One of San Francisco’s most iconic buildings is celebrating its reopening after a four-year, $250 million makeover meant to symbolize the city’s renewal. It’s doing so under the shadow of a lawsuit from one of its key tenants.
The Transamerica Pyramid will hold a splashy event Thursday featuring Mayor London Breed and famed architect Norman Foster, whose firm led the renovation. It’s a litmus test not only for a downtown that faces a record 37% office vacancy rate, but also for developer Michael Shvo.
The Transamerica Pyramid in San Francisco.
Shvo’s company defaulted last month on a property in Beverly Hills and now faces a $600 million lawsuit related to the Core Club, a trendy members-only spot that was supposed to open a three-story location in the Transamerica Pyramid with a restaurant overlooking an adjacent park of redwood trees.
Instead, Core’s owner alleges that Shvo didn’t keep up his end of the bargain for building out and funding the club’s global expansion. It’s seeking the cancellation of existing agreements and the termination of its lease in San Francisco.
“There is absolutely no realistic prospect of the club opening in September 2024 or any time in the foreseeable future because of a lack of progress on building out the space,” Core’s attorney Adam Glassman said in a statement.
In an interview with Bloomberg, Shvo shrugged off the lawsuit, calling it a PR stunt to re-negotiate rents. He said he has filed a motion to dismiss the case.
San Francisco Transamerica Pyramid Is Being Remade In Bet Remote Work Will Fade
Michael Shvo
Shvo, who began his career as a New York real estate agent before launching his own firm, pleaded guilty to tax fraud in 2018 in connection with purchases including artwork and a Ferrari. Since then, he’s been snapping up trophy properties like Chicago’s “Big Red” office building and the Raleigh Miami Beach hotel and residences. He bought the Transamerica Pyramid and two other office buildings in 2020 with financing from Deutsche Finance America and German pension fund Bayerische Versorgungskammer — a deal that is slated to cost over $1 billion between the purchase price and renovations.
Core’s absence won’t affect any of the new tenant amenities, Shvo said. There’s a gym on the 26th floor with a view spanning the Golden Gate Bridge to Coit Tower. One floor above, there’s a tenants-only “sky lobby” with a cafe. There, people will have to transfer elevators to reach the pinnacle of the pyramid — a 48th-floor bar reserved only for the building’s high-end clientele.
On the ground floor, the new lobby features low-slung chairs, a coffee bar, florist and gift shop. It’s connected for the first time to the redwood park outside, which features a sculpture garden from French artists Les Lalanne. Miami chef Bradley Kilgore will open two new restaurants in the neighboring Transamerica 3 building.
While the city is struggling with high vacancies, the developers are “going after a segment of the market that is different,” said JLL’s Chris Roeder, who is leading leasing for the site. “They’re looking for the best services, the best hospitality, the best accommodations.”
The 510,000-square-foot building’s occupancy rate is currently around 70%, with another 185,000 square feet in negotiation, according to the developer. Several tenants have leased space for more than $200 per square foot, and three recent leases spanned $125 to $180 a square foot — roughly double the city average of $68.43, according to data from CBRE Group Inc.
Crypto-focused venture capital firm Blockchain Capital is one of three leases signed since Labor Day, including a two-story renewal from Wedbush and a lease from NextAxiom, a Shvo spokesperson said. However, there’s also been turnover as the higher rents have pushed some existing tenants out.
AI Bump
Transamerica’s top-dollar leases are an indication of the bifurcation that’s split San Francisco’s office market. While lower-tier buildings struggle to attract tenants even at reduced prices, the top-tier trophy buildings are “healthy,” said Robert Sammons, senior research director at Cushman & Wakefield. The average asking rent for Class A buildings was $72.28 per square foot in the second quarter, but the city’s top 15 buildings, including Transamerica, commanded a premium at an average of $108 per square foot, Sammons said.
The city has been struggling to prove it’s not stuck in a doom loop following the Covid-19 pandemic. A combination of tech layoffs, remote work and the failure of two regional banks hollowed out the city’s core, with companies like Meta Platforms Inc. and Salesforce Inc. shrinking their office footprints and stores like Nordstrom and Whole Foods fleeing the Union Square area amid concerns about safety and homelessness.
However, the market appears to be stabilizing as the exodus of companies slows and new leasing activity picks up, said Colin Yasukochi, executive director of CBRE’s tech insights center in the city. The artificial intelligence boom is helping, with AI companies accounting for a quarter of new leasing activity in the city from 2023 to now, CBRE data show.
“They’ve in fact taken more normal levels of office space, more like how they would pre-pandemic,” Yasukochi said. “But the rest of tech and other companies have downsized significantly, and they have been very cautious about taking on additional space.”
Shvo said he sees evidence that the artificial intelligence boom is bringing life back to downtown, even though the Transamerica Pyramid hasn’t signed any AI startups itself. The pyramid will help host the Ted AI conference in October.
“It is bouncing back,” he said. “The offices may have vacancies, but the energy is back on the streets.”
Shvo, though, is unlikely to invest further in the city — or on the West Coast. The developer defaulted last month on a $200 million loan for the Mandarin Oriental condos in Beverly Hills, which were completed in May, and is in the foreclosure process with the residences up for sale. He’s also facing a lawsuit from his former business partner related to one of his New York properties.
“The ownership group had arranged financing with JPMorgan but chose instead to work with the lender to market the remaining units in a bulk sale,” a spokesperson for the ownership group including Shvo, Deutsche Finance and a consortium of German pension funds said in a statement. “The decision allows the partnership to re-allocate investment resources to purchase new income-producing assets, in anticipation of a lower interest-rate environment.”
Shvo said he’s now more interested in New York City and its office market, rather than doubling down on San Francisco.
“It’s hard to buy something in San Francisco after you own the Transamerica Pyramid,” he said. “Everything is inferior.”
Top photo: The Transamerica Pyramid in San Francisco.
Topics Lawsuits
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