The concept of a specter isn’t typically as literal as a plane circling overhead. But no points for subtlety at San Francisco’s most iconic building.
Michael Shvo’s long-awaited reopening of the Transamerica Pyramid featured a soaring rendition of “San Francisco” from vocalist Michael Marshall. However, perhaps the most consistent sound was from an airplane with a trailing banner that read “SHVO MUST GO: LAWSUITS CLAIM FRAUD.”
A Shvo representative said he had no comment on the matter, but suffice it to say his team was pissed off.
The event itself featured Mayor London Breed, Da Mayor Willie Brown, and mayoral hopeful Aaron Peskin, along with around a dozen cute kids showing off their Pyramid-themed art projects. In speeches and videos, the lineup thanked Shvo for his major investment and belief in San Francisco, including the $450 million he is putting into renovating a historic property that has become a symbol of the city’s health.
To be sure, the renovations designed by starchitect Norman Foster, which include a new outdoor seating pavilion, an expansively sunlit lobby, and refreshed redwood grove, are undeniably striking. But it was hard for the crowd of about 200 not to peek up.
The stunt was the latest salvo in an ugly legal fight that continues to play out in the courts and headlines between Shvo and CORE: Holdings, the company behind an exclusive members club that was slated to be one of the Pyramid’s major tenants.
In an explosive lawsuit filed in June, CORE’s lawyers alleged fraud in Shvo’s dealings with the business and his pledge to invest $100 million to open new locations in New York, San Francisco, and other cities. It claims the developer enriched himself via fraud and ran up an unpaid $80,000 bill from personal use of CORE’s facilities. Among other damages, the lawsuit seeks to cancel its 20-year lease at the Pyramid.
Shvo has countersued, asking a judge to dismiss CORE’s claims against his company and partners. He has accused the membership club of undertaking a “public hit job” to win rent concessions and renege on its signed lease agreements.
Shvo’s lawsuit says his company has already sunk nearly $19 million in build-out costs. In an interview prior to the reopening ceremony, Shvo said CORE has failed to finance $18 million for a previously agreed-upon tenant build-out.
“That’s why we have started legal action against them — because of violation of the lease,” he said. “It’s very straightforward.”
When asked about plans to replace CORE, Shvo said he has “a list of tenants who are anxiously wanting that space.”
In the lead-up to the Pyramid’s reopening celebration, a shadowy group calling itself “Friends of the Transamerica Pyramid” sent around opposition research against Shvo, specifically echoing the claims made in CORE’s lawsuit. The group did not respond when asked who was behind the effort.
But the issues embroiling the Pyramid aren’t happening in a vacuum. Shvo’s real estate strategy is predicated on repositioning “trophy buildings” and then renting or selling those properties at premium prices.
To that end, Shvo went on a $3 billion buying spree of a number of top-tier properties in markets including New York, Los Angeles, and Miami Beach. Shvo and his German financing partners purchased the Transamerica Pyramid in 2020 for $650 million as part of that wave of investment.
Recent events, however, have called into question whether those bets are paying off.
Last week, Shvo and his partners defaulted on a $200 million loan on the Beverly Hills Mandarin Oriental, a high-end 54-unit condo project. Only around 20% of the units have been sold to date since sales kicked off in 2022.
Shvo said his financing partners want to avoid selling individual condos and exit the property by selling it in its entirety, allowing them to redeploy their capital. He denied that the issue is related to larger refinancing problems. The Pyramid, in particular, has a “long-term loan,” he said.
“We have German institutional partners who are extremely conservative. Coupled with the fact that we own trophy assets, that negates a refinancing issue,” Shvo said. “Where you see refinancing issues (is when) developers are over-leveraged with high debt ratios and assets that are not good.”
According to numbers from real estate data firm CoStar, the Transamerica Pyramid is currently around 52% occupied after a few notable departures, but Shvo said he has been able to double or triple previous rents for recently signed and pending leases.
“You’re always going to lose tenants that don’t have the ability to pay those rents,” Shvo said.
A Shvo representative said three tenants have signed at triple-digit rates in recent weeks, and the property has more than 185,000 square feet in negotiation.
Kimberly Morris, a partner at Baker & Hostetler, said her law firm recently renewed a five-year lease on the Pyramid’s 31st floor after signing an initial lease back in 2019. She declined to say what her company’s current rent is, but said when her firm went to look at the options on the market there was “nothing that compared to what the Pyramid offered.”
She specifically highlighted the 26th-floor spa and gym, which includes complimentary infused water and personal training services for tenants.
“I can certainly say with the improved amenities our in-office attendance has greatly improved,” she said after her morning ab workout at the gym.
Later on tonight as part of the reopening ceremony, a concert by Thievery Corporation will be set to an immersive public light show that will engulf the Pyramid in precision laser projections.