Fiduciary to investors: Funds in Nightingale projects “misappropriated”

Investors in Nightingale Properties’ projects finally have an answer about the fate of their funds. It’s not the answer they were hoping for. 

Nightingale had raised more than $54 million from over 650 investors to acquire the Atlanta Financial Center office complex through a crowdfunding platform called CrowdStreet. It also used the platform to raise $9 million from 167 investors tied to an eight-story office building in Miami Beach. Both deals have yet to close. 

During a Friday webinar, Anna Phillips, who was appointed by investors last month to serve as an independent manager and a fiduciary, laid out what she knows so far. 

“The bottom line is that the money that was raised by both entities has been misappropriated,” said Phillips.

Only $125,000 is sitting in the bank account for an entity tied to Atlanta Financial Center, Phillips said, while the Miami Beach property account is similarly bare. 

In a statement to The Real Deal, Crowdstreet said that “[Nightingale principal] Elie Schwartz and Nightingale have demonstrated a blatant disregard for legal, ethical, and moral standards” while also violating their operating agreements with investors. 

Phillips said in the webinar that almost immediately after the money was raised from investors, much of it was transferred to Schwartz and his affiliates. For the Miami Beach property, about $3.75 million was transferred to unidentified third parties and the balance appears to have been transferred to affiliates of Schwartz. 

“Transfers out of the account occurred regularly and were directly in contravention with the agreement with CrowdStreet,” Phillips said. 

With the Atlanta property, about $8 million to $9 million was repaid to investors, while about $8 million was transferred to unidentified third parties, Phillips said. The remaining balance appears to be transferred to Schwartz directly to other affiliates related to Schwartz, she said.

The deal for the 1-million-square-foot property at 5531 Roswell Road, which Nightingale had agreed to purchase for $182 million last summer, never closed. 

Phillips said she hired legal counsel and put the two entities into Chapter 11 bankruptcy in Delaware. She said she hopes the moves will put pressure on Schwartz and Nightingale to provide more information about where the funds went. 

Phillips said there have been calls with Schwartz’s attorneys, but they have not been able to connect directly with Schwartz. She added that she does not yet have the books and records and only has bank reporting information.

Nightingale declined to comment. On Reddit’s Crowdstreet subreddit, commenters have been discussing the webinar since Friday afternoon, expressing hope that the auditor will be able to resolve the mess. 

Nightingale is also facing trouble on a number of properties in New York City. It is staring down foreclosure on its Whale Building in Sunset Park and on a Soho office building at 300 Lafayette Street.