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Luxury developer Michael Shvo has spent the last few years snatching up properties across the U.S. to develop coveted luxury condos and then sell them at sky-high prices.
Shvo’s acquisitions between 2018 and 2020 have included Miami Beach’s Raleigh Hotel, properties in Manhattan and Beverly Hills slated for Mandarin Oriental-branded residences, and San Francisco’s unmistakable office tower, Transamerica Pyramid.
At this point, it’s unclear whether or not Shvo’s big-ticket purchases will pay off, The Wall Street Journal reported. The Mandarin Oriental’s sales are only inching along, The Raleigh’s new residential tower has not yet broken ground and a number of Transamerica’s tenants have left for buildings with more affordable leases.
Shvo’s investors abroad have helped his business remain on stable ground as interest rates climbed in the last couple of years. However, his asking prices may have become too aspirational, The WSJ’s sources said, and Shvo’s methods have pushed away some of his business partners in the process.
Still, Shvo maintained that his methods ultimately deliver results, even if it takes time. He did not immediately respond to Inman’s request for comment.
“I wake up in the morning for one purpose — to elevate super prime real estate,” Shvo told The WSJ. “With that comes vacancy. With that comes slower sales pace. But that’s OK. The end result is that the buildings are worth a lot more money at the end of the day.”
Shvo’s evolving career
Shvo, who is originally from Israel, launched his career in New York City more than two decades ago as a young broker who hosted flashy events to garner sales. When the recession hit in 2008, he transitioned to work as an art collector, only to double back to real estate a few years later as a luxury developer.
Around that time, Shvo got into trouble with the IRS and lost a few opportunities in real estate after pleading guilty in 2018 to tax evasion surrounding purchases of jewelry, art and a Ferrari. He made a comeback later that decade after establishing a partnership with German institutional investors and Turkish real estate investor, Serdar Bilgili.
The Raleigh
Shvo and his partners made a splash in 2019 with their $103 million purchase of Miami’s Raleigh Hotel. Tommy Hilfiger had bought the 1940s property for $67.5 million in 2014 and was in the process of restoring it when Shvo and his team made the offer.
Shortly thereafter, Shvo purchased neighboring buildings with a master plan to create a three-acre luxury campus to feature the Raleigh, a hotel and a restaurant, as well as a new Rosewood-branded condo tower that would include a $150 million full-floor penthouse, a price not often heard of in Miami’s condo market.
Despite Shvo’s grand ideas for the Raleigh, the project’s roll-out has been rocky. Shvo’s planned condo tower has yet to get underway, and luxury hotel group Cheval Blanc, which had signed on to brand the project, ultimately bowed out.
The Raleigh sales office’s practices for interviewing potential residents has also raised eyebrows. The vetting process has reportedly included asking about buyers’ family makeup and their professional contacts, in addition to financial information, which has offended potential buyers in Miami, The WSJ reported, in a market where luxury buyers are unused to such intimate questions.
Mandarin Oriental Residences
Shvo’s vision for the Mandarin Oriental Residences in New York and Beverly Hills was to create luxury residences that mirrored living in a high-end hotel, but even more private. Concierge services, housekeeping, pet-walking, fully furnished units and art would all be included, and Michelin-starred chef Daniel Boulud would run the private restaurant.
However, asking prices on the units were overinflated, according to local agents, particularly for a building that has obstructed views instead of ones of, say, Central Park.
New York and Beverly Hills sales have dragged, with just 14 of 69 units closed in New York, according to property records. The building is closer to 40 percent closed, a spokesperson for Shvo told The WSJ, including sales that are pending or have yet to be recorded.
Still, by contrast, at a similar branded residence north of Madison Square, the Ritz-Carlton Residences, units have sold out following their launch in September 2021, according to property records.
Transamerica Pyramid
Shvo and his associates made a splash in the press yet again in 2020 when they acquired the Transamerica Pyramid and two additional buildings for a total of $650 million. The group has put more than $250 million into upgrading the property thus far, and Transamerica Pyramid is scheduled to be completed later this summer, according to Shvo.
But even with high-end additions to the building, like a luxury gym and bar, some might question why a developer would pour so much money into San Francisco’s office market now when it appears to be hitting rock bottom. The city’s office vacancy rate is currently at a record 35.4 percent in contrast to the 8.1 percent rate seen at the end of 2019, according to Colliers. In the wake of the pandemic, the city was hit hard by affordability issues, homelessness and the rise in remote work.
In discussions with The WSJ, Shvo pointed to the project’s positives: he’s signed “multiple leases” for $200 to $250 per square foot (more than double what tenants paid prior to Shvo taking ownership) and the building’s occupancy is sitting close to 70 percent (which is down from 85 percent at the time he purchased the building).
Still, several of Transamerica Pyramid’s major tenants have either already moved out or are planning to soon, including private equity firm Thoma Bravo and Citizen Financial Group’s JMP unit. Northwestern Mutual is also reportedly considering a relocation out of the building.
In recent years, Shvo’s relationship with Bilgili has also largely soured as a result of expenditure disputes and an ensuing lawsuit filed against Shvo by Bilgili.
Additional scrutiny may come in the form of industry players questioning Shvo’s ties to the recently embattled Oren Alexander, co-founder of The Alexander Team and luxury firm Official, who recently stepped down from the firm in the wake of multiple sexual assault allegations coming to light. Official is representing sales of The Raleigh, and, although Shvo has not specifically commented on the allegations against Oren, reps for The Raleigh told The Real Deal that the firm would continue to represent the building.
Despite his complicated relationships and struggle with sales, Shvo seems proud of where things stand in his business.
“We’re the second-most expensive building in America,” the developer said regarding Transamerica Pyramid. “Think about that. A 50-year-old building in a market that most people think is finished.”
“Our business is in the best place it has ever been,” he added.
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