A group of CrowdStreet investors is coming after the real estate crowdfunding platform, accusing it of negligence in an attempt to recoup their investment in Nightingale Properties’ $130M purchase of a Chicago office building.
In a statement of claim filed this week with the Arbitration Service of Portland, Oregon, 125 investors in Nightingale’s 2022 acquisition of 200 W. Jackson Blvd. seek to force CrowdStreet to cover $7.2M in losses, plus interest, fees and punitive damages.
The Austin-based investment platform failed to spot obvious red flags with Nightingale and its CEO, Elie Schwartz, who raised $25M in equity for the acquisition of the 29-story Chicago Loop tower, according to the claim, which was filed with the arbitration service as a condition of the deal’s operating agreement.
Nightingale also never put at least $5.8M of its own equity into the property, despite CrowdStreet’s listing assuring investors that it planned to invest $11.7M of its own capital into the deal, the investors claim.
“Our clients would have never heard of Nightingale or 200 W. Jackson but for CrowdStreet. CrowdStreet frankly assisted Nightingale in defrauding our clients,” Jason Kane, an attorney representing the 125 individual investors in the arbitration claim, told Bisnow. “They even gave Nightingale the gold standard ‘enterprise’ designation, which was obviously designed to give investors comfort, when CrowdStreet did not conduct the proper due diligence.”
Schwartz pleaded guilty to one count of wire fraud last month, admitting to misappropriating $54M that CrowdStreet funneled to him for failed office deals in Atlanta and Miami Beach. Nightingale raised funds for those buildings after it successfully closed on the purchase of 200 W. Jackson.
[…]
The claim is just the latest legal push by investors who put at least $25K into Nightingale’s CrowdStreet fundraising campaigns to try to recoup their losses with Schwartz from the platform that facilitated the deals.
Last year, a dozen investors filed an arbitration claim with the Financial Industry Regulatory Authority against CrowdStreet in an attempt to recoup more than $1.5M they lost in Nightingale’s failed bid to purchase a massive Atlanta office complex and recapitalize a Miami Beach office building.
[…]
‘Acted In Concert’
When Nightingale raised $25M in January 2022 to buy the 480K SF office building at 200 W. Jackson Blvd., a block from Willis Tower, it was the largest sum any sponsor had raised on CrowdStreet.
CrowdStreet designated Nightingale an “enterprise-level sponsor,” the highest grade it handed out to sponsors raising money on its platform. It touted the firm’s $10B track record and, in the offering materials, projected a targeted internal rate of return for investors of 18.5% and an equity multiple of 2.1x, according to the claim.
The offering claimed Nightingale would invest $11.7B, or 25% of the total equity in the deal, which it estimated would close at a total purchase price of $149.8M, financed with a $103M senior loan and backed by $35.1M in CrowdStreet investor funds.
When the deal closed, it was revealed that Nightingale got an $86M CMBS loan from Citibank and a $17M mezzanine loan from Florida-based Kawa Capital Management.
Lawyers for the aggrieved investors — Kane and Daniel Centner from Rochester, New York-based Peiffer Wolf Carr Kane Conway & Wise and White Plains-based attorney Daren Luma — claim the mezzanine debt’s surprise involvement amounted to “hiding another lender with rights senior to those of” the CrowdStreet investors.
[…]
The building ultimately sold for $130M in January 2022, according to records with the Cook County Assessor’s Office — just $2M more than the combined value of the reported debt and CrowdStreet equity.
Sameer Advani, a California-based investor who put $150K into the 200 W. Jackson deal, said all of the equity that Nightingale claimed to put in the deal was structured instead as a loan.
“We’re paying interest on this mezzanine debt that they took after the fact that they shouldn’t have needed,” he said.
The sponsor also failed to disclose that two tenants in the building hadn’t been paying rent — Nightingale sued one of them in March 2024 for breach of contract. CrowdStreet’s page describing Nightingale’s track record also omitted that the company lost 645 Madison Ave. in Manhattan to foreclosure in 2021.
“It was all fraudulent. Everything was fake that they gave us,” Advani said.
Despite promises of quarterly distributions, the claim says investors haven’t been paid once in the three years since Nightingale took over the building. However, Advani said he received $8K in distributions over the first year of investment, before payments stopped in early 2023.
And while CrowdStreet wrote in its promotional materials that it continues to review deal documents throughout the life cycle of its investments, investors claim that was never true.
“Had I known CrowdStreet wasn’t tracking funds beyond their investors’ contributions — or even doing basic sponsor vetting — I would have steered clear,” Charles Wang, who invested approximately $250K in 200 W. Jackson, said in a statement. “Turns out, Nightingale didn’t invest 20%; they borrowed money we’re now on the hook for. Most of us didn’t realize how quickly our investments could vanish, especially with fraud in play.”
Shortly after Schwartz’s attempt to purchase the Atlanta Financial Center blew up, CrowdStreet sent a letter in July 2023 to investors in 200 W. Jackson that it was pushing to take over the building and was “concerned that Nightingale may have acted inappropriately in managing the 200 West Jackson property as well.”
CrowdStreet told the Chicago investors on Oct. 14, in a message obtained by Bisnow, that JLL is now “overseeing the property’s operations and controlling its bank accounts.”
The platform’s investor relations team also told investors that a $5.8M receivable item in a recent property update was, in fact, a promised co-investment that Nightingale never made. Its ownership entity, One Night Holdings, was attempting to sell its stake in the building, according to the message.
“We continue to demand answers to additional outstanding questions, but despite our ongoing efforts over the course of this year, we have not yet received substantial documents or detailed information,” CrowdStreet told investors in the update.
The building is current on its loan payments, according to Morningstar Credit’s CMBS database. It was reported as having 82% occupancy at the end of September.
Spokespeople for JLL didn’t respond to messages seeking comment.
The attorneys have asked the arbitrators to find CrowdStreet liable for violating Oregon securities laws, breach of contract, negligence and tortious conduct with Nightingale against the investors.
“CrowdStreet was aware of Nightingale’s misconduct but nonetheless acted in concert with Nightingale to promote the 200 W. Jackson investment, disseminate the offering documents, and otherwise facilitate the sale of interests in that investment,” they wrote.
The platform’s CEO told Bisnow in 2023, after first discovering millions missing from two Nightingale campaigns, that it had conducted a Thomson Reuters CLEAR background report and consulted with former Nightingale partners before approving it as a sponsor on the platform.
That CEO was fired shortly thereafter, and his replacement was replaced again last year. The company is now led by former iCapital executive John Imbriglia.
Schwartz is due to be sentenced on his fraud charge, which carries a maximum penalty of 20 years, on May 19.
Full Story: Bisnow March 7 2025
