RIP Noncompetes, Dan Gilbert's Big Bang & Nightingale Out of Time

Elie Schwartz Runs Out of Time

“You never actually own a Patek Philippe, you merely look after it for the next generation.”

No more settlements, no more payment plans, no more shines Billy: Investors who allegedly got bilked out of $55M by Elie Schwartz want their money back NOW. After the Nightingale Properties boss blew an April 12 deadline to pay the second installment ($4.5M) of the money he raised through RE crowdfunding platform CrowdStreet, the investors are moving to seize his assets, per new court filings seeking a collection judgment. The trustee representing investors says she’s in possession of a chunk of Schwartz’s watch and jewelry collection and plans to liquidate. But it’s not like the money is just sitting there waiting to be recouped: Much of it has been spent, including on options in First Republic Bank right before it tanked 👏 👏 👏 

“This is obviously extremely disappointing,” said the trustee, Anna Phillips. “There'll be no distribution at this time.” 

Nightingale (cont.)

Even the first installment of $3M that Schwartz did pay in Jan. won’t make its way to investors. It goes instead to bankruptcy attorneys and other middlemen.

Phillips assured investors in a webinar Friday (h/t Bisnow which obtained the recording) that she would be “distributing funds as I collect sufficient further funds on your behalf.” She said she is working with Schwartz to liquidate his personal assets. Recovery would be complicated, however, by a couple things:

• Schwartz already YOLO’d through a chunk of the funds

• Much of his money is rolled into his office holdings. Even if the liquidation trust did manage to force sales on those properties, CrowdStreet investors would be behind the mortgage holders in line to receive payouts

Phillips said that she would also make authorities aware that Schwartz has rebranded Nightingale as NPG and is once again trying to raise funds from outside investors, this time for a Jersey office deal – both nuggets were first reported in The Promote last month 😊 

Schwartz’s default on the payment agreement triggered a clause that requires CrowdStreet to fund some investor distributions, but the trustee says those payments don’t start till next year. I, for one, am amazed that CrowdStreet is still a going concern – you had one job. The Schwartz affair may be operatic (catch up here) but more mundane scams are happening all over the place, and not enough heat is falling on the platforms enabling them.

Dan Gilbert’s Big Bang Theory

The Motor City 🚘️ is revving back to life, thanks in large part to hometown boy Dan Gilbert. The Rocket Mortgage billionaire and Cavs 🏀 boss has made a multibillion-dollar bet on the Detroit skyline, WSJ reports, buying more than 130 properties, spearheading a $400M mixed-use conversion of a 38-story office building and building the city’s second-tallest tower.

The “big bang approach,” as Gilbert described it, required investing in all asset classes at once to reverse urban blight and lure the right mix of office tenants, shoppers and residents.

“Downtown needed apartments, retail and modern office space,” he told the publication. “Well, what do you do first? We thought, you really have to do it all at the same time to make it work.” With the stage set, other big money flowed in: Ford is dropping $900M+ on the redevelopment of Michigan Central, an abandoned train station and Related boss (another Detroiter) Steve Ross is JVing with the Little Caesars Pizza 🍕 family on a $1.5B mixed-use development in the area. Politicians are also coming through with tax breaks – Michigan Central is set to get $200M+ in incentives. A welcome counternarrative to the urban doom loop, led by private capital but with a helping hand from local government.

“If somebody would have told you there was going to be a Gucci store in Detroit 10 years ago,” Gilbert said, “I would have laughed at them.”

RIP Noncompetes

Noncompetes, those pesky contracts that became a weapon in the brokerage wars, are out: In a final ruling Tuesday, the FTC moved to ban them nationwide, with FTC chair Lina Khan saying that the move would “ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The vast majority of CRE brokers aren’t employees, rather independent contractors who choose to hang their license with a brokerage, but noncompetes have still reared their heads in disputes, particularly in states not named California: In ‘21, 3 Newmark alum who jumped ship to CBRE were hit with a 1Y ban on plying their trade in Colorado, a ruling they claimed was destroying their livelihoods. And in ‘22, Cushman & Wakefield alleged that two of its managers who joined JLL’s Dallas office poached I-sales dealmakers, in what Cushman said was a violation of their noncompetes.

Corporations won’t go down without a scrap, though: the Chamber of Commerce, the country’s largest business lobby, said it plans to sue over the ruling as soon as Wednesday. The rule “opens up a Pandora’s box where this commission or future commissions could be literally micromanaging every aspect of the economy,” its chief lobbyist said. 🪓 

Quickies

• Why Harry Macklowe just can’t quit Fortress

• Canada is exploring “halal mortgages,” i.e. debt instruments that are sharia-compliant. (Remember that Sharif El-Gamal used one of these vehicles to bankroll his doomed 45 Park Place in Manhattan)

• Multi syndicator Tides 🌊 is facing 3 foreclosures in Fort Worth

• Special servicer LNR pays just $6.6M to take control of SF office building – prev owner Bridgeton bought it in ‘18 for $62M

• DTLA office building trades for less than 3 figures - uffff

Fund Flexes

Some fresh nuggets from the world of real estate fund managers

• ACORE closed a $1.4B debt fund, largest so far this year. “We’re able to make loans that have yield rates that are as much as double what they were 18 mos ago,” says ACORE CEO Warren de Haan. Plans to originate floating-rate loans on everything from construction to repositionings (de Haan also threw out a new high $2.5T Wall of Maturities number 👏😎😁 that some tenant broker in Texas will now regurgitate incessantly until the next high)

•  Hudson Bay (which just raised a $800M special sits fund) was one of the investors in the Mnuchin-led $1B infusion into NYCB

• Ares RE boss Bill Benjamin says he’s “beginning to see what we now call a capitulation trade, the resignation trade," re to sellers making peace w rates and ready to transact.

• Blackstone’s BREIT finally able to fulfill all investor redemption requests for the first time since late ‘22. Fundraising though, is still far from healthy, with withdrawals vastly exceeding new money coming in

Unquotable Quotes - A Power Finance Special

CO’s annual ranking of the top players in CRE finance is out, and it’s always a fun chance to play “Whose Line is it Anyway?” Check out these sparklers from the machers of the capital stack, and click to vote for your favorite below.