Given his black-T uniform, intense stare, and controversial reputation, it was disarming to have Michael Shvo offer me a piece of the marble pound cake he had just swiped for himself from the downstairs cafe.
He’s friendlier than I imagined. Borderline generous in our first meeting. Maybe this is how he does it — how he charms people into investing billions of dollars despite a track record of scorned partnerships and a guilty plea to tax evasion in 2018.
When most developers retreated during the pandemic, Shvo and his partners spent nearly $4 billion on prime real estate across the nation. His biggest bet was in San Francisco, where he purchased an entire block containing the Transamerica Pyramid for $650 million.
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The 52-year-old broker-turned-developer is overseeing a $400 million renovation of the property, pushing his total investment in the city to more than $1 billion. Already, the pyramid has siphoned off some of the city’s top office tenants from other buildings and broken records for highest rents paid.
Shvo spent two hours with The Standard on Tuesday walking through his favorite spots in the building — some unseen by the public since its reopening.
The following conversation has been edited for length and clarity.
What has surprised you about doing business in San Francisco?
I’m here every month, but every time I come, it’s more and more active. Granted, I usually only go from the airport to the pyramid and stay in this one city block, but it’s amazing to see people come use the park or visit the exhibits.
When I bought the building, I was told that working here was going to be difficult. But I can tell you that the city and the administration have been nothing but great to us. They’ve worked with us, approved our plans. I think they were truly appreciative of what we brought to the city, because we didn’t have to.
A bunch of your peers got together today in midtown Manhattan to rally around Andrew Cuomo and against Zohran Mamdani. Since New York City is your home, what’s your stance on that mayoral race?
The issue in New York today is not Cuomo or [Eric] Adams, it’s basically any person you speak to within our business community, or Jewish community, thinks that Mamdani is going to be a disaster for the city. I don’t know one person that would vote for him. So there’s no question that there’s strong opposition. The problem is that we need a single candidate.
There’s too much negativity around him that I would be shocked if the other side, the anti-Mamdani side, doesn’t all come together eventually. Maybe Adams is trying to get himself a better job right now, but my sense is that Cuomo is going to be the next mayor.
New York guys like Aby Rosen and Albert Behler have come to San Francisco and struggled to hold onto their buildings in this current cycle. How does your approach differ from theirs?
I have the No. 1 building in San Francisco. I can’t speak for those you named specifically, but I think that part of what [out-of-town] developers [mess up] is that they think that if they know how to operate in New York, then they know how to do things here. But San Francisco operates differently. You’ve got to have a different mentality. When we were thinking about what we wanted to do with the pyramid, I wanted to make sure that people could come here and actually enjoy the building, rather than take pictures of it from the Golden Gate Bridge.
You told my colleague two years ago that certain buildings have expired. What’s your advice to the city or developers looking to tackle those vacancies?
Demolish. It’s not just in San Francisco; this applies to everywhere. Buildings don’t live forever unless they have some historical architectural significance. Almost every single building you see today was not the first-generation building on that site. In our mind, for whatever reason, because the buildings got bigger, we think they’re going to live forever. But at some point, buildings are not relevant, whether that be because the windows aren’t big enough, the systems are not functioning, or the bones are just so bad. The only way to make it relevant again is to demolish and build a new building.
At some point, when there is no occupancy, the only option is to use the property as land, which by the way, is great for the city, since it brings money in. It creates jobs. It creates better spaces and creates higher rents, which means higher taxes for the city. It’s the circle of life, and it’s a win-win for everyone.
You’ve said that your products are meant for the top 1% of customers willing to pay prices well beyond market rate. Is that still how you think of the pyramid’s tenants?
That percentage comment makes it sound more elitist than it is. But really, because we’re creating a product that is unique and expensive, the people who can afford it happen to be at the top of their industries. That’s the inherent DNA of the Shvo universe. We provide experiences tenants really can’t get anywhere else. Money can buy you technically anything — that’s the mentality of a lot of these people — but unique experiences, a lot of them cannot be bottled. Experiences are memorable. Memorable moments are what bring people back to places like San Francisco.
Can you explain how the Transamerica project will generate enough returns for you and your investors? The pyramid is only so big, and there are still two other buildings on the block that you purchased.
When we bought the pyramid, the rents were between $60 [per square foot] at the base of the building and $100 at the top. Today, those rents are $115 at the base and $300 at the top. That’s two to three times more than the pre-Covid days, so we’ve created an unbelievable income stream.
Two Transamerica [at 505 Sansome St.] is another office building that will be more of an entry-level property, with lower rents, but still a part of the pyramid ecosystem. Three Transamerica [545 Sansome St.] is a development site that we got entitled for a new 150,000-square-foot office building. Although with the new changes in the city, we are considering re-entitling it to be taller.
Do you want to do more projects in San Francisco?
Do I want? Yes. The question is what. It’s a complicated question, because I already own the No. 1 building in the city. It’s hard to find something, because we only operate in the super prime sector of the market. We’ve looked. We’ve bid. We even bid on the PG&E building that Hines will be redeveloping.
It was reported last month that you are in a legal dispute with Bayerische Versorgungskammer, one of your main investors, over money needed to keep your other projects afloat.
Those facts are wrong. There is no arbitration with BVK. We couldn’t comment on that legal matter at the time, but we have as good a relationship as we’ve ever had with them.
So you’re saying those reports are false?
One hundred percent false. Just to give you a little parameter, we’ve invested together with them another $250 million of new equity into our office portfolio this year.
They are a German state pension fund. They’re long-term investors. When Covid hit, there was certainly a lot of nervousness around the office [market], but I made all the arguments as to why it’s total nonsense. Office is not going to die. I bought things through the pandemic for exactly that reason. Nowadays, all of my investors are saying, “Oh we should have bought this and that,” but I’m not complaining. It took a lot of courage to buy anything at the end of 2019 and 2020.
Take me to the end of the decade, 10 years since you made the deal for the pyramid. What will San Francisco be like then?
It will be a place that’s not only active during the week and dead on the weekend, but a place where seven days a week there is activity. That’s why we’re investing a lot of money on programming. In some ways, we are already there. I think over the next 12 months, this building will be totally full, and we’re going to sit here and I’m going to show you a wait list of companies trying to get in.