Michael Shvo is remodeling the Transamerica Pyramid landmark in hopes the luxurious redevelopment will help bring the area to life.
Transamerica Pyramid in San Francisco.Fotograf: David Paul Morris/Bloomberg
The 48th floor of the Transamerica Pyramid was once home to a conference room with panoramic views of San Francisco Bay. Today there is a trough construction site. By the end of the year there will be a 45-seat Skybar that will be open to Tower customers only.
It's an upgrade of 50-year-old San Francisco and a bold, expensive investment in a real estate market currently known for vacant buildings.
Michal Szwo. Photographer: David Paul Morris/Bloomberg
As downtown struggles with an office vacancy rate of nearly 30 percent, the new owner of one of the city's most iconic skyscrapers is doubling rents and investing $400 million in the renovation of the three-building complex. For Michael Shvo, who led the group of investors that bought the Transamerica Pyramid in 2020, the moves are a bet on both San Francisco's resilience and the prospect that quality spaces and amenities will attract workers who are accustomed to the comforts of home have .
"The whole idea of people trying to write off San Francisco is complete nonsense," Shvo said. "It's one of the most important cities in the country and the most important building on the west coast."
Since the renovation was announced, the building's five signed leases have yielded between $200 and $250 per square foot, more than double the average for tallest buildings in San Francisco, according to Shvo. The developer said all bids were over $120 per square foot.
San Francisco's financial district. Photographer: David Paul Morris/Bloomberg
The 853-foot (260-meter) Transamerica Pyramid stands on the edge of San Francisco's Financial District, an area hard hit by the slow return of workers following the Covid-19 pandemic. Those problems are now being exacerbated by layoffs in the tech industry and the collapse of the two regional banks that served that industry. Loss of retailers, including those with permanent establishmentslike NordstromAdd to that the feeling that the core of the city is on the verge of a doomsday loop - the prospect that the faltering economic climate will lead to even more out-migration and lead to a worsening situation.
"It all adds up to the perfect storm, but it's also a great opportunity to buy real estate," Shvo said during a tour of the Transamerica Tower, which stood in a 36th-floor rental exhibit in his signature black Armani t-shirt .
Shvo is probably one of the most tenacious people when it comes to the future of San Francisco. Thanks to funding from Deutsche Finance America and German pension fund Bayerische Versorgungskammer, he paid $650 million for the tower and two other buildings, reached an agreement just before the pandemic hit, and then completed it in October 2020. The developer – who started out as a real estate agent in New York City who advertises attractive offers before starting his own business,Disappearfrom the scene after the financial crisis and his reappearance in the art world, where he admitted his guilttax fraud– has enjoyed a spending spree in recent years, spending $4.5 billion on property purchases and renovations and another $2 billion on contract properties.
Raised in Israel, Shvo first visited San Francisco in 1979 when he was seven and happily waves a drawing he is said to have made next to the Transamerica Pyramid.
"For me, it was my American dream," Shvo said.
Shvo stands next to a drawing of Transamerica that he made as a child. Photographer: David Paul Morris/Bloomberg
That dream now includes the renovation of the premises in a renovation led by Foster + Partners, the architectural firm that designed Apple Inc.'s campus. in Silicon Valley. There will be a gym and wellness center on site with a view of Coit Tower. There will be a coffee shop and a "relaxation library" on the next floor to provide people with a place to work and relax away from the offices. There is a coffee shop, flower and gift shop, and restaurant in the lobby for customers of Core, a members-only clubsigned a 20-year leasetake over three floors of the building.
Striving for modernization is the norm for ownersacross the countryBet on filling empty buildings in the age of hybrid work. However, it's unclear whether furnishing offices with sleek amenities will yield results, especially in a city abounding in subleasable space.
The San Francisco market has been flooded with office space as tech companies rolled out flexible working and laid off workers. Salesforce Inc. is giving up all of its space in its Salesforce East property and has subleased other floors in the Salesforce Tower, a six-year-old skyscraper that replaced the Transamerica Pyramid as the city's tallest building dominating the skyline. Pinterest Inc. recently joined Meta Platforms Inc. and Lyft Inc. on downsizing the city.
"For Rent" sign in the financial district. Photographer: Jason Henry/Bloomberg
There is evidence that high-quality and heavily upgraded buildings will withstand San Francisco's slow recovery: lower-quality buildings are conspicuously empty, but the best buildings are still doing well, said Colin Yasukuchi, chief executive officer of CBRE Group Inc. at the center City.
He said the vacancy rate for Trophy buildings is generally "around 10% or less". "They tended to move non-tech companies into financially stronger and more stable companies, so they weren't reducing their footprint."
Effective rents in prime buildings in San Francisco's central business district have remained very close to pre-pandemic prices, at the expense of lower-tier Class A buildings, where prices have fallen as prices have fallen in the wake of the shift to quality , says Robert Sammons, director of research at Cushman & Wakefield.
What Shvo sells is even higher. He declined to reveal the names of the Transamerica Tower's new tenants, but said they are mostly finance and venture capital firms, as well as climate-related companies. Companies such as the insurer Northwestern Mutual and the law firm BakerHostelter are already based here.
Still, rent increases have resulted in a turnover of existing residents leaving the building in favor of smaller office space and lower rents. Investment advisory firm Callan plans to vacate its premises later this summer, according to people familiar with the matter. The company declined to comment. On average for San Francisco, the pyramid is about 30% empty, although some of that is due to construction.
Renovations at the Transamerica Pyramid, 2 Transamerica and adjacent Redwood Park are expected to be completed by the end of this year. Shvo will then begin work on Transamerica 3, which will have its own expansionfuturistisches Faceliftby Foster + Partners in early 2024 to bring even more employees into the block.
Modell 3 Transamerica. Fotograf: David Paul Morris/Bloomberg
"Over the past decade, there have been many owners who just haven't upgraded their buildings in the way they should have," said Chris Roeder, broker at Jones Lang LaSalle Inc. land lease operator for Shvo. "In a post-Covid world, when you're not working from home, you want to be in a place where you can get a lot of the same things."
For Shvo, "apartment vs. office" isn't even a competition - unless your home has a 28th-story runway overlooking Coit Tower, he said, laughing. Instead, he wants it to resemble places he was used to, such as the Raleigh Hotel in Miami Beach or the Mandarin Oriental mansions on Fifth Avenue in New York.
He believes it's just as important to lure non-bureaucratic workers back into the Transamerica block to make the building a magnet for tourists, employees and residents alike.
"It will bring downtown to life," Shvo said. "And hopefully the next 50 years will start downtown because I don't want to be alone here."
— With the help of John Gittelsohn