Jewelry, Watches, Art (And 2 Houses) ‘Best That Can Be Done’ To Pay Back Burned Nightingale Investors

The details of the deal that Nightingale Properties CEO Elie Schwartz struck to repay crowdfunding investors the roughly $50M he misappropriated are now public, laying bare the web of assets he will try to sell to pay back what he owes.

Some of those assets listed in court documents include Schwartz’s luxury New York condominium at 1 West End Ave., a mansion in Englewood, New Jersey, jewelry, watches, art and part of the proceeds from the pending $82M sale of 1601 Washington Ave. in Miami Beach. The settlement also lists several LLCs that appear to be tied to Nightingale's office holdings.

Schwartz agreed to make the first payment of $3M no later than Dec. 31. The other payments he makes — scheduled for quarterly installments over the next three years — will be determined by the outcome of the not-yet-closed sale of 1601 Washington and his ability to sell off his other assets.

The settlement agreement is a potential resolution to the scandal that unfolded throughout the summer after Nightingale raised more than $50M on the CrowdStreet platform to buy a prime Buckhead, Atlanta, office tower and recapitalize the Miami Beach office building.

Anna Phillips, the independent manager of the two entities formed for the investments, led negotiations with Schwartz and signed the proposed settlement deal and liquidation plan for the entities, which she placed into bankruptcy. The documents were filed in the U.S. Bankruptcy Court for the District of Delaware late Thursday. 

“Put simply, our focus is to grab everything. What we’ve done with this agreement is to capture all his material assets,” Phillips said. “All of that cash was largely spent by Elie. It’s not like Elie has the $53M sitting in a bank account and can write a check today.”

Phillips, who has served on several corporate boards as an independent director, was nominated by CrowdStreet in June to serve as independent manager of the entities.

The liquidation plan, which investors must vote on and a bankruptcy judge must approve, includes an “optional settlement agreement” Phillips reached with CrowdStreet, which investors can opt in to and release their potential claims against the Austin, Texas-based crowdfunding company. The agreement would see CrowdStreet lend additional money to the entities and subordinate repayment until all investors are made whole.

Since taking over the entities, Phillips and a team of bankruptcy experts and attorneys have investigated the whereabouts of the missing millions.

The saga began in May 2022 when Nightingale raised $54M from CrowdStreet investors to buy the 915K SF Atlanta Financial Center complex from Sumitomo Corporation of America for $182M. Months later, Nightingale returned to the platform to raise $8.8M in equity to renovate 1601 Washington, a property called Lincoln Place that 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, which is when he stopped communicating with CrowdStreet, former CrowdStreet CEO Tore Steen previously told Bisnow. Phillips was appointed weeks later and put the entities into bankruptcy in July.

According to the bankruptcy filings, $44M of the Atlanta Financial Center funds and $8.8M of the Lincoln Place funds were misappropriated.

Phillips told investors that without the settlement, Schwartz would be unable to repay investors given he spent nearly all the dollars on personal items, business expenses to third-party vendors and $12M in stocks and options on First Republic Bank in the weeks before it collapsed.

Phillips said the Securities and Exchange Commission, Department of Justice and the FBI are still investigating Schwartz and are aware of the settlement agreements. 

“The three-year period is to actually avoid a fire sale, because clearly now is not a good time to be selling office space,” Phillips told investors during a Friday afternoon webinar. “Schwartz is actually part of the settlement. So that's even better than him just guaranteeing it. He’s a party. He's personally on the hook. In my view, this is the best that can be done in a difficult situation.”

Schwartz reportedly paid $17.9M for 1 West End Ave. in 2018. He has agreed to sell the apartment to pay back investors, but the settlement would allow him to delay marketing the property for six months while he looks to move. He is currently marketing the mansion at 320 Mountain Road in Englewood, seeking $3.9M.

Entities controlled by Schwartz, a list of which was filed in the agreement, hint at some of the commercial real estate assets that he could look to sell to come up with the funds. Among them are LLCs that appear connected to three office buildings in Philadelphia that Nightingale owns: 1635 Market St., 1835 Market St. and 1500 Spring Garden. 

It is unclear how much equity Schwartz will be able to squeeze out of those assets. Nightingale defaulted on a $161M loan tied to the 1M SF 1500 Spring Garden office building earlier this year.

The filing also lists ONH 2226 Third Ave LLC, an entity with an ownership stake in a 193K SF life sciences building in Harlem that finished construction last month. Real Estate Equities Corp. is listed as the developer and owner of the building in property records. It isn't clear how much equity Schwartz has in the project.

As part of the deal, Schwartz would keep 10% of proceeds from the property sales, while 90% would go to the trust set up to pay investors.

Mike Huber, an independent investor from New Jersey who put $150K into the Nightingale offerings, said he was pleased after learning details of the proposed settlement.

“Of all the possible outcomes, Elie seemingly taking responsibility and paying investors back and covering the costs, it seems like the best possible outcome the investors could have hoped for,” Huber said. “[Schwartz] could have stretched this out. He could have gone down a black hole and not said anything. So I certainly give him some credit for this, assuming he follows through with the deal.”

George Dick, a retired book printing broker in Kentucky who committed $100K toward the acquisition of the Atlanta Financial Center, also said he was pleased with news of the settlement.

“I would be happy if it does happen,” Dick told Bisnow. “I don’t have a high regard for [Schwartz’s] character, I’ll give you that. But I do have high regard for [Phillips].”

But Joshua Kons, an attorney who says he is representing roughly a dozen investors who put equity into the Atlanta Financial Center deal, told Bisnow that not all investors are confident in this settlement.

“I’m getting the sense that the investors are growing anxious and more suspicious every day that goes on,” Kons said. “My phone has been ringing off the hook all week. I suspect we’ll have more claims and clients very soon here.”

Phillips also outlined the tentative settlement with CrowdStreet, in which the platform would subordinate money it loaned to the bankrupt entities to cover legal costs in the event Schwartz fails to repay the debts. Depending on how many investors agree to this portion of the settlement, CrowdStreet could backstop up to $5M in any shortfalls in efforts to recover investor funds.

In exchange, those investors who sign on would agree not to pursue CrowdStreet in the courts.

“CrowdStreet’s position is, ‘We’re only going to pay if Schwartz doesn’t make you whole,’” Huber told Bisnow about the proposal. “The jury is still out on that. It seems like there could be a little bit more from CrowdStreet in terms of what they’re willing to do.”

Kons said he is skeptical of Phillips' deal with CrowdStreet and considers her position of being nominated by CrowdStreet to take over the entities and now negotiating with the company to evade possible liability worth further examination.

“It’s starting to concern me that she’s negotiating with CrowdStreet or even serving in this capacity as manager. That, I think, should be — is — an issue,” Kons said. “There’s something there. I always get concerned when someone was potentially appointed by a party who is now supposed to settle with themselves.”

He called the CrowdStreet settlement “10 cents on the dollar” and unlikely to cover the fees being paid to the restructuring firm and bankruptcy attorney, which are already more than $1M, according to court filings. The deal is billed as up to a $5M value but would be structured as loans.

“That’s not money. That’s just another loan,” Kons said. “I’m just concerned that the settlement is a bit of hollow justice.”