Real estate deals funded by the crowd fall apart as the funds disappear

Hundreds of regular investors, who collectively invested $63 million to purchase portions of commercial real estate in Atlanta and Miami, have reportedly experienced the disappearance of their funds.

According to bankruptcy court papers, two deals organised by real estate investment company CrowdStreet Inc. have collapsed. CrowdStreet raises funds from affluent individuals and uses them to purchase building equity. However, investors’ money has disappeared from the bank accounts that were supposed to be used for these transactions.

According to court documents, an independent manager hired to investigate the failed deals discovered that several million dollars of the money raised through crowdfunding ended up in accounts belonging to Nightingale Properties. CrowdStreet had partnered with Nightingale Properties and its CEO on these transactions.

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According to a statement sent via email on Monday, a representative for CrowdStreet informed regulators and worked towards appointing an independent manager when they became suspicious of possible financial misconduct. We prioritise the prevention of financial fraud and are dedicated to offering investors a top-notch online real estate investing experience.

Nightingale, a company located in New York, and its CEO Elie Schwartz did not provide any comments in response to requests.

The independent manager took action last Friday by putting the two legal entities, which were supposed to purchase equity in the Atlanta and Miami buildings, into bankruptcy. This move is aimed at investigating the accounts and potentially recovering funds. Bankruptcy enables companies to create a repayment plan for their creditors.

According to court documents, an attorney representing Schwartz has stated that he will fully cooperate with the investigation.

There have been reports of syphoned accounts.

Nightingale successfully obtained funding from accredited investors using CrowdStreet’s online platform. The money was transferred to two shell companies to purchase properties. These properties include a large office complex in Atlanta’s upscale Buckhead neighbourhood and a mixed-use building in Miami Beach.

According to Eric Lee, the chief restructuring officer of the entities, the minimum investment required from accredited investors was $25,000, as stated in a filing. Investor interest in the Atlanta Financial Centre complex surpassed expectations, receiving 238% more funding than its initial goal—however, the financing for the Miami building deal needed to meet expectations.

According to court documents, Nightingale was expected to facilitate the deals by securing additional funds from other investors and contributing its equity. The firm was expected to keep the investors’ money in two separate entities, ONH AFC CS Investors and ONH 1601 CS Investors, without using it for now.

The deals eventually faced delays, and some investors asked for refunds. According to Lee, although some refunds have been issued, many still still need to be resolved.

In June, Anna Phillips, who was recently appointed as an independent manager for the entities, began an internal investigation to locate the funds. The user found out that the entities’ bank accounts were emptied. According to court documents, the accounts contained $125,000 and $1,600, respectively.

According to court documents, Phillips and Lee can investigate the money’s whereabouts by filing for bankruptcy.

In a bankruptcy filing on Friday, Lee stated that the debtors would receive significant assistance in the investigation by utilising the Bankruptcy Code’s powers to examine the activities before the bankruptcy petition.


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