Can Michael Shvo Fill The Transamerica Pyramid By Doubling Its Rent? He's Betting $1B On It

The Transamerica Pyramid is one of a handful of emblems of San Francisco, its unmistakable apex poking through the city’s trademark fog to set the skyline apart from any other in the U.S.

It’s also an aging building in a downtown hollowed out by a pandemic and subsequent remote work revolution that has sapped interest in older towers in cities across the country.

That hasn't dimmed the ambitions of New York developer Michael Shvo, who is gambling that by bringing luxury to the icon, inviting the public inside — and asking tenants for double its previous rents — he can rewrite the narrative around San Francisco's office market.

“The Transamerica Pyramid is today the third-most-expensive building to rent an office in, in the country, and the other two are in New York City,” Shvo told Bisnow in an interview. “There is a tremendous amount of demand for super high-end, super unique real estate.”

The 48-story, 853-foot pyramid, featuring more than 3,700 windows framed into a bright veneer of crushed quartz, is the second-tallest building in San Francisco but has long been the most recognizable in the city’s skyline.

Completed in 1972, the building was initially scoffed at as impractical due to the variance in office space on each floor, with configurations ranging from 3K SF to 200K SF.

“Each floor of this building is different,” Shvo said. “So if you want 5K SF, you might have to rent floor 32 and the one above. We have limited space, and over the last year, we have been signing leases with companies who have a fear of missing out.”

The pyramid today is 70% occupied by a tenant mix that includes financial firms like Northwestern Mutual, law firms like Baker Hostetler, the Sterling Bank, an assortment of venture capital firms and two artificial intelligence-related companies.

Bisnow reached out to several tenants in the building for their opinion on the renovation and subsequent rent increase, but all declined to comment.

Shvo has plenty of competition. The city’s office vacancy rate reached nearly 32% in the second quarter, according to Transwestern. Q2 was the third-worst for the San Francisco market since 1997 in terms of tenants giving up space, Transwestern Senior Research Manager George Entis told Bisnow in July.

But Shvo said he is signing leases at the pyramid for $200 per SF to $250 per SF, more than triple the $73 average asking rate in the city, according to CBRE.

Shvo and a group of investors including German pension fund Bayerische Versorgungskammer and Deutsche Finance went under contract on the building in February 2020 for a reported $700M. What happened a few weeks later was enough to scare a lot of people out of the office market.

“After Covid hit, I didn’t know if it was going to take a year, a month or 10 years for the city to recover, but I do know that San Francisco is a resilient city, and I know that the Transamerica Pyramid is the best building on the West Coast and one of the top buildings in the country,” Shvo said.

The Bay Area icon’s purchase price dropped a bit by the time the deal closed for $650M in October 2020. Shvo and his partners have since poured $400M into the property’s makeover.

The renovation included enlisting architect Norman Foster, whose firm worked on the Apple campus in Cupertino, the Kuwait International Airport and the PGA Tour’s global headquarters near Jacksonville, Florida, among many other projects around the world.

Much of the transformation of the pyramid into a high-end office destination relies on renovating the ground floor, which was formerly closed to the public and was built with opaque walls that presented a foreboding front to visitors. 

To change that, Shvo has remade the entire ground floor, eschewing the former opacity in favor of industrial-scale glass interspersed with crushed quartz pillars, allowing pedestrians to see through.

“The Transamerica Pyramid is the most photographed building on the West Coast, but nobody ever actually came here,” Shvo said. “It’s a fascinating thing.”

The ground floor used to contain office space for the Transamerica Insurance Co. and housed a travel agency, but the new configuration will be dedicated to a more public experience. 

“We're going to bring a variety of restaurants, shops and places for people to come,” Shvo said. 

The ground-floor renovation is in keeping with the initial vision of William Perreira, the building’s original architect, who wanted a more open street-level experience, including redwoods and cherry trees. Transamerica allowed the now-towering redwood trees to be planted, but Shvo is intent on bringing in the cherry trees as well, placing them in an alley formerly reserved for trash collection. 

The private component of the renovation entails a more robust incorporation of amenities and a complete renovation of several floors within the building. Perhaps the most prominent example is the 48th floor, the last enclosed floor of the building that is only reachable by taking two separate elevators. 

Transamerica previously used a portion of the floor as an ordinary conference room. Shvo is in the process of transforming it into a cozy cocktail lounge exclusively for the use of tenants of the building, who will be afforded one of the most expansive views out over the bay to Alcatraz or looking back into the San Francisco skyline. 

Along with the cocktail lounge on the top floor, the building will feature new restaurants and new wellness facilities like Core Club, a high-end gym and membership club with initial fees of $50K and annual dues in excess of $17K. The club leased three floors in the building.

“As landlords, I believe we have an imperative role here with regards to assisting our tenants in earning their employees' commute,” Shvo said. “When you have multiple restaurants in your building, when you have views of both bridges and Coit’s Tower and the bay, you’re not going to get that at your home.”

Few San Francisco landlords have been able to earn that commute. Between the tech sector’s willingness to work remotely and its rash of layoffs, office usage remains depressed at 41.4% of pre-pandemic levels, according to the latest Kastle Systems data. The average across the 10 cities Kastle tracks is 47.3%. 

Shvo hopes to prevail despite the foreboding numbers in the market, in part by relying on his experience renovating other well-known buildings into high-end, exclusive hideaways.

He has a long history in real estate. After immigrating to New York from Israel, Shvo started out as a broker before making his way into development. Most of his projects are in New York City, including the Aman hotel, the historic 530 Broadway and The Getty Residences.

In addition to the Transamerica Pyramid, Shvo is busy making over the Raleigh, an 80-year-old hotel in Miami Beach, Florida, with an even pricier investment than he made in San Francisco. 

The $2B renovation of the Raleigh bears many of the same characteristics of the new pyramid, including lots of glass and natural light, luxe private lounges and an unflinching conviction that the project will succeed despite sometimes-questionable odds. He secured a $190M loan for that project last month from a debt fund.

A now-common piece of Shvo lore entails a visit to San Francisco as a child, when he drew a picture of the Transamerica Pyramid that he still keeps close by. A San Francisco Business Times profile earlier this year points out that Shvo and the pyramid were “born” just one month apart.

Shvo told Bisnow he views himself as the custodian of the building and is unlikely to part with it anytime soon, no matter what the market brings. 

“Part of the reason that we buy these extremely iconic buildings and really super prime real estate is because they're irreplaceable assets,” Shvo said. “The investment thesis is a forever hold.”