7 Highlights from CRE’s Biggest Crowdfunding Scam

CRE’s biggest-ever crowdfunding scam reached its apogee in an Atlanta courtroom this week, w/ Nightingale Properties’ Elie Schwartz pleading guilty to wire fraud in a case that has captured the industry’s imagination like no other. “Seeking to do nothing more than pad his own bank accounts and buy expensive luxury items, Elie Schwartz betrayed hundreds of investors who sought the opportunity to invest in these commercial real estate projects,” said the acting U.S. Att’y on the case. Schwartz mostly stayed mum during the hearing, though per the AJC he did take issue w/ the claim that he owes $63M in restitution.

If you simply take the amount misappropriated – $54M - this would deserve no more than a footnote in the annals of CRE misdeeds. But the brazenness of this thing, the specifics of it, are so extreme as to cement it as an important chapter.

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Nightingale (Cont.)

If you fancy revisiting the whole thing, we’d point you to Bisnow’s consistently excellent coverage on the matter, but The Promote thought to extract 7 of the greatest hits from the odyssey.

1. CrowdStreet: The platform through which Schwartz raised funds for the CRE deals capers is now speaking of “justice in action.” But you’ll recall that they gave Schwartz their blue-chip “enterprise” sponsor designation (based on stated volume of projects rather than actual track record), marketed the Atlanta Financial Center deal as “$10B Enterprise Sponsor Brings Trophy Asset with Huge Potential in Hot Market,” dismissed Nightingale’s omissions of prior foreclosures and defaults as inessential, and neglected to hold the crowdfunding monies in escrow. They’ve since started to hold funds in escrow and dismissed their CEO, but that’s little comfort for the Nightingale deal investors, who’ve sought to shut the platform down.

2. Divine Justice: An arbitration clause in the deals’ operating agreements stipulated that any disputes would be settled by a rabbinical court.

3. Time and Tide: The $30K transfer that ended up being the headshot in the federal wire fraud case was an installment payment Schwartz made for a Grönefeld 1941 Remontoire, a handmade luxury Dutch watch w/ a hypnotic movement.

4. Webinars: Schwartz deserves credit for turning the webinar, one of the most painful aspects of American corporate life, into a must-see spectacle. Most of the sordid details of the scam emerged via webinars w/ the trustee overseeing the recovery process for jilted investors. “A couple of you have asked, ‘Why the hell isn’t he in jail yet?’” the trustee, Anna Phillips, said in Oct.

5. Half truth, whole lie: The legal firestorm didn’t stop Schwartz from dealmaking: Last March, he solicited funds for an office play in NJ, as The Promote first reported: “NPG is highly regarded for its operational strength and problem-solving abilities,” the OM stated.

6. Black Lion: Nightingale struck an $82M deal to sell 1 of the 2 properties, a leasehold on a Miami Beach office building, to Robert Rivani’s Black Lion. When that deal collapsed, triggering litigation, it jeopardized Schwartz’s settlement agreement w/ CrowdStreet investors. 🦁 

7. YOLO: Perhaps the single greatest detail: $12M of the funds Schwartz took from the deal kitty went toward buying First Republic Bank stock & options. Weeks later, First Republic went under.

   
   We will certainly see bigger scams down the road. But I don’t think we’ll ever see anything quite like this.

Blackstone Lands $2.8B Debt for Retail Megadeal

After striking a $4B deal to do a take-private of shopping-center operator ROIC 🛒 in the fall, Blackstone has now landed the debt for the deal: Per CMA, Morgan Stanley, BofA, Citi & Wells Fargo are originating a $2.8B CMBS floater for the transaction, which gives Blackstone control of 10.5M sf of grocery-anchored retail x 93 properties, more than half of which are in California.

Blackstone has been on a CMBS financing tear in recent months: it tapped the instrument to finance its $10B purchase of multifamily operator AIR Communities, and was responsible for half of CMBS SASB issuances through May of last year.

The Goldman Devotchka Back Channel

"Men fall into two categories: men who talk about women, and men who talk to women. In my case, I talk to them." - Gianni Agnelli

One gets the sense that if you were to sit down w/ an HBO exec and pitch them a New York real estate drama based on real-life events, they’d throw you out of the room for being too fanciful.

You: There’s this explosive family feud with billions of Manhattan property at stake.
Exec: Sweet! Go on.
You: And at the 💘 of it there’s this marital reconciliation agreement on a legal pad.
Exec: Okay…
You: And there’s also this Russian mistress who…
Exec: Enough. (Walks out)

But it really is that way. Take what’s going on w/ the descendants of Sol Goldman, who are battling in court over the Manhattan titan’s empire. TRD has a spicy update on the case: attorneys for Jane Goldman (Sol’s youngest child & day-to-day showrunner at Solil) have been in touch w/ Natalia Vostrikova, the Russian mistress who’s been gunning to cut Jane’s nephew, Steven Gurney-Goldman, out of his father’s will. Vostrikova had long been rumored to have had a r’ship w/ Steven’s late father, Allan Goldman, and since Steven is one of Jane’s primary antagonists in the battle for control over Sol’s empire, an “enemy of my enemy..” type-alliance may have formed. Steven’s leverage over his aunt is contingent upon him remaining administrator of Allan’s estate: If, however, he were successfully cut out from the will…

Coming Soon: The Promote Podcast

There’s a need for a sharp, short (25m) weekly pod that captures the CRE zeitgeist à la what The Town does for Hollywood. Think of The Promote’s signature 🌶️ , but w/ even more behind-the-scenes action, co-hosted by Hiten & a CRE insider and featuring cameos from top players. We’re putting together the bones for Season 1 now – if you’re interested in sponsoring what’s sure to be the most avidly listened-to pod in the space, reach out here. 📻️ 

Fannie Blames Fraud in Part for $752M Set-Aside

Fannie set aside $752M for multifamily credit losses in ‘24 (compare to $495M in ‘23, $1.25B in ‘22), blaming fraud/suspected fraud in part for the provisions. “We have discovered instances of multifamily lending transactions in which one or more of the parties involved engaged in mortgage fraud or possible mortgage fraud,” Fannie said in its annual report (h/t Bloomberg), adding that it had ID’d “certain gaps” in its processes for loan originations and overseeing seller/servicer counterparties. Fannie & Freddie’s fraud crackdown (or at least, the show of it) has been the multi story of the past year, w/ brokerages (most notably Meridian), title firms (Madison, Riverside) and sponsors (Drillman, Silber, etc.) taking the heat.

Quickies

• 🎥 Tenants grilling landlords on financial health of buildings

• Howie’s haul: Lutnick gets to keep $50M Newmark bonus

• Feud against Cushman over 🗽 City Hall dealings escalates: JRT adds brokerage’s bigwigs Boutross, Lo Russo as defendants

• Rabsky’s realm: Developer pays $58M for HAP’s Chinatown site ♦️ 

• 🍁 pension fund AIMco shuttering NYC office @ SLG’s 1 Vandy 

• Moshe Silber’s bail revoked in federal case after new PA criminal charges (See also: Silber’s Skyfall)

• Feds say man who ran 🗽 inmate hotel program got millions in kickbacks 

• Affinius buys $135M stake in Durst’s Queens megaproject'

• Blue Owl to roll out commingled RE credit strategy 

• Story’s missing the story: This was the parcel on which late developer Brandon Miller hoped to build a boutique office project

Unquotable Quotes

Programming Note: We’ll be off this Monday 2/17, barring any major breaking news. We’ll see you back here Wednesday.