Nightingale's Schwartz Misses Repayment Deadline, Fails To Close On Asset Sales

Embattled developer Elie Schwartz's plan to repay investors from whom he misappropriated tens of millions of dollars appears to be going off the rails.

Schwartz, the CEO of New York-based Nightingale Properties, missed the deadline to pay the first installment of the settlement he reached with investors from the CrowdStreet online investing platform who collectively invested more than $50M into two property deals he sponsored but never closed. 

One of the ways Schwartz planned to repay investors was selling a Miami Beach office building he owns and was seeking to redevelop. While Nightingale signed a contract to sell that property for $82M in a deal expected to close by the end of the year, the sale hasn't gone through, and its future is in doubt, Bisnow has learned.

As the first step of the plan to repay the funds, Schwartz had agreed to pay at least $3M by Dec. 31 to the liquidating trust made up of hundreds of CrowdStreet investors, but he hasn't yet made a payment, Anna Phillips, the fiduciary for the trust, told investors in a Jan. 3 email. 

While Schwartz missed the official deadline, Phillips said he has a 10-business-day grace period to make the installment, which now includes a 1% late penalty. If he doesn't make the payment by Jan. 18, he will be declared in default. 

“We have been informed by Mr. Schwartz that he does intend to remit some funds,” Phillips wrote in the email, which was obtained by Bisnow. “Please know that we are focused on enforcing the settlement agreement and recovering your investments.”

Phillips could draw up to $300K from a fund set aside by CrowdStreet to cover a chunk of the missing money if Schwartz doesn't pay.

The settlement deal, struck by Schwartz, Phillips and Baker Hostetler attorneys representing the trust in a bankruptcy proceeding, was intended to be the resolution to the saga that began with Nightingale’s efforts to take $54M it raised on CrowdStreet to buy a trophy Atlanta office tower and recapitalize a Miami Beach office building.

When those deals never closed, CrowdStreet tapped Phillips to take over the entities created for those investments and investigate their bank accounts. She determined that Schwartz had withdrawn all but $126K, then put the entities into bankruptcy.

She and a team of forensic accountants found that Schwartz had misappropriated the funds for other business ventures and his personal expenses, she previously told investors, including the discovery that he put $12M into First Republic stock and options in the weeks before the bank’s historic collapse.

Phillips didn't offer a reason for Schwartz’s failure to pay by the due date. She didn't respond to Bisnow's request for comment, nor did a representative for Schwartz.

“We’re disappointed that Mr. Schwartz has not yet met his obligation but all efforts are now focused on maximizing the probability that a payment will be made within the 10-day grace period,” a CrowdStreet spokesperson said in a statement. “We remain committed to financially supporting all recovery efforts and advocating for investors throughout this process. Our plan was structured to ensure these efforts would persist through multiple scenarios, including default.”

Phillips said during a conference call with CrowdStreet investors last month that Schwartz has been difficult to work with through the process. 

“So it's been a — and continues to be — a tortuous and protracted process getting the necessary documentation in place to support Schwartz's settlement agreement. No surprise to any of you, his financial and other disclosures frequently require revisions after heavy diligence by the team on our side,” she said on the call, a transcript of which was obtained by Bisnow. “There's been extensive ducking and weaving around what he would or could sign and what he owns.”

The missed deadline comes as Schwartz’s efforts to liquidate holdings to come up with the money have hit some turbulence. He agreed to sell the 140K SF 1601 Washington Ave. office building once listed on CrowdStreet to Black Lion Partners and Massa Investment Group for $82M, but that deal “has run into issues,” Phillips told investors on the call.

“The counterparties are currently in dispute, and we don’t know if the deal will be revived or if the Schwartz-Nightingale parties will pursue a different transaction,” she said during the call. “I would not expect clarity on that deal in the near term.”

Newmark Senior Managing Director Jeremy Hakala, who was marketing 1601 Washington Ave. for sale, told Bisnow the situation with Black Lion and Massa was “complicated” but declined to comment further on the potential sale. A September press release announcing that the sale was under contract said it was expected to close by the end of the year.

The funds from that sale were expected to go to the investors in 1601 Washington. To repay those who put money toward the Atlanta Financial Center, Schwartz agreed to sell a variety of assets, including his Manhattan penthouse at 1 West End Ave., a mansion in Englewood, New Jersey, jewelry, watches and art.

Joshua Kons, an attorney who said he represents roughly a dozen investors who put equity into the Atlanta Financial Center deal, told Bisnow he isn't surprised Schwartz missed the first deadline.

“Schwartz agreeing to the settlement in the first place was highly unusual. I think it’s a strategic step to some sort of liquidation for all of his liabilities,” Kons said. “Now it’s incumbent on the bankruptcy administrator to start the collections process as soon as possible, as they’re competing with other well-heeled creditors for what appears to be a limited or dwindling pot of assets that Schwartz might have had. Time will tell if the next step for him is some sort of bankruptcy proceeding.”

The settlement also lists several LLCs that appear to be tied to Nightingale's office holdings, on which the trust has placed liens. The liens, Phillips said, are needed to ensure the CrowdStreet investors are first in line for any liquidated proceeds. She cited the fact that JPMorgan Chase has sued Schwartz personally for a $10M line of credit he owes to the bank.

“Frankly, in regards to some of the assets, we're in a horse race with other creditors to get the requisite security agreements for the benefit of you all ahead of other parties,” she said last month. “We needed to get liens on ahead of other creditors, and I'm glad to say that a lot of UCCs were actually filed last night. If we hadn't got these liens, there is no doubt Chase would've gotten their judgment ahead of your interest, given the timing of that action.”

The broker listing Schwartz's mansion at 320 Mountain Road in Englewood, New Jersey, Royal Realty Services owner Fern Malka, said she continues to list it for sale but declined to comment further.

Schwartz, who bought the 11-bedroom, seven-bathroom house in 2022 for $3.9M, has had it on the market for $4.5M since Sept. 7, according to the New Jersey Multiple Listing Service.

The French chateau-inspired house also is subject to a lawsuit. Schwartz sued his insurance company, Vault E&S Insurance Co., in August for failure to cover more than $3.5M in water damage at the mansion.

In its answer, filed in November, Vault denied Schwartz's claim and said the firm doesn’t provide loss coverage for any claim that “intentionally concealed or misrepresented any material fact or circumstance, engaged in fraudulent conduct or made material false statements,” according to court documents.

Kons told Bisnow he expects to add legal pressure to the matter. He plans to file arbitration next week on behalf of investors he represents against CrowdStreet for materially participating in what turned out to be fraudulent offerings. Kons said the claim will include accusing CrowdStreet of acting as a broker-dealer without a license, failing to undertake proper due diligence on the offerings and failing to use an escrow account that would have prevented Schwartz from dipping into the investor funds before the deals closed. 

Eli Johnson, who put $25K into the failed Atlanta fund, told Bisnow Schwartz’s failure to make the first payment “kind of speaks for itself.”

“Obviously, it’s not a good sign when it’s the first payment,” Johnson said. “If this goes on for a period of time, it’s going to be a painful process. Everybody is just sitting there crossing their fingers that the money shows up.”