nightingale group of companies and “several large transfers that appear to have been made to third parties that require further investigation.”
According to court documents, Phillips continues to push for access to Nightingale’s accounting books to aid the forensic investigation on behalf of CrowdStreet’s investors, some of whom expressed shock and anger after learning that CrowdStreet didn't place their equity into an escrow account. A spokesperson for CrowdStreet previously told Bisnow that the funds were to be placed into a separate account by Nightingale to be used solely for the two transactions.
The collapse of the deals has forced CrowdStreet to reckon with the fallout. CEO Tore Steen relinquished his title this week and was replaced by Jack Chandler, a former BlackRock chairman of global real estate and a member of the CrowdStreet Investment Committee since 2020.
The company sent a press release announcing "the Next Phase in Its Evolution" this week, outlining changes it would make to its process of putting deals on its platform. It said all single-sponsor fundraising deals were placed in escrow accounts starting June 5 and it would introduce more rigorous vetting processes.
According to court documents, CrowdStreet participants spent between $25K and $1.75M each for fractional stakes in Atlanta Financial Center. The 654 investors in the deal piled in money far beyond Nightingale’s initial goal of $16M when it opened the offering in the spring.
More than 160 investors put $8.8M into 1601 Washington Ave. in the fall, which fell short of the $15M goal set for the office building, according to court documents. Nightingale took out a $62.2M loan on the building in 2016 to back its purchase, according to the Reonomy database.
It is unclear what connection exists between Trimont and Nightingale. It isn't listed as the lender on the Miami Beach loan. Little exists in public records, but Atlanta-based Trimont is listed as an operating adviser and asset representations reviewer on a commercial mortgage-backed security into which a Nightingale loan was bundled, according to a Securities and Exchange Commission filing.
The CMBS loan, Citigroup Commercial Mortgage Trust 2016-C3, includes $50M in debt backed by 80 Park Plaza, a 973K SF office tower in Newark, New Jersey, that Nightingale purchased in 2016 for $174.5M.
