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Investors Allege $63 Million Misappropriated by Nightingale Properties on 2 deals as Empire Crumbles

Updated: Sep 20, 2023

One of the two office real-estate deals (Atlanta Financial Center) had been touted last year as the largest ever fund-raise on the CrowdStreet platform. However, some investors say they saw red flags showing trouble from the beginning.

Investors Allege $63 Million Misappropriated by Nightingale Properties on 2 deals as Empire Crumbles

(Usual disclaimer: I'm just an investor expressing my personal opinion and am not an attorney, accountant nor your financial advisor. Consult your own financial professionals before making any financial decisions. Code of Ethics: To remove conflicts of interest that are rife on other sites, I/we do not accept ANY money from outside sponsors or platforms for ANYTHING. This includes but is not limited to: no money for postings, nor reviews, nor advertising, nor affiliate leads etc. Nor do I/we negotiate special terms for ourselves in the club above what we negotiate for the benefit of members. Info may contains errors so use at your own risk. See Code of Ethics for more info.) Investors in two Nightingale office real-estate investments on CrowdStreet (Atlanta Financial Center and Miami) say they recently got some very unwelcome news.

On July 13th, 2023, they were abruptly informed that the former manager of the funds (Elchonon Schwartz of Nightingale Properties) had resigned. And the new manager allegedly said:

  1. About $63 million of investor money is currently unaccounted for and missing. The funds are believed to have been allegedly misappropriated and directly transferred to Schwartz and/or entities associated with him.

  2. The promised $8.5 million of sponsor co-investment never occurred.

  3. The two real-estate properties that were planned to be purchased were never bought.

  4. Both funds are now in Chapter 11 bankruptcy (with the proceedings being funded by CrowdStreet).

  5. Also predictably, the two funds have retained legal firms and advisors who are experts in financial fraud to attempt to recover the missing funds.

Collapse of an office empire

Meanwhile, Nightingale’s New York office empire appears to be in a state of collapse.

  1. Its SoHo office building on 300 Lafayette Street is being foreclosed on by lender TPG Real Estate Finance.

  2. Its Whale Building at 14 53rd Street in Sunset Park in Brooklyn is being foreclosed on by lender CapStone Equities.

  3. It's 1500 Market building in Philadelphia entered receivership after lender Wells Fargo filed for foreclosure in January.

  4. [UPDATE July 26, 2023] It's 111 Wall Street Building is being foreclosed on by OakStreet Capital Managment. Prior to this, the NY Post claimed its 111 Wall Street building “epitomizes the crisis of NYC’s commercial real-estate market” and has back-breaking 20% vacancies despite Nightingale spending a small fortune ($320 million) on renovations.

  5. [UPDATE August 23, 2023] It's 20 East 56th Street building defaulted on a loan from East West Bank.

So investors in these two deals look very unlikely to recover losses from Nightingale’s other assets.

Largest-ever CrowdStreet deal

Last year, the Atlanta Financial Center fund-raise was touted as the largest ever on the CrowdStreet platform. It raised $54 million from 654 investors and afterwards investors were ultimately refunded about $8-$9 million. So the remaining $45 million was allegedly misappropriated. The 1601 Miami property deal was smaller and raised $9 million from 167 investors. And about $8.8 million was allegedly misappropriated on that one.

Trouble from the start?

Some investors allege the Atlanta Financial Center offering had red flags showing trouble from the beginning. Specifically, Nightingale omitted material information about its past losses in the offering documentation (which many investors use to decide to invest or not). And since Nightingale has a fiduciary duty to disclose all losses along with gains, it should have fixed this as soon as investors informed them about it (and also notified all other investors of the material omission). Instead, investors claim that Nightingale did not fully correct this for many months...and instead continued to raise more money. And this went on and on for a long time and despite repeated investor requests (passed to them through CrowdStreet).

Months later, a Wall Street Journal reporter allegedly started asking Nightingale pointed questions about the omissions (in preparation for an article on the issue). And just before the article was scheduled to be published (in September of 2022), Nightingale finally "came clean". But by that point, investors allege it was "too little, too late". Since it shouldn't have been so difficult, the incident remained an enormous red-flag with them.

Why do track-record losses matter?

Every sponsor claims to be a fantastic steward of investor money. But their losses (or lack of them) can demonstrate if they've actually behaved overly-aggressively in the past. And asking follow-up questions about losses allows the investor to fully understand if the sponsor has truly learned lessons from past mistakes (or if they haven't and will probably repeat those mistakes again).

So virtually every sophisticated crowdfunding investor will start their due diligence by looking at the track record and the losses. And it's a crucial part of understanding investment risk and determining if the investment is a fit (or not).

The "Perfect sponsor"...that wasn't

When the Nightingale deal was first published, investors say the "track record" section showed something truly remarkable: a detailed listing of 30+ successes over multiple real-estate cycles, and no money ever lost! In real-estate, this kind of record is extraordinarily rare and difficult to pull off. And such sponsors are in very high demand and their new deals tend to fill up very quickly. So this claimed record of no losses caused many investors to become very interested in the deal. And, allegedly, the fund raised a staggering $20 million in the first few days alone.

The edifice starts to crumble

But in the following day and weeks, some investors say they uncovered troubling information that called the sponsors' claims into question. A series of public articles and records showed that Nightingale’s perfect-looking track record was inaccurate, and omitted significant losses.

  1. 645 Madison Avenue property: Public records said that Nightingale failed to make debt payments, was foreclosed on, and took a substantial loss. However, no such losses were shown on their record.

  2. 5-9 retail properties. Public records (like here and here) said that 5 to 9 retail properties owned by Nightingale failed to make debt payments, and were foreclosed on (thus taking substantial losses). However no such losses were shown on their record. And later info, supplied by Nightingale, said that this was a cumulative $82.3 million holding (making it one of their top 5 largest realized deals).

Sometimes, track-record omissions can happen by legitimate accident. And when that happens, a reputable sponsor will simply apologize and quickly correct it. And since they have a fiduciary duty to notify all investors of material inaccuracies, they’ll send out an email to tell the ones who’ve already put in money about the change (in case the new information causes them to change their mind).

And investors say that's what they were expecting to happen here as well.

But they claim, they were surprised and disappointed at what happened, next.

You say "big loss," I say "N/A"... What's the difference?

Investors say they informed Nightingale (through CrowdStreet) about these omitted losses. And a small change was made to the "track record" section of the materials. The above two investments were added as two additional rows. But rather than report the actual losses, investors say the track record reported the % return ("IRR NET return") as "N/A”. Since this should have been a large negative number, the "N/A" was inaccurate. And investors said there was another problem. Had Nightingale also updated its total % return ("total weighted average IRR") to include the losses, then it would have gone down. But it didn’t. So the losses were still being omitted there, as well. So the final result was that even after the change, Nightingale still looked like one of those rare and highly-desired sponsors with a perfect record, as though they had never lost money (when that really wasn’t the case). And they continued to raise money this way. So investors say they complained further that the update was still materially misrepresenting the track record and needed to be fully corrected. But Nightingale declined repeated complaints on this. And to this day, no further changes to the "track record" section of the due-diligence documents was ever made.

"Video killed the radio star"

After this, investors say they brought the issue up in a video call that CrowdStreet hosted for Nightingale. And in response, Nightingale did at least disclose verbally on the call that they did have some losses, and talked further about them (although allegedly didn't correct the N/A with the actual percentages, nor corrected the update total return that included the losses). Also, not all investors attended the call. And these others were never notified that there was new material information in the video that they needed to view (and perhaps re-evaluate their choice to invest).

The Looming Wall Street Journal article

Months later (in late-2022), sources say the Wall Street Journal decided to do an article on the largest-ever deal on the CrowdStreet platform. And while doing this, they talked to many parties involved, including some who complained about these omitted losses. So over several weeks, sources say the focus of the article changed. And allegedly, the Journal began to ask Nightingale (mostly through CrowdStreet) increasingly pointed questions about this specific issue. After several weeks of this, the Journal ultimately did publish an article. In it they said:

The Securities and Exchange Commission says that companies issuing securities must communicate any material information that reasonable investors would factor into their decision-making calculus. As the broker dealer, CrowdStreet is also obligated to provide material disclosures, attorneys say. “One thing you’re definitely not supposed to do is only highlight the good performance while hiding the poor performance,” said Evan Hiller, a securities attorney in Utah and partner at the law firm BlackHill Partners. “If you’re going to shine a light on the good performance, you should also show the poor performance.” Companies that exclude details about past performance could be subject to fines for inadequate disclosure, if the SEC determined there was “a substantial likelihood that a reasonable investor would attach importance to the information in making the determination to invest,” said Mr. Hiller, whose firm isn’t connected to the transaction.

Sources say that by the time the Journal article was being finished-up and was being scheduled for publishing, Nightingale could plainly guess the change in direction from the questions. And just before the article was scheduled to be published (and final quotes from all parties were due to be sent to the Journal), Nightingale finally did "come clean" to investors. Nightingale allegedly sent a private investor memorandum which finally disclosed to all investors (for the first time) that they actually had losses. And investors say Nightingale also finally changed the N/A's to the actual loss amounts and also updated the "total return" to included the losses as well.

But some investors felt it should not have taken months of continual investor effort (and arguably an upcoming expose in a national newspaper) to get a sponsor to fulfill it's fiduciary duty to show losses along with gains. So they say they continued to view the incident as a major red-flag.

Lessons learned?

Ultimately CrowdStreet said in it's final quote for the Journal article, the following:

A spokesman from CrowdStreet said...that CrowdStreet felt the excluded details weren’t essential, which is why the company felt no obligation to ask Nightingale to update the documents. Any missing information was made available to investors upon request and in a private investor memorandum.
“The omissions are benign,” the spokesman said. “We believe this offering, and all offerings on CrowdStreet, provide a fair representation of the opportunities and risks involved in real-estate investing, including, in this case, a fair picture of [Nightingale’s] track record.”

I realize that CrowdStreet isn't an investor. And so they can't be expected to understand how it's customers typically perform due diligence. I hope and believe that after this experience (and perhaps even with the help of this article), they now understand all of this much better, now. Specifically:

  1. Sponsor losses are actually a very crucial due-diligence data-point that many investors use in their investment decision-making process.

  2. Per the attorney quoted by the Wall Street Journal, the SEC does not allow a sponsor to hide losses and only show the gains.

  3. So per that attorney, a sponsor hiding losses (and only showing gains) is not a "benign omission"

In my opinion, this issue is too important to be ignored by any party in any investment (including the platform). And if it ever happens again (and not just CrowdStreet but on any platform), I hope that platform will:

  1. Require the sponsor to correct it fully, immediately (and also notify all investors).

  2. And if the sponsor won't, then it should be treated as the platform's own red-flag (and the sponsor should not be allowed to continue raising money).

If not, I believe we will see another "Atlanta Financial Center" happen again.

What's next?

Meanwhile, investors in these two deals say they were warned by the new manager to prepare for the fact that simply attempting to recover the missing money will be more expensive than they will want and will take longer than they expect. So at best, they expect to be stuck in limbo for a while.

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About Ian Ippolito
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Ian Ippolito is an investor and serial entrepreneur. He has been interviewed by the Wall Street Journal, Business Week, Forbes, TIME, Fast Company, TechCrunch, CBS News, FOX News, USA Today, Bloomberg News,, CoStar News, Curbed and more.


Ian was impressed by the potential of real estate crowdfunding, but frustrated by the lack of quality site reviews and investment analysis. He created The Real Estate Crowdfunding Review to fill that gap.

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