Failed Sale Puts Nightingale’s CrowdStreet Settlement at Risk

The collapse of Elie Schwartz’s deal to sell a Miami Beach office building has put his sizable settlement with CrowdStreet investors at risk.

Schwartz’s Nightingale was supposed to use the proceeds from a pending sale of an eight-story office building at 1601 Washington Avenue to pay back hundreds of investors whose $53 million Schwartz allegedly misappropriated.

But Robert Rivani’s Black Lion and Mathieu Massa nixed their deal to buy the building for $82 million. Nightingale is also in a legal fight over the $2 million deposit, which Schwartz might have to return.

The news is a major setback to hundreds of people who used CrowdStreet to invest in Nightingale’s 1601 Washington Avenue and the Atlanta Financial Center.

There is concern that Schwartz might not have enough assets to pay back investors. The developer has lost much of his real estate, including the Whale Building in Brooklyn and a 2.2 million-square-foot office complex in Philadelphia, to foreclosure. In addition, other creditors have sued Schwartz, seeking to be paid back.

“I fear that the investors will soon begin a long journey down the collections rabbit hole — only to pick over what remains of Schwartz’s assets in competition with other creditors like J.P. Morgan, Capstone Equities and Klosed Properties,” said Joshua Kons, an attorney who represents some CrowdStreet investors. Kons was referring to other lawsuits against Schwartz or Nightingale over alleged debts or guarantees.

A CrowdStreet spokesperson said the platform is disappointed the Miami deal fell through but remains committed to supporting “all recovery efforts.”

“Our plan is structured to ensure these efforts would persist through multiple scenarios, including default,” the spokesperson said in a statement. “We will continue to monitor the situation closely and advocate for our investors at every stage.”

This summer, a trustee for the investors alleged that Schwartz misappropriated most of the investments intended for the two deals.

About $12 million of the money was used to buy First Republic stock and options, according to the trustee Anna Phillips. To recoup it, Phillips put two entities representing investors’ stakes in the deals into bankruptcy court. Schwartz and the trustee quickly reached a settlement. A majority of investors approved the plan.

As part of the deal, Schwartz would sell the Miami Beach office building and put liens on his properties, including his New Jersey mansion and Manhattan penthouse. The plan was to sell the assets to pay back investors.

But Schwartz made his first $3 million payment to investors on the final day of the grace period before it would be declared in default.

Schwartz has yet to respond to the CrowdStreet fiasco in the press.