A look inside a $1 billion real-estate bet on the future of San Francisco

Joy Wiltermuth, Jun 07, 2024

Developer Michael Shvo is getting ready to show off his revamped Transamerica Pyramid

New York developer Michael Shvo is getting ready to show off his nearly $1 billion bet on San Francisco’s iconic Transamerica Pyramid, a rare real-estate redevelopment project that began during the depths of the COVID-19 pandemic — and could end up becoming a symbol of the city’s revival.

The 48-floor office tower’s planned reopening to the public is slated for September, arriving as the recovery of San Francisco’s downtown area has been picking up steam. San Francisco’s office-vacancy rate remains among the nation’s highest at 32.4% as of March, which has been a major drag on its downtown Financial District. But more office workers have been filling its once-empty streets and sidewalk cafes recently, while tourism and business travel to the city has been rebounding.

The Pyramid’s revamp includes opening up the building’s ground-floor lobby, bookstore, flower shop and coffee spot to the public, as well as an adjacent redwood grove and event space.

Public spaces now invite visitors to stop, shop and get a coffee / SHVO

Inside features a high-end gym and spa for tenants only, as well as a bar on the building’s top floor called Norman’s — which is set to look like something out of the movie “Wall Street,” if only it were filmed in San Francisco.

A bar on the top floor of the Transamerica Pyramid is still under construction, but slated to open in September / BOYERO VISUALIZERS

“When I bought the building, it was the most photographed building in San Francisco,” Shvo told MarketWatch. The problem, however, was that nobody was coming to visit the property.

Shvo plans to shake that up this fall when a substantial portion of his roughly $250 million redevelopment of the 52-year-old skyscraper — helmed by famed architect Norman Foster — is completed. The hope is the office tower becomes a magnet for the public through free art exhibits, lectures and other cultural programming, while also commanding top rents from tenants.

An option to climb the building’s thin metal spire that punctuates the San Francisco skyline won’t be open to tourists, as it was for this reporter. It consists of 10 flights of metal stairs and two rungs of ladders, totaling 236 vertical steps.

A series of metals staircases must be climbed to ascend to the top of the Transamerica Pyramid’s spire / JOY WILTERMUTH/MARKETWATCH

Shvo, however, has been working with lighting experts on options for illuminating the top of the spire, which starts out many days enveloped in the city’s famous fog.

The Transamerica Pyramid, seen with its spire clouded by the San Francisco fog. / JOY WILTERMUTH/MARKETWATCH

More broadly, the developer seeks to create a place where well-heeled tenants will want to work, exercise and unwind, as well as a city block at ground level that bustles with activity.

Occupancy at the tower has been maintained at about 70% through the revamp, Shvo said. To date, five companies have signed office leases at the property at $200 to $275 per square foot — which Chris Roeder, a corporate real-estate advisor at JLL JLL, -0.16% who handles leasing at the Pyramid, pegged as the highest prices in the country outside of New York City.

Shvo said he has more than doubled rents since the acquisition, raising them from a range of $46 to $104 per square foot previously.

“In the last cycle and decade-plus of San Francisco, there’s been an amazing amount of wealth creation — a lot in tech, but also private equity, venture capital, investment banking and in other professions,” Roeder said, which means the tower can command higher rents.

That mix of industries tracks with the Pyramid’s tenant roster under Shvo, with the addition of family offices and law firms. A recent example is a renewed lease for the full 31st floor with law firm BakerHostetler.

Since the pandemic, Roeder said the center of gravity for the city’s wealthy has been moving toward the northern end of the Financial District toward the Transamerica Pyramid and the adjacent Jackson Square neighborhood, a favored spot for San Francisco’s mushrooming AI startups.

The Pyramid was part of a three-building, full-block deal Shvo signed alongside a group of German and European investors in 2020, which closed in the months after COVID-19 lockdowns gripped the world.

They paid $650 million to Dutch insurance company Aegon AGN, +0.03% AEG, -0.16%, which provided seller financing, while also spending $350 million for renovations to the Pyramid and a companion building, according to Shvo. The group expects to look for permanent financing after the repositioning.

Restaurants on the block and high-end lodging are due to open in early 2025.

Aside from the Transamerica Pyramid’s distinctive shape, zoning laws in the decades since the building was erected have limited tower development in the surrounding neighborhood — resulting in mostly unobstructed views from its middle-to-top floors of an iconic cityscape that includes views of the Golden Gate Bridge and the Bay Bridge, which connects San Francisco and Oakland.

“This isn’t a fix and flip,” Shvo said. “We are bringing life back to downtown.”