Investors Demand Refunds As Crowdfunded Deal For Huge Buckhead Office Property Falls Apart
When New York-based Nightingale Group agreed to buy the iconic Atlanta Financial Center complex in Buckhead from Sumitomo Corporation of America last summer for $182M, it planned to raise more than $76M from small-dollar investors through real estate crowdfunding platform CrowdStreet.
Nightingale pitched the deal — which would amount to a $78M loss from the price Sumitomo paid to acquire the complex — as a "rare opportunity to acquire a trophy office at a steep discount" because Sumitomo "needs to transact regardless of market conditions."
When it closed the fund in June 2022, Nightingale raised more than $53M from 772 individual investors, according to CrowdStreet's website.
But more than a year later, the deal still hasn't closed, and CrowdStreet has told investors pushing to get their money back that it can't verify the availability of the funds, according to documents obtained by Bisnow.
Nightingale had told investors it is trying to get Sumitomo to agree to a reduced price for the 915K SF, glass-encased office complex straddling Georgia 400, according to investor messages shared with Bisnow.
But in a May 31 letter to investors in the Atlanta Financial Center fund, CrowdStreet investor relations wrote that it was pushing Nightingale to unwind its planned purchase and return money to investors.
“With the closing date and financial terms still open, some investors have asked for refunds of their investments, and Nightingale agreed to complete the refunds. However, Nightingale has not processed refunds timely or consistently,” the letter said. “CrowdStreet asked that Nightingale produce documents demonstrating that investor funds were in the bank account. Nightingale did not agree to that request. CrowdStreet has not been able to verify the availability of funds at Nightingale and makes no representations regarding the availability of funds.”
CrowdStreet is a platform that allows smaller accredited investors — those whose net worth exceeds $1M and whose annual income exceeds $200K — a chance to buy equity into commercial real estate deals they would otherwise not have access to.
Nightingale sought a minimum of $25K per investor for equity in the property, and promised a hold time of five years in what it described as a value-add opportunity "in an explosive, tech-fueled Sunbelt market." It anticipated raising rents by over 23% after current leases expired, Nightingale wrote in the offering.
A year later, Nightingale admitted it was having problems reaching the finish line.
In its letter to investors late last month, CrowdStreet said that Nightingale was struggling against “changes in the debt market," and it was continuing to “seek price concessions from the seller to offset the increased cost associated with the project’s most recent debt terms."
Nightingale had posted a message to the CrowdStreet app, which was reviewed by Bisnow, saying that it had lined up a lender for a deal at a reduced price and was expecting to hear back from Sumitomo on its reduction request in two to four weeks.
In the letter, CrowdStreet wrote Nightingale has asked to be given until the end of June to close the deal at a renegotiated price.
"However, based on the information received to date, and items we have been unable to confirm, CrowdStreet concluded that Nightingale should unwind the deal and immediately provide full refunds to investors," the letter read.
CrowdStreet told investors in the fund, organized as ONH AFC CS Investors LLC, that Nightingale had agreed to relinquish its control of the entity and appoint a new independent manager, former Cousins Properties and Mesa Capital executive Anna Phillips.
Phillips was approved by the fund's investors, according to a June 2 update provided by CrowdStreet, and was tasked with exploring Nightingale’s books. In a June 20 letter, CrowdStreet asked that investors give Phillips “ample opportunity” to review the LLC's financials.
“We ask that you remain patient for the next 10 business days as we anticipate a substantive update — not a full resolution — around that time,” CrowdStreet said in an email on June 20 that has been obtained by Bisnow.
CrowdStreet spokesperson Darcy Dehais declined to comment.
“Nightingale worked cooperatively with CrowdStreet, at its request, to appoint an independent manager to handle the Atlanta Financial Center deal on a going-forward basis,” a Nightingale spokesperson told Bisnow in an email. “As stated in CrowdStreet’s letter to investors of May 31, 2023, CrowdStreet is the point of contact and conduit for investor communications regarding the Company, including communications with the manager. Nightingale will respect this process and will not comment further at this time.”
Nightingale was founded in 2005 by a former IT company executive, Elie Schwartz, and a former corporate lawyer, Simon Singer, and has grown to own an 11M SF office and retail portfolio in 22 states, including the 24-story 111 Wall St. office building in New York City's Financial District, an 821K SF skyscraper in Newark, New Jersey, and the 36-story Regions Tower in the central business district of Indianapolis. Singer departed his position with Nightingale at the end of 2021, but maintains partial ownership in the firm's legacy deals, according to Nightingale's website.
Nightingale’s troubles come at a time when many investors are struggling to get financing for office deals as valuations tumble. And it's also the latest in its struggles.
Atlanta Financial Center is not the only Nightingale holding facing issues. It raised equity on CrowdStreet for Lincoln Place, an eight-story office building in Miami Beach it paid $80M for in 2016. In 2022, Nightingale raised $8.8M from more than 170 investors for the building, according to CrowdStreet. Phillips has been appointed as manager of the Nightingale entity that owns that property as well.
Nightingale also is facing foreclosure from its lender at Brooklyn's Whale Building, a 420K SF historic property it paid to convert into office space. Capstone Equities, which acquired the debt on the building from lender TPG Real Estate Finance Trust, has filed to schedule a foreclosure auction on the building later this summer, The Real Deal reports.
UPDATE, JUNE 22, 4:30 P.M. ET: This story has been updated with current information about Simon Singer's status with Nightingale.