Michael Shvo is at the center of $3 billion worth of property deals, making him a main player in premium real estate—but just three years ago he pleaded guilty to tax fraud.
Dressed in a black Armani T-shirt—he has 100 of them—Michael Shvo sits in front of a Zoom background depicting the jewels of his real estate portfolio: the Transamerica complex in San Francisco (acquired with partners for $650 million last fall), Miami’s Raleigh Hotel ($103 million), the Big Red tower in Chicago ($376 million), the old Coca-Cola building on Fifth Avenue ($956 million) and more. “Somebody told me the other day, ‘You have a good strategy—you’re buying all the buildings in the Lego set,’” Shvo says. “We only buy the best real estate in the best locations.”
In the past three years, Shvo, 48, and his general partners—Deutsche Finance Group (not affiliated with Deutsche Bank) and Serdar Bilgili (a Turkish hotel magnate who has since fallen out with the other investors) plus BVK, a German pension fund that invests the majority of the capital—have bought $3 billion worth of real estate across the U.S., making the group one of the country’s most prolific buyers.
Roughly half of their purchases closed before the pandemic, including the Coca-Cola Building, which the partners acquired in 2019. The Big Red and Transamerica purchases, meanwhile, closed in August and October 2020, respectively—the latter at an 8.6% discount over the original price. The group plans to buy billions of dollars more in the years ahead, focusing on marquee buildings in major cities.
On paper, the partnership may seem an odd match. BVK is a giant public pension fund in Germany that handles retirement funds for doctors, lawyers, parliament members, even chimney sweepers. Deutsche Finance manages over $9 billion in assets and has investments in more than 47 countries. Meanwhile, Shvo is a New York real estate broker turned developer who, just three years ago, pleaded guilty to tax fraud over the purchase and shipment of art, jewelry and other luxury goods. “Through ornate ruses—like creating a sham Montana corporation to avoid taxes on a Ferrari—the defendant dodged more than a million dollars in state and local taxes,” Manhattan District Attorney Cyrus Vance said in a statement announcing the plea. Shvo agreed to pay $3.5 million in unpaid taxes, penalties and interest; he says he settled “in order to move on and focus on his business.”
Shvo was introduced to Deutsche Finance by Bilgili, an old friend and business partner who was an investor in the first seven properties but not the last two. (Each party offers a different story on Bilgili’s ouster.) “I don’t think any of these institutions, if we were not involved, would just go and meet Michael and do these deals,” says Bilgili.
Former Friends: Michael Shvo and Serdar Bilgili were so tight knit that Bilgili introduced Shvo to his wife. Now their partnership is over.
Alexander Tamargo/Getty Images
Explaining the decision to sign on, Deutsche Finance executive partner Sven Neubauer says the firm conducted a background check on Shvo. “We didn’t really find anything that gave me a reason to doubt his integrity vis-à-vis his business partners,” he says, adding that Shvo has become “a valuable and trusted partner” with a “keen eye for adaptive reuse of historic buildings.”
Now Shvo is gambling that ultra-prime properties will consistently rise in value—at a time when Covid may have upended the real estate market forever. Demand for office space in two of his key markets has plummeted: in New York City it fell 68% over the last year, according to VTS, a real estate software firm; in San Francisco it dropped 52%. Firms like Elliott Management are shifting from Manhattan to Florida, and the suburbs are flourishing. “You’re goddamn right there’s risk. Huge risk. Huge,” says Eric Anton, a broker at Marcus & Millichap in New York City. Though “if he’s right, then he’ll make a ton of money.”
“The current market environment is not deterring us from buying real estate. If anything, it’s causing us to buy more.”
Already, analysts estimate that Shvo’s two largest New York projects (acquired for a combined $1.36 billion) have depreciated by at least 20%, shaving roughly a quarter of a billion dollars in value; they say the rest of the portfolio is likely flat. His spokesperson disputes this and says that, even if that were true, Shvo is a long-term investor.
Shvo remains on the hunt for new deals. “The current market environment is not deterring us from buying real estate,” he says. “If anything, it’s causing us to buy more.”
Shvo’s backstory seems improbable. Born in Israel, his parents taught organic chemistry at Tel Aviv University. When he was young they took sabbaticals at Stanford and Yale. Later, while serving in the Medical Corps of the Israeli army as a computer programmer, Shvo says he made “a lot of money” trading oil and gas stocks. “I could have retired when I was 22,” he told Steven Gaines in the 2005 book The Sky’s the Limit: Passion and Property in Manhattan.
According to Shvo, he lost all the money in a market downturn in 1995. “I had $3,000 in my pocket,” he recounts. “I said, ‘Okay, what do I do now?’ I got on a plane and came to New York.”
There, on 101st Street, he says he slept on a friend’s floor and went days without eating. (He doesn’t remember the name of the friend.) According to Shvo, he scraped together the funds to lease a yellow cab and a medallion, then subleased the car by the shift. Soon he was able to buy used taxis, which he continued to lease out. “Three months later, I had ten yellow cabs and 30 drivers,” Shvo says. “The cabs were nothing . . . like, $2,000 each at the time. And the guy that was selling me the cabs also was leasing me the medallions, so he was letting me pay in installments.”
Manhattan Marketer: Shvo calls his consumer-centric approach to real estate “The Shvo Way.”
Gabby Jones for Forbes
“That’s the first real idea that I brought into the real estate business that changed the world.”
Bruce Schaller, an urban transportation consultant, says Shvo’s numbers sound low, “even if you’re thinking, you know, very bottom-scraper terms,” though he adds that “nothing is impossible.” (Shvo stands by the story.)
Shvo left the taxi business in 1997, and after dabbling in other hustles, like a cigar bar, found himself looking for longer-term traction. By coincidence, a woman in his building knew Yuval Greenblatt, a manager at J.I. Sopher & Company (now part of Douglas Elliman Real Estate), and referred the 27-year-old Shvo to be hired as an agent. Greenblatt agreed to bring Shvo on. “He’s pretty good at learning pretty quickly,” Greenblatt says. “He’s one of the few people who has both sides of the brain working at the same time.”
At the outset, Shvo says, he “knew nothing about real estate.” To compensate, he hustled, working until well after midnight seven days a week. When customers called after hours looking for an agent, Shvo was the only one there, and he’d get the job. At times he’d show dozens of apartments in a day, often cheap listings that nobody else wanted. “My first year at Douglas Elliman, I rented 360 apartments,” he says.
Then, to further boost his output, Shvo brought in a team of his own junior agents to show listings; he would keep a cut of their earnings. “That’s the first real idea that I brought into the real estate business that changed the world,” he says.
“I doubt that he actually invented the model,” clarifies Greenblatt, now an executive manager of sales at Elliman. “But I could certainly say he took it to a new level.”
In 2004, Shvo decided to strike out on his own, with a new career as a real estate marketer. His first project came from a friend, Shaya Boymelgreen, who had purchased an old Chase bank at 20 Pine Street in the financial district, which he planned to convert to luxury condos. He tasked Shvo with convincing people to move in—a tough sell so soon after 9/11.
Shvo spent a week thinking, then came to Boymelgreen with a proposal. “I want Armani to design the building,” he said. The owner’s response, according to Shvo: “Who is ‘Armani’?”
Shvo’s idea won out, and the plan seemed a hit. The building’s launch party in 2006 exceeded capacity, leaving 300 people outside in a blizzard, Shvo says. John Legend performed, and multiple units immediately sold. “That was a worldwide game changer,” he says of the project. “It really jump-started my career as a marketer.” (The project later caused headaches. Amid controversy over construction issues, it reportedly took seven years for the building to sell out; Shvo left after one year and says he was not involved with those problems.)
Meanwhile, Shvo landed other deals: an entire island in Abu Dhabi; properties in the Seychelles, Mauritius and the Bahamas. Across the globe, Shvo worked to turn ordinary real estate into a status symbol. “I only hired people from the luxury-brand world. . . . From Gucci, from Brioni, from Neiman Marcus, a lot of fashion companies,” he says. “Because for me, real estate is a luxury brand. It’s not four walls, a kitchen and a bathroom.”
Crown Jewels: Shvo and partners’ properties across the country include the Transamerica Pyramid in San Francisco, 685 Fifth Avenue in New York, The Raleigh Hotel in Miami and the Big Red tower in Chicago.
Getty Images; Marin Architects; Mose Studio; Lipman Studio
The Great Recession brought the global real estate market to a halt— Shvo says he saw the crisis coming and preemptively decided to step back, at age 35. Six years later he returned for a much larger comeback.
Shvo’s latest chapter, shifting from marketer to developer, began with an old gas station in Chelsea, New York, which he bought with partners in 2013 for $34 million and rebuilt as luxury condos. The Getty Building, as it’s now called, stands 12 stories tall; each of its 48 bathrooms is finished with a different kind of stone. “Wealthy people want to have something that nobody else has,” Shvo says.
One silent partner was Serdar Bilgili, the Turkish hotel magnate, who used to refer to Shvo as his brother and had introduced him to his wife, who is also Turkish, in 2009. The pair then invested in a series of luxury projects together. Bilgili was the person who connected Shvo to Deutsche Finance Group in 2018, just as his tax fraud case was heading toward a plea.
That’s when Shvo’s ultra-prime real estate investing strategy kicked in, with Bilgili and Deutsche Finance as the other general partners, and BVK serving as the main limited partner. Their first purchase was 685 Fifth Avenue in 2018 (for $135 million), followed by three Miami hotels ($240 million) and a development project in Beverly Hills ($130 million). Debt across the portfolio is under 50%, according to Shvo. He finds the deals, oversees renovations and manages the properties once done, while Deutsche Finance helps raise the money and was responsible for bringing BVK on board.
Buying Spree
A timeline of Shvo’s deals: he and his partners acquired $1.4 billion of real estate in 2020 alone.
In all the transactions, the general partners took equity stakes ranging from 2% to 10%, according to Shvo; that percentage was then split evenly between them (one third each when Bilgili was involved, and 50/50 after he was gone). The investors, led by BVK, put up the rest. According to Bilgili’s attorney, however, in two cases the GPs received no equity, opting instead to generate fees for managing the properties and to take a cut of whatever upside they generated when the buildings eventually changed hands. Shvo’s spokesperson disputes this.
Whatever the stake, Shvo’s dealmaking has won him high-profile fans. Jeff Sutton, the billionaire who owns many of Manhattan’s toniest storefronts, calls him a great investor who knows what’s “really new and relevant to today’s world.” The celebrity architect Peter Marino, who has worked with Shvo on multiple projects, describes him as an “enormously creative person.” Even Shvo’s rabbi, who is himself a power player, weighs in. “He doesn’t stop growing,” says Rabbi Avraham Moyal, whose congregation also includes Sutton and the billionaire Ben Ashkenazy.
Bilgili, however, is no longer an admirer. Deutsche Finance and Shvo closed the Big Red and Transamerica deals without him, prompting litigation that remains ongoing. Shvo declined to comment on the record about why Bilgili was kicked out, but a lawyer for the partnership alleges that Bilgili is “trying to find a way to offset his own reported difficult financial situation in Turkey . . . or is just upset at not being relevant.” A lawyer for Bilgili says that he was pushed out after raising questions over Shvo’s expense accounts. Both parties dispute the other’s account.
Forbes obtained an audit of Shvo’s spending practices conducted by one of Deutsche Finance’s accounting firms. It shows that he was reimbursed an average of $1,325 per night to stay at an apartment in Miami 83 times in 2019, as one example, and that his firm racked up over $700,000 in travel expenses. The report’s authors said they found no invalid expenses, however, and the German partners were not concerned.
None of this has disrupted Shvo’s ambition, and his search for the next big deal. “We see things differently. I see things differently,” he says. But in the end, the numbers will speak for themselves.