Real Estate Deals: Transamerica Pyramid to undergo renovations after landmark 2020 sale

Big cities across the world are distinguished by their signature skylines, and in San Francisco, the Transamerica Pyramid has been the city’s most recognizable office fixture for nearly half a century.

Surpassed in height only in 2018 following the construction of Salesforce Tower, the 48-story pyramid — commissioned by Transamerica Corp. as the company’s headquarters — was completed in 1972, rising to a structural height of 853 feet. At the very top of the concrete, glass and steel clad office tower, a 212-foot spire hoists a secret “crown jewel” room into the sky.

It is not just a San Francisco icon, but a world icon — exactly the type of dazzling landmark in which New York luxury real estate developer Michael Shvo prefers to invest his money. And so he did.

In October, Shvo and his investment partners — Deutsche Bank and Bayerische Versorgungskammer (BVK) — became the second owners in the pyramid’s history, shelling out $650 million for the building and two adjacent structures. The three buildings total about 760,000 square feet, making the price roughly $855 a square foot. The deal with Transamerica Corp. parent company Aegon closed amid the global pandemic, and not without a few hiccups. The pyramid was first listed for sale in August 2019 and was 90% occupied at the time. Shvo was granted two extensions on a complex and extensive due diligence process, closing the deal some 10 months after his team emerged as one of several serious potential buyers. In February 2020, the joint venture agreed to pay $700million for the pyramid complex — but the purchase agreement was revised after the delays, with Aegon agreeing to a nearly 10% price reduction in July.

Meanwhile, those who were keeping an eye on the deal were left to wonder whether an increasingly uncertain market turned upside by the pandemic would unravel this high-profile transaction as it has so many others. It did not — but the pandemic did slow things down abit, Shvo said in an interview.
“There are a lot of things that have to happen between contract and closing, and part of it involves getting information from city agencies like the Department of Building Inspection, which was closed. When Covid started it was a total shutdown,” he said. “So we were just sitting there, waiting.”

But in Shvo’s world, perseverance wins. “I think Aegon and Transamerica very much appreciated that we persevered through hell, high water and Covid,” he said.

Shvo and his investment partners pressed on amid a falling out with Turkish businessmanSerdar Bilgili, chairman of Istanbul-based private equity real estate firm BLG Capital, who alleged in a lawsuit that he was elbowed away from what he claims should have been joint ventures to acquire the Transamerica Pyramid and another building in Chicago. A spokesperson for Shvo and his partners said at the time that the parties “could not come to terms on the framework of their relationship with BLG going forward.” A hearing on a motion to dismiss the case filed by Shvo and his partners is scheduled for April 1.

Shvo said his team emerged from a pool of 40 interested bidders — including big names like Vornado Realty Trust, Hong Kong real estate investor Goodwin Gaw and New York-based real estate investment and development firm RFR  — after six rounds of bids. He believes that his long track record and experience with stewarding iconic assets ultimately sealed the deal for his first acquisition in San Francisco.

“(The sellers) wrote me a beautiful letter saying that it’s obviously a very important moment for them, that they decided to award us the building because they feel that we would be the best stewards of the brand,” said Shvo, adding that part of the deal was for Transamerica to retain the pyramid’s naming rights. “We are the protectors of that brand.”

“It will always be the skyline-defining property in San Francisco,” he said. “We have big plans to upgrade it, to bring it really into the into the next century.”
Shvo said they are interviewing several architect finalists and expect to make a selection soon. While the rise of remote work and ongoing shelter-in-place orders would give most investors pause, Shvo said that the Transamerica deal makes sense beyond the present moment.

“A lot of real estate investors’ idea of looking into the future is three years, five years. When we look into the future, we look into the future 10 years and more, and with the Transamerica Pyramid in particular, this is a 50-year acquisition. This building will probably not trade again in my lifetime because there is no replacement for this building,” he said.

Since starting his company in 2004, Shvo has built up a $7.2 billion portfolio of office, residential and hotel properties, with a focus on trophy assets like the pyramid. He said that his goal is to acquire the “best real estate in the best locations in the best cities in the United States”— the kind that will offer great returns when times are good and have a “much stronger downside protection” in a difficult market.

The pandemic was a good barometer for this strategy, according to Shvo, In 2020, he said his company collected 98% of rents owed across its 2.5 million-square-foot office portfolio.

“It’s not necessarily only about how we handled the tenants, and through Covid,” he said. “It’s really about the quality of the assets and the quality of the tenants.”
Along with the pyramid purchase came a 19-story building at 505 Sansome St. of 176,241 square feet and a nine-story, 54,940-square-foot building at 545 Sansome St. Shvo said that he has no plans of offloading the two adjacent buildings.

“Every one of those buildings is integral to the master plan,” said Shvo, estimating that renovations to all three buildings will cost about $100 million.
The pyramid itself is in mostly “good shape,” but it does need a facelift and “some amenities to really make it relevant now,” he said.
Asked whether he plans on making additional acquisitions in San Francisco, Shvo indicated that there is one large office building that has caught his eye. Stay tuned.

Transamerica Pyramid Center
• Address: 600 Montgomery St., 505 Sansome St. and 545 Sansome St.
• Size: 760,000 square feet for all three buildings combined
• Price: $650 million
• Buyer: SHVO/Deutsche Bank/ Bayerische Versorgungskammer
• Seller: Transamerica Corp./Aegon