“We treat your capital like it’s our capital,” a brochure for Nightingale Properties’ management arm assures investors.
That motto may now be read with a sinister meaning. The Elie Schwartz-led firm is accused of swindling money from hundreds of small-time investors who had ponied up more than $60 million through a crowdfunding platform for two Nightingale deals that never closed.
Nightingale was to use the funds to acquire an Atlanta office complex and a Miami Beach office building. But after investors started sounding the alarm, a fiduciary they appointed came back to them with a stark revelation: Most of that money had been “misappropriated,” allegedly by entities controlled by Schwartz.
The fallout resulted in the abrupt exit of the CEO of the crowdfunding platform, CrowdStreet. It has also made the formerly under-the-radar Schwartz real estate’s main character right now, thrust under a cloud of suspicion and intrigue.
Schwartz has remained mum since The Real Deal broke news of the scandal, communicating only through his attorney. Nightingale did not respond to requests for comment for this story. But here’s what we know about the company and its founder.
State of play
Headquartered in Manhattan, Nightingale claims it has 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.
In New York, Nightingale’s mezzanine lender, Howard Marks’ Oaktree Capital Management, moved last month to foreclose on its 24-story office tower at 111 Wall Street. Schwartz and its partners bought into the property in 2020 by purchasing the leasehold interest for $175 million and a year later dropped another $220 million to acquire the fee interest. Nightingale was in the process of renovating the vacant property, with a plan to spend $100 million on the overhaul.
The company is also facing foreclosure on the Whale Building in Brooklyn, which Nightingale bought for $84 million in 2020, and the Soho office/retail building at 300 Lafayette Street, which it acquired in 2019 for $125 million. Nightingale handed back the keys to another New York property, a leasehold it bought at 645 Madison Avenue for $76 million in 2015, to its lender in 2021.
In Philadelphia, where Nightingale became a huge player when it acquired four large office properties beginning in 2013 for $652 million, a receiver has taken over 1500 Market Street, Nightingale’s 2.2 million-square-foot office complex.
And in Chicago, CrowdStreet is trying to get an independent manager to take over a West Loop office building Nightingale bought for $130 million.
Associates
Schwartz is something of a mystery in the real estate business. Despite a lengthy career with plenty of big-ticket deals, he’s managed to avoid the spotlight.
Much of what is known is through his own telling.
“The classic entrepreneur — the kind of kid who made a mint selling and trading baseball cards and candy growing up. Who made a mini-business out of ordering 10 pizzas and selling it by the slice,” reads a short biography of Schwartz on the capital-raising site Revere CRE.
According to his bio, Schwartz ran a consulting firm that specialized in setup and installing Cisco network products and Microsoft servers. He started brokering real estate deals on the side and in 2005 teamed up with fellow Brooklynite Simon Singer, who was an in-house counsel for a real estate developer.
“That next year was the year of the midnight oil. Every night, after their day jobs, Elie and Simon would get together and work long hours putting deals together and building up their partnership,” Nightingale’s website explains.
(Singer left in 2021, but still has a stake in some of their legacy deals, according to the website.)
Schwartz and Singer were able to do business with some industry heavyweights. They worked frequently with David Werner, who has a reputation as a master flipper of large office properties and co-invested in 111 Wall Street. Werner also partnered with them on office buildings in Philadelphia and Kansas City and a mall in Minnesota.
In September 2019, in a deal straight out of the Werner playbook, Schwartz flipped the Coca-Cola building at 711 Fifth Avenue to Michael Shvo for $937 million, having paid $909 million to acquire the asset just a month prior.
Nightingale has also partnered with the billionaire Simon Glick on a Newark office tower and with Friedland Properties on 645 Madison.
The company has frequently partnered with Intervest Capital, formerly a division of the Kuwaiti sovereign wealth fund Wafra Group. But whereas Wafra invested money on behalf of Kuwait’s sovereign wealth fund, Intervest was syndicating money from high-net-worth Middle Eastern investors.
What’s next
The fallout has raised questions about the viability of real estate crowdfunding. CrowdStreet came under scrutiny for failing to put the investors money into escrow and instead letting the funds be directly controlled by Nightingale. CrowdStreet also had virtually no insight into what Nightingale was doing with the money.
In July, a fiduciary put the investor entities into bankruptcy. There has been little insight into what Schwartz or Nightingale allegedly did with the money. According to bankruptcy filings, about $3 million was transferred to a loan servicer and investment advisory firm in Atlanta. The transfer was listed as a “3rd party – reason unknown,” according to Bisnow.
“CrowdStreet is as angry and upset with Elie Schwartz and Nightingale as investors are,” a company spokesperson told TRD. “They have demonstrated a blatant disregard for legal, ethical, and moral standards in addition to the terms specified in Nightingale’s agreement with CrowdStreet and in the Operating Agreements Nightingale entered into with investors.”
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The spokesperson added that the investor-appointed fiduciary, Anna Phillips, would be updating investors on August 11.
Nightingale has seen an exodus as well. The head of acquisitions, Will Hutton, left soon after the scandal broke. Avi Kollenscher, a senior investment executive, is also no longer with the company.
How did Schwartz and Singer convince investors to trust them with their money on such big deals when they were starting out? As one investor put it, according to the tale on their website, “they had total faith that Simon and Elie would look after their investment as if it was their own. That they’d work the fundamentals harder than anyone else in the business, and that they’d never lose respect for the fact that the investors’ money made it all possible.”