A crowdfunding campaign to finance the acquisition of an Atlanta office complex raised $62 million from 700 investors.
This Atlanta Financial Center funding could have brought in even more money. However, since the crowdfunding process began in May, many investors who considered the proposal have noted that the buyer, Nightingale Properties LLC, initially failed to disclose some of its previous loss-making deals. I noticed and declined to participate. company performance.
New York City-based real estate firm Nightingale has lost a Manhattan office building to a lender in 2021 after failing to make mortgage payments, the company said. It defaulted in 2012 on at least $25 million in loans related to its portfolio.
In both these examples and the other two, the products on the CrowdStreet website were listed as N/A instead of the profitability ratio. According to Nightingale, two of those four deals were the company’s worst deals. For Nightingale’s other property purchases, rates of return were specified in the documents.
Nightingale pointed out that the unprofitable deals represented two of the 36 properties counted in that track record. His two underperforming companies had little impact on the performance of the overall portfolio, the company said, and only accredited investors were allowed to participate in the sale of these properties. Accredited investors must meet certain income and net worth guidelines, and many conduct their own research.
Some prospective investors said they were reluctant that Nightingale withheld that information. Evan Nison, who lives in New Jersey and runs a marketing firm, has been investing in crowdfunding for about five years. In June, he offered financial assistance to the Atlanta Financial Center. He said about a week later that he changed his mind after his own investigation revealed one of Nightingale’s previous losses, which had not been disclosed in his offer form on CrowdStreet online. I was.
“When I started searching on Google, I noticed that there was at least one outright loss that they had no track record for,” Nison said.
A CrowdStreet spokeswoman said Nightingale’s disclosures were “inconsistent.” CrowdStreet feels the omitted details are not substantive, he said, so the company does not feel obligated to ask Nightingale to update the document. Missing information was provided to investors upon request and was provided in a private investor memorandum.
“The omission is harmless,” said a spokesperson. “We believe this offering, and all of CrowdStreet’s offerings, fairly represent the opportunities and risks that come with investing in real estate. [Nightingale’s] achievement. ”
Will Hutton, Nightingale’s senior director of acquisitions, said the company will “directly to CrowdStreet investors who inquired about them,” including a June webinar held on CrowdStreet to facilitate the deal. He said he addressed the missing details of the track record. He attributes one of these two trading losses he attributes to the 2008 global financial crisis and the other he attributes to the Covid-19 pandemic.
Securities lawyers say it’s hard to pinpoint clear rules in terms of what must be reported to crowdfunding investors. must convey important information It’s something a rational investor would factor into their decision-making calculations. As a broker-dealer, CrowdStreet is also obligated to provide material disclosures, according to its attorneys.
“One of the things you should never do is hide your underperformance and emphasize your good performance,” said Evan Hiller, a Utah securities attorney and partner at the law firm Blackhill Partners. said. “If you shine a light on good performances, you should also show bad performances.”
Companies that exclude details about past performance Improper disclosure may result in finesIf the SEC determines that “a reasonable investor is likely to weigh information heavily in making investment decisions,” Hiller said.
““If you shine a light on a good performance, you should also show a bad performance.””
CrowdStreet is one of the largest commercial real estate crowdfunding sites in the United States, with more than 240,000 members who invest contributions ranging from a minimum of $25,000 to millions of dollars to collectively fund real estate. The company said it is funding the sale and fundraising.
crowdfunding Became a more popular vehicle For real estate financing and investments in the last few years. Rising interest rates and inflation have made traditional real estate lenders more cautious, prompting borrowers to seek alternative funding sources and investments. Meanwhile, widespread market volatility has caused crowdfunding investors to flock to harder assets such as real estate.
CrowdStreet’s average deal size has more than tripled since the platform first launched, from $20 million in 2014 to $65 million last year, said CrowdStreet CEO Tore Steen. told the Wall Street Journal. The company said it has made more than $100 million worth of building deals in its online marketplace this year, more than any other year in its eight-year history.
Nhi Son said it’s fairly common to “cover up” what he considers relevant information with crowdfunding deals. Individual investors are expected to do their own due diligence, he added. “It’s definitely not as safe as buying stocks,” Nhi Son said.
Christophe Henrion, senior managing security consultant in North Carolina, decided to sell the Atlanta office deal for a variety of reasons, including investment presentations. Not only did he find loss-making trades in his investigation, he said he found a mathematical error in a graph on the Atlanta Financial Center offering page, which he pointed out to CrowdStreet.
CrowdStreet said the math was correct, but a spokesperson said “the words could have been clearer”. updated the wording but not the accompanying graph.
Henrion said the lack of proper disclosure was one reason he turned down the deal, which is expected to close in the fall. “It’s a warning that these platforms need to be a little more careful,” Henrion said of past performance and other disclosure issues. “They should go one step further.”
write destination Rebecca Pichot [email protected]
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