Legal dispute could affect opening of ultra-luxury private club in Transamerica Pyramid

A possible legal dispute between the owner of the Transamerica Pyramid and the exclusive private club that was to become the main tenant there suggests that all is not well with this partnership.

The lawsuit lays out a confusing series of promises and contracts between developer Michael Shvo and New York-based CORE Club, covering a partnership in which Shvo allegedly pledged to raise $100 million in capital to open CORE’s New York and Milan locations, as well as its yet-to-open San Francisco location. That agreement apparently gave Shvo a 50 percent stake in CORE, which charges membership fees of up to $100,000 per year.

The lawsuit was filed today in a New York state court, the Chronicle reports, accusing Shvo of fraud and “self-dealing.” It also claims that Shvo reneged on promises to finance the club’s expansion and “deceived” club owners into signing “exorbitant” and “unreasonable” leases for the New York and San Francisco buildings. It also alleges a promised $1 million loan, of which CORE says it received only $750,000.

The aim of the lawsuit is to revise the leases for the clubs in New York and San Francisco in order to reduce rents to “a level that corresponds to market rents.”

And that doesn’t bode well for the planned opening of CORE’s SF location, which was to occupy several floors of the Transamerica building. The lawsuit suggests that the development of the project has “stalled under Shvo’s inaction” and the SF club is unlikely to open “in the foreseeable future.”

A lawyer for Shvo and his business partners told the Chronicle that the lawsuit is a “desperate attempt to get the owners of the CORE Club to bail them out of fulfilling their clear obligations to which they committed in a series of binding written agreements.”

The lawyer also suspects that CORE is simply trying to lower the rent through legal intimidation.

Curiously, the lawsuit suggests that Shvo should not be referred to as the owner of the Transamerica Pyramid, as that should actually be the Bayerische Versorgungskammer (BVK), Germany’s largest public pension fund, which appears to be a major investor. The lawsuit describes Shvo as a “mere property manager.”

The SF Business Times points out that this lawsuit may be part of some far larger problems facing Shvo and his real estate empire. A Wall Street Journal article two weeks ago reported that Shvo’s strategy of acquiring luxury properties and converting them for profit is “falling apart” and that other projects besides the Transamerica Pyramid appear to have stalled. In particular, the article mentions a project to renovate the Raleigh Hotel in Miami Beach, which Shvo and his partners bought in 2019, that has yet to get off the ground because sales of potential condos are slow.

That Journal article was published on the very same day that Shvo launched a positive public relations push, announcing Sept. 12 as the opening date for the Transamerica building. He also announced that Miami-based chef Brad Kilgore would take over the helm of several restaurants, including one at the neighboring 545 Sansome. He also announced that he had secured a commitment to host a two-day conference in the building in October, TEDAI.

Shvo told the Chronicle two weeks ago that the CORE Club’s opening, originally scheduled for 2023, would take place in 2025, but club officials did not confirm this.

Real estate experts tell the Wall Street Journal that Shvo outperformed the market with overly high asking prices in both the Miami Beach project and a project to sell luxury condos in the Mandarin Oriental building in Manhattan – as evidenced by the fact that the units sold quickly or sold out in similar properties during the same period. Only 14 of 69 units at the Mandarin Oriental were reportedly sold.

The article also suggests that the Transamerica building is only 50% leased and that several current tenants are considering moving out. Shvo claimed the building is more like 70% leased and dismissed the notion that tenants are leaving because of the rents he plans to charge. He suggested to the Journal that all of the tenants who have moved away since he and his partners acquired the property do not have “the right profile” and “just can’t afford it economically.”

Speaking to the Journal, Shvo defended his strategy and dismissed concerns about his business.

“I get up in the morning with one goal: to promote prime real estate,” Shvo said. “With that comes vacancy. With that comes a slower pace of sales. But that’s OK. The end result is that the buildings are worth a lot more money at the end of the day.”

Previously: Transamerica Pyramid is scheduled to reopen to the public in September and will host TED’s AI conference

Photo: Joseph Barrientos