In these times, double down — on your skills, on your knowledge, on you. Join us Aug. 8-10 at Inman Connect Las Vegas to lean into the shift and learn from the best. Get your ticket now for the best price.
The CEO of one of the biggest fractional real estate investing platforms in the U.S. has been cut after questions emerged over $63 million of investor money that went missing, according to new reports.
CrowdStreet, a platform for small-time investors to buy equity in commercial real estate, told The Wall Street Journal it had replaced Tore Steen as head of the company amid questions about its performance and the missing money.
Nightingale Properties raised $64 million from hundreds of CrowdStreet investors to buy office buildings in Atlanta and Miami. The listing advertised eye-catching 28.1 percent returns on investment, The WSJ reported.
Instead, nearly all of the money raised by CrowdStreet investors went missing, including into accounts controlled by Nightingale CEO Elie Schwartz, according to multiple reports about a bankruptcy filing related to the investment.
Nightingale never closed on the two buildings, which were the biggest-ever deals on CrowdStreet, The WSJ reported. All but $127,000 of investor money, meanwhile, had already been transferred into accounts controlled by Schwartz and associates, according to the report.
CrowdStreet was established as a way to allow non-accredited investors to buy equity in commercial real estate deals.
In total, the platform has financed 770 deals valued at over $4 billion, according to The Wall Street Journal, which reviewed more than 100 deals and found they often fell short of the platform’s promises to investors.
A fiduciary for the investment vehicle said transactions bore “plenty of red flags that are indicators of fraud,” according to The WSJ.
Of his now-former firm, “CrowdStreet did not commit the fraud here,” Steen told The Wall Street Journal shortly before his ousting.
The missing Nightingale funds represent just one issue uncovered by The Wall Street Journal report on Monday.
The WSJ analyzed 104 closed deals on CrowdStreet between 2013 and 2022. According to its findings:
“More than half of those investments promoted on CrowdStreet’s platform failed to meet their target returns. Hundreds of CrowdStreet users lost some $34 million on 19 deals that underperformed as of this July, according to the Journal’s analysis. A dozen of those deals lost nearly 100% of investor funds.”
At times, investors repeatedly came back to CrowdStreet investors for more money after cost overruns at various projects.
The analysis also shows CrowdStreet often provided glowing but questionable projections to investors, such as the assertion that property values rise when interest rates go up. (The opposite has occurred for commercial real estate.)
In another deal analyzed by The WSJ, real estate developer MG Capital Management told CrowdStreet investors they were “100 percent protected from loss.”
The investors lost two-thirds of their money on the deal. MG Capital’s CEO was sentenced to five years in prison for securities fraud three years later, according to The WSJ.
Get Inman’s Property Portfolio Newsletter delivered right to your inbox. A weekly roundup of news that real estate investors need to stay on top, delivered every Tuesday. Click here to subscribe.
