CrowdStreet is seeking an ownership change of a downtown Chicago office building while its retail investors grow increasingly suspicious of landlord Nightingale Properties’ alleged misappropriation of funds.
CrowdStreet, a crowdfunding real estate platform that lets small-time investors get in on big money deals, wants to appoint an independent manager to take over the 480,000-square-foot building at 200 West Jackson Boulevard, Bisnow reported. Nightingale raised $25 million through CrowdStreet to acquire the building last year at a full price of $130 million.
Nightingale is under fire for sketchy acquisition efforts in other cities, as well. The firm raised more than $60 million from some 800 CrowdStreet investors to help purchase buildings in Atlanta and Miami Beach, but the deals never closed and millions of dollars have gone missing. Investors are angry, and CrowdStreet is trying to make things right as more details emerge regarding Nightingale’s potential misuse of investment funds.
CrowdStreet has requested audited financial records of the Chicago building but hasn’t received them.
“Nightingale’s actions and its lack of response regarding information and distributions with respect to 200 West Jackson has us concerned that Nightingale may have acted inappropriately in managing the 200 West Jackson property as well,” a CrowdStreet representative said in a letter obtained by the outlet. “Our goal is to create and support a legal mechanism for collective action to remove Nightingale as manager, determine if any impropriety has occurred, and seek recovery.”
In May, Nightingale CEO Elie Schwartz wrote a letter to investors in the Jackson building saying the company couldn’t issue them payments because three tenants were delinquent on rent. He said Nightingale would “provide another update shortly with an exact date of distribution,” but one investor said that letter was the last communication investors have received. Schwartz’s letter also stated that the building had $10.4 million in its reserve account.
It’s unclear how Anna Phillips, who is the independent manager CrowdStreet has requested be appointed, would take control of 200 West Jackson. She put the Miami and Atlanta entities into bankruptcy July 14, and she said she would speed up her investigation to recover what she can in Chicago.
However, transfer of the Chicago property could be more complicated than in the other cities. “Under the terms of the Operating Agreement, the request likely would need to be agreed to by Nightingale and approved by investors,” a CrowdStreet spokesperson told The Real Deal.
Short of Nightingale agreeing to surrender control of the Chicago asset, CrowdStreet said it’s evaluating whether to take legal action in Cook County or elsewhere to compel the firm to take steps to resolve the missing funds for the Atlanta and Miami Beach deals.
“200 West Jackson is an operating asset, the property includes equity investors who are not associated with CrowdStreet, the property loan has covenants regarding management and breach of those covenants could put the property in default, Nightingale likely has provided certain financial guarantees to the lender, and the operating agreement provides very limited bases under which to replace Nightingale,” the CrowdStreet letter said.
CrowdStreet hasn’t been able to contact Nightingale for about a month. CrowdStreet also isn’t reassessing the 770 other crowdfunding campaigns on its platform.
— Quinn Donoghue and Rachel Herzog
Read more
Commercial
National
Fiduciary to investors: Funds in Nightingale projects “misappropriated”
Commercial
National
CrowdStreet responds after Nightingale fiasco
Commercial
National
Nightingale’s crowdfunding dream is becoming a nightmare