Nightingale Properties under investigation by DOJ, SEC

The problems keep mounting for Nightingale Properties.

The troubled real estate company is under investigation by the federal Department of Justice and the SEC after it was revealed the company allegedly diverted to its CEO’s accounts tens of millions of dollars it had raised to acquire two buildings, Bisnow reported.

“The Feds are absolutely engaged and focused, and we’re cooperating fully with them,” Anna Phillips, who was appointed by investors to serve as an independent manager and a fiduciary, told investors in a call Friday, according to Bisnow. “Based on the dialogue that we have had, the Securities and Exchange Commission and the Department of Justice are absolutely engaged on their end.”

The transactions — for the Atlanta Financial Center and Miami Beach Lincoln Place — never materialized. Instead, nearly $40 million of the $63 million Nightingale raised for them ($54 million for AFC and $9M for MBLP) from hundreds of investors on CrowdStreet flowed to accounts controlled by Nightingale CEO Elie Schwartz, the outlet said, citing court documents.

Through a web of transfers, $37 million was allegedly channeled to Schwartz personally or to an entity he controlled from the Atlanta account, and $1.3 million from the Miami Beach account, Phillips said, according to Bisnow. Additionally, third parties were paid $11 million out of the Atlanta account and $3 million from the Miami beach account.

The alleged transfers to Schwartz were not tied to the building deals, Phillips said.

“The money that went to Mr. Schwartz personally or his related entities were largely due to the personal expenses of Mr. Schwartz and his personal investing activities and business expenses of Nightingale and its affiliates,” Phillips said Friday, the outlet reported.

Phillips said Schwartz, through his attorneys, has proposed a settlement, but that the terms were not satisfactory.

The Nightingale Atlanta and Miami Beach investor entities, at Phillips’ direction, have filed for Chapter 11 bankruptcy.

Investor concerns have also extended to CrowdStreet, the platform through which funds were raised. Some investors are expressing dissatisfaction with CrowdStreet’s handling of funds and its failure to secure them in escrow until deals are finalized. The fallout has already impacted CrowdStreet’s leadership, with the co-founder and former CEO, Tore Steen, being replaced by Jack Chandler.

Phillips has also entered into discussions with CrowdStreet for a possible settlement, one that would involve continuing litigation funded by the company, provided it receives approval from a minimum number of investors. As the investigation unfolds, investors are cautioned about pursuing individual litigation, as the investment agreement necessitates arbitration under Texas law.

It’s a stunning fall for Nightingale, which is headquartered in Manhattan and claims to have invested $10 billion in 22 million square feet of office, retail, data center, life sciences and parking properties across 22 states since 2005.

A large portion of that portfolio is now in jeopardy. Nightingale has lost or is in danger of losing control of at least six properties that it paid more than $1 billion to acquire, including 

• the Whale Building in Brooklyn, which Nightingale bought for $84 million in 2020; 
• the Soho office/retail building at 300 Lafayette Street, which it acquired in 2019 for $125 million. 
• Handing back the keys to a leasehold it bought at 645 Madison Avenue for $76 million in 2015, to its lender in 2021.
• a receiver taking over 1500 Market Street in Philadelphia 
• CrowdStreet is trying to get an independent manager to take over a Chicago office building Nightingale bought for $130 million.

Meanwhile, not much is known about Schwartz, who somehow has remained a bit of an enigma despite having been tied to numerous high-profile deals.

— Ted Glanzer

TRD senior reporters Rich Bockmann and Keith Larsen contributed to the reporting