Nightingale Strikes Deal To Pay Back CrowdStreet Investors By Selling Its Assets
Nightingale Properties has reached a tentative settlement with CrowdStreet investors that would reimburse them for the tens of millions that Nightingale’s embattled CEO, Elie Schwartz, misappropriated over the past year.
The agreement could see investors receiving quarterly installments of roughly $4M over the next three years as the New York-based commercial real estate investment firm liquidates portions of its portfolio to satisfy the capital lost by investors who were led to believe they were buying slices of prime office buildings in Atlanta and Miami Beach.
The deal was announced to investors in a Wednesday afternoon webinar hosted by Anna Phillips, the fiduciary hired by CrowdStreet to represent the investors in the Atlanta Financial Center and Lincoln Place campaigns. It was detailed by BakerHostetler partner Jorian Rose, the attorney hired to represent the entities Phillips placed into bankruptcy.
Schwartz agreed to put liens on pieces of his commercial real estate portfolio, as well as his Manhattan penthouse, if he defaults on the payment plan, Rose said.
“The settlement is predicated on the return of all of your money and the cost of the Chapter 11 and trust, with some interest, but it’s over a period of several years,” Phillips said on the webinar, a recording of which was obtained by Bisnow.
The deal, which Phillips hinted at last month, is a momentous turning point in the ongoing scandal, which began last year when Nightingale launched two crowdfunding campaigns on CrowdStreet.
“CrowdStreet is encouraged by the update from Anna Phillips that Elie Schwartz has agreed to repay investors in full,” a CrowdStreet spokesperson said in a statement Wednesday evening. “Today’s news is a positive development in the process toward recovering investor funds, and we remain committed to continuing to advocate for investors as they navigate the steps ahead.”
The proposed settlement, which Phillips said Wednesday Schwartz is “signed and bound” to, would see Schwartz pay back all the money that was siphoned from CrowdStreet investors over a three-year period, paid quarterly.
Nightingale and Schwartz have agreed to put liens on “all of their assets that are subject to a lien,” including their commercial real estate portfolio, Schwartz's personal residence, jewelry, watches and art, Rose said.
“So how is Schwartz and Nightingale parties going to repay? They’re going to have to, we believe, sell assets,” Rose said.
Philips said that she insisted that Schwartz’s “very expensive” New York penthouse would be part of the settlement, giving him a “short period of time to come up with some other monetization.” Rose said Schwartz has six months to find an alternative asset to replace his home or he will be forced to sell it to appease the investors.
Months later, it returned to the platform to raise $8.8M in equity to renovate a Miami Beach office building Nightingale already owned. More than 600 investors participated in the campaigns at a minimum commitment of $25K each, but neither deal closed.
Schwartz refunded $9M to some investors between late 2022 and April 2023, when he stopped communicating with CrowdStreet, former CrowdStreet CEO Tore Steen previously told Bisnow.
CrowdStreet named Phillips as a fiduciary for the investor entities in May, describing her as an independent director with 35 years of experience “for numerous companies undertaking mergers, acquisitions, divestments and other transactions and capital structure transitions.” CrowdStreet said she was approved by more than 50% of the equity holders in both entities.
Phillips hired B. Riley Financial to manage the entities' Chapter 11, which was filed in July. B. Riley Managing Director Eric Lee last month told CrowdStreet investors in the deal that Schwartz used the CrowdStreet investor proceeds on personal and business expenses, including $12M in First Republic Bank stock and options weeks before the bank failed, Bisnow first reported.
“Those shares and options became almost worthless,” Lee said on a Sept. 15 webinar. “That money is gone, unfortunately.”
Phillips previously disclosed that the bankruptcy team was in contact with the Department of Justice and the FBI. She said Wednesday that dialogue was still active and "both agencies are aware" of the settlement deal.
Schwartz agreed to update investors on his progress selling properties to repay the money he lost. Nightingale has said it has owned or managed roughly 22M SF of commercial properties, but many of its largest assets are in states of distress.
Schwartz and Nightingale have agreed to pay investors interest on their money if the individuals agree not to sue Nightingale and Schwartz separately, Rose said.
“If you don’t assign [your personal claims] to the trust, you will still get your repayment, just not the 5% annual simple interest rate,” Rose said.
Nightingale is already under contract to sell Lincoln Place, at 1601 Washington Ave. in Miami Beach, for $82M. Phillips said the settlement isn't contingent on that deal closing.
“The bottom line is that even if he defaults under the settlement agreement, we’re going to be in a much better position than we are in today in terms of our ability to recapture assets,” Phillips told investors on the call in a recording obtained by Bisnow. “And that’s extremely important, and that was nonnegotiable from our perspective. The settlement does not preclude us from going after third-party beneficiaries of the funds.”
Rose and Phillips said the settlement means investors will be avoiding the steep costs of litigation and urged the hundreds of equity holders to approve the deal.
A Nightingale spokesperson didn't respond to a request for comment.
“This sounds promising, but also very suspicious, because there’s a lot of moving parts between the SEC, DOJ, and it’s all subject to bankruptcy court approval, and it’s subject to Schwartz actually cooperating with whatever bargain he actually struck,” Joshua Kons, an attorney who says he is representing roughly a dozen investors who put equity into the Atlanta Financial Center deal, told Bisnow in a phone interview. “There’s a lot of contingencies that need to occur in order to make something happen.”
Phillips added that she was continuing to negotiate an unspecified settlement with CrowdStreet itself, details that are expected to be released on an Oct. 13 webinar. She added that she is aware the CrowdStreet investors have been “absolutely bombarded with inbound solicitations from various attorneys.”
“We’ve heard comments from investors that they want us to get a better deal with CrowdStreet sooner rather than later,” she said. “I promise you we’re working on it, and we will be able to report on that at the end of next week.”
Ethan Rothstein contributed reporting to this story.
UPDATE, OCT. 4, 6:20 P.M. ET: This story has been updated with a statement from CrowdStreet.