A potential legal battle between the owner of the Transamerica Pyramid and the high-end private club that was supposed to become a main tenant there makes it sound like all is not well with this partnership.

The lawsuit lays out a confusing set of promises made and contracts signed between developer Michael Shvo and the New York-based CORE Club, regarding a partnership in which Shvo allegedly pledged to put up $100 million in capital to establish CORE's New York and Milan locations, as well as the still unopened location in San Francisco. This agreement apparently gave Shvo a 50% stake in CORE — which charges membership fees that can be as high as $100,000 per year.

As the Chronicle reports, the lawsuit was filed today in a New York state court, and it accuses Shvo of fraud and "self-dealings," and alleges that Shvo reneged on promises of funding for the club's expansion, and that he "deceived" the club's owners into signing "exorbitant" and "unconscionable" rent agreements for the New York and San Francisco buildings. There is also the issue of a promised $1 million loan, which CORE says it has only seen $750,000 of.

The suit is seeking to rewrite the lease agreements for the New York and SF clubs, bringing rents down to "a level consistent with fair market rents."

And this doesn't sound great for the planned opening of CORE's SF location, which was set to occupy multiple floors of the Transamerica building. The suit suggests that the buildout for the project has "languished under Shvo’s inaction," and the SF club is unlikely to open "at any time in the foreseeable future."

An attorney for Shvo and his business partners gave a comment to the Chronicle saying that the suit is a "desperate attempt to bail out the owners of the CORE Club from fulfilling the very clear obligations they committed to in a series of binding written agreements."

The attorney further suggests that CORE is simply trying to use legal intimidation to lower its rent.

Curiously, the lawsuit suggests that Shvo should not be called the owner of the Transamerica Pyramid, because that should technically be Bayerische Versorgungskammer (BVK), the largest public pension group in Germany which appears to be a primary investor. The suit refers to Shvo as "merely a property manager."

The SF Business Times notes that this lawsuit could be part and parcel of some much larger issues happening with Shvo and his real estate empire. A Wall Street Journal piece two weeks ago reported that Shvo's strategy of acquiring trophy properties and make them over for profit is "flailing," and that other projects besides the Transamerica Pyramid have appeared stalled. In particular, the piece mentions a project to renovate Miami Beach’s Raleigh Hotel, which Shvo and his partners purchased in 2019 and is not yet off the ground, with sales on prospective condo units sluggish.

That Journal piece was published the very same day that Shvo went on a positive PR blitz, announcing a September 12 opening date for the Transamerica building, announcing that Miami-based chef Brad Kilgore was attached to oversee multiple restaurants, including one at the adjacent 545 Sansome, and announcing that he'd secured a commitment for a two-day conference at the building in October, TEDAI.

Shvo told the Chronicle two weeks ago that CORE Club's opening, which was originally set for 2023, would be happening in 2025, but reps for the club did not confirm that.

Real estate experts tell the Wall Street Journal that in both the cases of the Miami Beach project, and a project to sell luxury condo units inside the Mandarin Oriental building in Manhattan, Shvo overshot the market, with asking prices that have been way too high — as evidenced by units selling fast or selling out at similar properties in the same span of time. Reportedly, only 14 of 69 units at the Mandarin Oriental have sold.

The piece also suggests that the Transamerica building is only 50% leased, and that several current tenants are considering moving out. Shvo claimed that the building was more like 70% leased, and he dismissed the idea that tenants were leaving because of the rents he is trying to charge. He suggested to the Journal that any tenants who have left since he and his partners acquired the property didn't fit "the right profile" and "just can’t economically afford it."

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

“I wake up in the morning for one purpose — to elevate super prime real estate,” Shvo said. "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."

Previously: Transamerica Pyramid Set for Public Reopening In September, Lands TED's AI Conference

Photo: Joseph Barrientos