Members-Only Club Sues Michael Shvo For Fraud, Seeking $600M In Damages

Developer Michael Shvo is being sued for fraud by the exclusive members-only club he partnered with to bring prestige to buildings he acquired on Fifth Avenue in Manhattan and in San Francisco.

In a lawsuit filed Wednesday in New York State Supreme Court, the owners of Core Club claim Shvo deceived them with "tales of grand expansion" when they agreed to partner with him at 711 Fifth Ave., the Transamerica Pyramid in San Francisco and an expansion to Milan, Italy.

Instead, they allege he has made a string of "broken promises," failed to deliver on promised developments, performed substandard construction and maneuvered to improperly seize a 50% stake in their business.

"Shvo’s conduct was not merely a series of missteps or oversights; it was a deliberate and calculated strategy to undermine Plaintiffs’ company," the lawsuit states. "In his efforts to try to seize control of the Plaintiffs’ company, Shvo misrepresented himself as an individual whose resources and expertise assured success."

Jennie and Dangene Enterprise, the founders and owners of Core Club, are seeking $100M in compensatory damages, $500M in punitive damages and $15M in special damages. They are asking a state judge to rule on 13 counts, including fraud, breach of contract, unjust enrichment and usury. 

They are also asking the court to amend Core's lease at 711 Fifth to reduce its rent from its presently "unconscionable" level and to terminate Core Club's lease at Transamerica Pyramid, which, Shvo's representatives told the San Francisco Chronicle two weeks ago would open this September. Core claims little construction has yet happened and “there is no realistic prospect of a CORE club opening in San Francisco in September 2024 or at any time in the foreseeable future.”

Morris Missry, who is representing Shvo and the other defendants, said in a statement that the suit is "a desperate attempt to bail out the owners of Core Club" from their rent and other obligations.

"We will not be threatened or pressured into providing rent reductions or other undeserved concessions and will aggressively defend this lawsuit," Missry said.

Representatives for Core didn't immediately respond to Bisnow’s requests for comment. 

Core's attorney, Adam Glassman, filed suit against Shvo and several of his affiliates, as well as the German investment funds that have backed his real estate bets. They claim that Shvo is only a property manager, while Bayerische Versorgungskammer, Germany’s largest public pension group, is actually the owner of the properties at the heart of the suit.

The Enterprises claim Shvo approached them early in the pandemic, offering to invest $100M into their business and facilitate the development of new clubs in New York, San Francisco and Milan. 

"Shvo’s promises were alluring,” the complaint states. "He painted a picture of turnkey clubs built to a 5/6-star luxury hospitality standard, meticulously crafted to CORE:’s exacting standards, with Shvo Entities funding all aspects of development."

In discussions, Shvo leveraged his perceived ownership to attempt to secure a 50% personal ownership interest in Core’s business in exchange for building out the locations, Core alleges.

However, instead of the $100M investment, Core was allegedly handed an agreement that the plaintiffs describe as a "mere smokescreen."

At its Milan project, which Shvo promised to fund, he allegedly pulled out of the agreement in 2022, forcing Core to find alternative funding at a high cost. According to the complaint, the owners depleted their personal funds and went into debt to keep the project alive. 

At the Transamerica Pyramid, Shvo is accused of similarly diluting the scope of his investment. He is also accused of misrepresenting his role in, and the state of, the project.  

What was meant to be Core’s flagship location in New York City, also eventually “became a testament to Shvo’s broken promises.” Core once again had to pour its own resources into the project after Shvo’s management resulted in issues, the lawsuit claims.

Core states that the project’s equipment continues to have issues that impair operations. The kitchen equipment often breaks down, while the 17th-floor speakeasy and 18th-floor restaurant were nonfunctional, according to the lawsuit. The residences have issues with hot water, and sauna and steam rooms were not completed until six months after opening. The theater was also a month late to open, Core claims. 

"Poor craftsmanship was rampant throughout the club, with cabinet doors falling off hinges, door handles snapping off regularly, wallpaper peeling off, and water leaking from showers due to improper drain slopes," the complaint said.

The lawsuit also documents instances where Shvo was "verbally abusive" to staff. The developer allegedly failed to pay an $80K bill that he racked up by hosting birthday parties and other gatherings in Core spaces. 

Core also claims that Shvo was repeatedly dismissive of their complaints, in one instance telling the club to "hire illegals to wash the plates."

Earlier on Wednesday, Crain’s New York Business reported that the developer has also been hit with another lawsuit, adding to his feud with Serdar Bilgili. In that suit, Shvo's former partner alleges that the Israel-born developer diluted Bilgili’s interests in the Aman hotel-branded condo on Billionaires' Row at 730 Fifth Ave. by not making full payments to investors.

The suits come after recent reporting that revealed many of Shvo's recent development plays — encompassing billions of dollars in an attempt to build ultra-luxury projects in Manhattan, San Francisco and Miami — have been flailing amid lagging sales.