Nightingale’s crowdfunding dream is becoming a nightmare

Crowdfunding doesn’t always work out, as one New York real estate firm is finding out.

Nightingale Properties efforts to raise money for the acquisition of the Atlanta Financial Center in Buckhead hit a major roadblock, with investors demanding their money back, the Atlanta Business Chronicle reported. 

Nightingale had agreed to purchase the 1-million-square-foot office complex at 5531 Roswell Road for $182 million last summer. To finance the acquisition, Nightingale raised $53.6 million from 772 independent investors through the online platform CrowdStreet, the outlet reported.

However, almost a year later, the deal has not closed, prompting numerous investors to request a refund. CrowdStreet, in an email to investors, stated that it could not guarantee the availability of all the funds. The platform suggested that Nightingale should unwind the deal and refund the investors. While Nightingale agreed to comply, many refund requests remain outstanding, and the firm has not processed them in a timely or consistent manner.

CrowdStreet expressed its concerns about Nightingale’s lack of cooperation in providing documents to demonstrate the availability of investors’ funds. 

The platform also said it’s unable to verify the availability of funds at Nightingale. In response, CrowdStreet proposed a plan to issue refunds, requesting Nightingale replace its current manager with an independent manager who would act as a fiduciary on behalf of the investors. Nightingale agreed to the request, and investors voted to approve Anna Phillips as the new manager.

The delay has been attributed to changes in the debt markets, including multiple interest rate hikes by the U.S. Federal Reserve. The rate increases have made securing financing for commercial real estate projects more costly and lenders have become more cautious, particularly in the office sector, which has been affected by spiking vacancies due to remote work.

Nightingale has been seeking price reductions from the seller, Sumitomo, due to increased financing costs. The email from CrowdStreet did not specify if Sumitomo was receptive to these changes and Sumitomo did not respond to requests for comment, according to the outlet.

Investors’ concerns regarding Nightingale’s transactions aren’t unfounded, the outlet said. The firm has faced previous issues, including undisclosed profit losses from previous deals and defaults on loans secured for retail properties in Tennessee. Nightingale has previously utilized crowdfunding for its capital stack, successfully closing a deal for an office tower in Chicago earlier this year.

As of June, the Atlanta Financial Center is 21 percent vacant, with the largest tenant planning to vacate in the coming years. This situation adds further complexity to the acquisition and presents challenges for Nightingale and its investors.

While online crowdfunding for commercial real estate is not new, it is still considered an unconventional approach to finance such deals and it has plenty of skeptics.

“Crowdfunding for real estate is a disaster waiting to happen,” Henry Lorber, of the real estate firm Lorber & Associates, told the outlet.

CrowdStreet, founded in 2013, is one of the leading platforms for commercial real estate crowdfunding, having raised over $4 billion for 752 projects across the country.

Earlier this month, FundRebel, a crowdfunding real estate start-up, announced it’s planning a $67 million purchase of a Hollywood multifamily project as its first deal.

The New York-based firm is in contract to buy Nine Hollywood, a 12-story apartment building with 204 units and 7,000 square feet of ground-floor retail, FundRebel CEO Mark Drachman said in an emailed statement. The project at 1809 Jackson Street is under construction with an anticipated completion later this year.

— Ted Glanzer