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Nightingale Pledges to Reimburse CrowdStreet Investors by Selling Off Assets

Nightingale Properties outlines a plan to repay CrowdStreet investors, offering a settlement to offset funds mishandled by CEO Elie Schwartz.

Nightingale Pledges to Reimburse CrowdStreet Investors by Selling Off Assets

Nightingale Properties outlines a plan to repay CrowdStreet investors, offering a settlement to offset funds mishandled by CEO Elie Schwartz.

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Good morning. Nightingale Properties outlines a plan to repay CrowdStreet investors, offering a settlement to offset funds mishandled by CEO Elie Schwartz. Brookfield (BN) raised $12B for its flagship private equity fund. Meanwhile, the office availability rate in the Big Apple reached a new high in the third quarter.

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Market Snapshot

S&P 500
GSPC
4,229.45
Pct Chg:
-1.4%
FTSE NAREIT
FNER
638.73
Pct Chg:
-1.8%
10Y Treasury
TNX
4.795%
Pct Chg:
2.4%
SOFR
1-month
5.32%
Pct Chg:
0.2%

*Data as of 10/04/2023 market close.

PAYBACK PLAN

Nightingale Pledges to Reimburse CrowdStreet Investors by Selling Off Assets

Nightingale Properties has proposed a settlement with CrowdStreet investors to compensate them for the massive funds misappropriated by the company’s CEO, Elie Schwartz. This move comes after Schwartz mishandled tens of millions over the past year, misleading investors into believing they were purchasing portions of premium office properties.

Details of the agreement: According to sources, investors could anticipate quarterly payments of around $4M for the next three years as Nightingale liquidates parts of its portfolio. This is to cover the capital lost by investors, especially those who thought they were acquiring segments of office buildings in key areas like Atlanta and Miami Beach. Schwartz has committed to placing liens on segments of his commercial real estate collection and his Manhattan residence as a security measure. If he defaults on this payment plan, these assets would be at risk.

Some background: This scandal traces back to last year when Nightingale introduced two crowdfunding deals on CrowdStreet. Over 600 investors got involved with a minimum commitment of $25K each. However, neither of these deals saw completion. Schwartz did manage to refund $9M to a subset of investors between late 2022 and April 2023. Post which, communication between Schwartz and CrowdStreet ceased. It was later revealed that Schwartz used the investor funds on personal and business expenses. Many of these investments, including $12M in First Republic Bank stock, rendered no returns.

➥ THE TAKEAWAY

Path forward: Even though there's a plan for investors to get their money back, it's not a straightforward deal. There are lots of steps and approvals needed from different legal groups, and everything depends on Schwartz (the CEO who misused the funds) following through with his promises. Upcoming talks with CrowdStreet might give more information, but overall, the process of investors recouping their losses is looking to be complicated and uncertain.

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DRY POWDER

Brookfield Secures $12B for Its Largest Private Equity Fund

Anuj Ranjan, president of Brookfield’s private equity group

Anuj Ranjan, president of Brookfield’s private equity group.

The Canadian investment giant has done it again. Brookfield Asset Management Ltd. has successfully raised a whopping $12 billion for its largest private equity fund, marking a significant milestone after its recent heavy spending spree.

Breaking records: Brookfield has funneled $3.5B of its own capital into the BCP VI fund, supplemented by backing from pension plans, sovereign wealth funds, and family offices. This unfolds during a period of decelerated M&A engagements amongst private equity giants this year.

On the hunt: Despite the general market trend, Brookfield has not shied away from major acquisitions, making multibillion-dollar deals with notable companies. They have already deployed around $4 billion from this new fund and are eyeing potential deals in the technology and healthcare sectors. Cyrus Madon, the CEO of Brookfield's private equity group, noted that due to high valuations in the past, many tech and healthcare firms aren't performing as expected now, making their valuations more attractive for investments.

➥ THE TAKEAWAY

Ambitious growth: Brookfield has secured commitments for its BCP VI private equity fund in one of the toughest fundraising markets since the 08 crisis, where investors have become more selective in allocating capital. Despite this, Brookfield aims to grow its private equity business to match the scale of its other flagship businesses, as it manages a total of $850B across various strategies, including renewables, infrastructure, real estate, and credit.

SPACE SURPLUS

Record-Setting NYC Office Vacancy Shows No Signs of Slowing

Collier's recent report paints a promising picture for Manhattan's strained office leasing market. However, a deeper investigation reveals continued challenges.

Misleading bounce: Collier's data, spotlighting a 26% uptick in office leasing and a doubling of demand in select areas from Q2, is somewhat dimmed by the looming 19.4% of available office space sprawled across Lower Manhattan, Midtown, and Midtown South. Moreover, the market stares down the considerable challenge of soaking up an extra 43 million square feet of surplus space, equivalent to the entirety of the Financial District.

The impact of megadeals: The data's optimism is primarily buoyed by two significant leases, which account for over a fifth of the jump in leasing activity. Davis Polk and Wardwell's substantial lease at 450 Lexington Avenue and the city government's space at 110 William Street have disproportionally uplifted the numbers, masking an otherwise flat demand.

Leasing velocity: Despite the recent uptick, the YTD leasing velocity for 2023 stands at 19 MSF, a 21.4% decrease compared to the same period in 2022. If demand remains at the current pace, the total leasing volume for 2023 is projected to be nearly 13% lower than the 29 MSF recorded in 2022. Manhattan's FIRE (financial services, insurance, and real estate) sector led leasing with 31% of the activity, followed by the public sector at 23% and the professional services industry at 22%.

Persistent oversupply: Office investment sales in Q3 plummeted by 83% YoY, reaching a mere $200M—one of the lowest quarters on record. Despite a notable increase in tenant demand across sectors, Manhattan's office market continues to wrestle with an oversupply of vacant space due to tenant relocations, which may persist as large blocks of empty space become available. Additionally, the tightening of sublet supply may be short-lived, as potential future property dispositions could reverse this trend.

➥ THE TAKEAWAY

Ongoing challenges: Manhattan’s office leasing scenario underscores how headline numbers can obscure the underlying market health. Although the data points towards recovery, an in-depth analysis reveals a market still grappling with excess space and a recovery principally piloted by isolated mega-deals rather than a broad-based revival.

AROUND THE WEB

📖 Read: WalletHub assessed over 180 US cities using 28 food-related factors to identify affordable destinations for those who enjoy cooking at home, exploring local cuisine, or both.

▶️ Watch: The Sphere at the Venetian in Las Vegas, a massive entertainment venue wrapped in video screens, is set to open with a U2 show but faces challenges due to high prices and budget overruns.

🎧 Listen: In this episode of Building Beyond Bricks, industry legend and CEO of MAG Partners, MaryAnne Gilmartin, explores the origins, branding strategy, and guiding philosophy of her real estate firm.

✍️ DAILY PICKS

  • Weather the storm: US life insurers are well-protected against potential CRE challenges due to stable portfolios, conservative underwriting, strong liquidity, and good liability management.

  • Campus conversion: Colleges and universities in the US are seizing the opportunity to acquire office buildings at discounted prices to repurpose them for academic use.

  • Risky strategy: WeWork (WE) intentionally skipped $95M in interest payments as a strategy to initiate talks with lenders, potentially aiming for more favorable terms.

  • Beyond real estate: Prologis (PLD) plans to boost warehouse rents and invest in clean energy, AI, and more to become a comprehensive logistics services provider.

  • Loan lifeline: Developer Harry Macklowe secured a $300M inventory loan to address the surplus of unsold apartments in his office-to-residential conversion project at 1 Wall Street.

  • New strategies: KKR's Matt Salem is navigating the volatile CRE by capitalizing on the void left by retreating banks and actively expanding the company’s offerings.

  • Affordable acquisition: Related Cos. purchased the Sorrento affordable housing complex in Miramar, FL for $48M.

  • Misunderstood genius: Michael Lewis' latest book portrays FTX co-founder Sam Bankman-Fried as a victim of circumstances, downplaying the alleged fraud.

  • Private perspective: BridgeInvest's Alex Horn discusses how private lending is flourishing in the face of increasing interest rates and reduced bank financing options in CRE.

  • Doomsday predictions: Despite widespread predictions of a collapse in US office, a multitude of factors make accurate predictions challenging.

  • Strong jobs: In August, US job openings unexpectedly rose to 9.6M, exceeding estimates and indicating a strong labor market despite the Fed’s efforts to slow the economy.

  • And the winner is: The Real Estate Board of New York (REBNY) announced seven honorees for its 2024 annual gala, with Douglas Durst receiving the Distinguished New Yorker Award.

  • Spending spikes: US construction spending increased in August, driven by investments in residential construction, although high mortgage rates pose a potential hurdle to further growth.

  • Portfolio expansion: Sila Realty Trust has acquired Burr Ridge Healthcare Facility near Chicago for $60M, a medical office building serving Loyola University Medical Center.

📈 CHART OF THE DAY

Rent Growth By Decade of Construction

According to CBRE, older properties are likely to outperform the overall market in terms of rent growth. Annual rent growth surpasses the long-run market average of 2.7% in multifamily properties during their second decade, and it further accelerates, reaching its peak between 3.5–4.0% in the third decade.

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