Serdar Bilgili and Michael Shvo (Illustration by Paul Dilakian for The Real Deal)
Michael Shvo’s rule-breaking had finally caught up with him.
The controversial broker-turned-developer was sidelined on more than $2 billion worth of Manhattan condos when he pleaded guilty to evading $1.5 million in taxes in 2018.
But just when it looked like Shvo was persona non grata to any major investors and lenders, he surprised everyone. His second act was even bigger than the first.
The Israeli developer teamed up with his best friend, Turkish real estate mogul Serdar Bilgili, and two German investment giants to reinvent himself as an institutional powerhouse in real estate.
In a span of roughly two years, Shvo has become the face of one of the most active trophy real estate investors in the U.S., buying or putting into contract roughly $3 billion worth of property in key markets like New York, California, Chicago and South Florida with help from a few deep-pocketed backers.
His relationship with his old pal, however, has frayed.
Bilgili recently accused Shvo and partner Deutsche Finance America of scheming to cut him out of their agreement on two big deals — one to buy San Francisco’s iconic Transamerica Pyramid and another for Chicago’s landmark “Big Red” office building. And he accused Shvo of running up expenses on the partnerships’ tabs, demanding his friend open his books.
That’s the thanks Bilgili feels Shvo has given him, after helping resurrect his friend’s career.
“We have alleged that it was Bilgili who put Shvo in a position to succeed here,” Bilgili’s attorney, Dan Perry of Milbank, told The Real Deal. “There was a need to have Bilgili involved in a very public way because of Shvo’s negative reputation in the New York real estate community.”
Shvo and his German partner Deutsche Finance argue that Bilgili was cut out because he couldn’t come up with the money for their most recent deals. They say he’s only attacking Shvo in an act of vindictiveness designed to leverage a big payday.
Shvo and Deutsche Finance’s attorney, Proskauer’s Brad Ruskin, said Bilgili’s attempt to get back into the Transamerica and Big Red deals are “further proof of how empty Mr. Bilgili’s allegations are.”
“It is Mr. Bigili who is the one complaining through other filings that Mr. Shvo and Deutsche Finance won’t do new business with him anymore and clearly he still wants to do deals with them,” he said. “The fact is that any stunts by Mr. Bilgili will not influence the successful efforts of SHVO-Deutsche Finance as they continue to expand their portfolio in the United States.”
The hostile turn of events may not be that surprising for those who have followed Shvo’s flashy career. The dealmaker famously bootstrapped his way up the ranks of real estate’s elite to become one of Manhattan’s highest-grossing brokers. He pioneered a new way of marketing high-end real estate by teaming up with luxury consumer brands and popular designers.
“They loved each other, and then they hated each other.”
But his elbows-out approach made plenty of enemies — and maybe some haters — along the way.
Shvo gained a reputation for allegedly breaching the brokerage code of ethics by refusing to share his listings with competing agents. And he has long fought to battle the critics who, while acknowledging him to be an expert salesman, say he’s in reality a deal promoter who doesn’t have what it takes to be a developer.
Now, Shvo’s running around with a hefty checkbook — albeit someone else’s — and snapping up big-ticket properties while many others sit on the sideline. That’s led many to speculate that he’s overpaying for properties.
But even those who doubt Shvo have been forced to acknowledge that he’s once again making deals and grabbing everyone’s attention.
“What he’s accomplished has been quite remarkable,” said JLL’s Mike Tepedino, who’s worked with Shvo to raise debt for his purchases. He noted that, despite all the knocks, Shvo’s been able to line up blue-chip investors on both the debt and equity side.
“I think he’s really validated himself in the marketplace as a pretty serious player,” Tepedino said.
Setup men
Shvo and Bilgili’s close ties go back long before the two started buying billions of dollars of properties together.
Bilgili introduced Shvo to his wife, Turkish actress and model Seren Shvo, in 2010. And Shvo introduced Biligli to the model Amelie Latournald, with whom he has a son, and Ivy Sims, with whom he has a daughter.
The two are also jet-setting art aficionados: Shvo bought a flashy Ferrari and collects works by artists such as Andy Warhol and Roy Lichtenstein. Bilgili is an amateur photographer who, over the summer, was spotted by Turkish paparazzi with a TV presenter he’s rumored to be dating.
But there’s long been a push-and-pull between the two, according to people in the know.
“They had a volatile relationship,” said one person familiar with the two developers who asked not to be named. “They loved each other, and then they hated each other.”
From Shvo and Deutsche Finance’s perspective, because Biligli is based in Turkey he didn’t play a significant role in sourcing or managing deals. After helping bring the investors together, his main role was to come up with his share of the money.
Bilgili’s portfolio consists mainly of hotel and high-end student rental properties in Turkey, and those sectors have been hit hard by the pandemic, according to several people familiar with the matter. At the same time, the country’s economy has been in crisis since 2018 with the Turkish lira devaluing significantly against the U.S. dollar.
Shvo and Deutsche Finance also contend that their deals were all essentially one-offs and that there was never an overarching agreement to purchase multiple properties together. In fact, the partners claim their individual agreements specifically allowed any of the investors to compete with one another.
From taxis to trophy properties
Shvo and Bilgili met in 2007 when Shvo was giving a lecture to the advisory board of Hilton Hotels, where he warned that the real estate market was about to collapse. Bilgili reached out to him after lunch and the two eventually became best friends.
By then Shvo had established himself as one of real estate’s great success stories. He moved from Arsuf, Israel, to New York in 1996 and managed a fleet of taxis until one day a real estate broker who was showing him a rental apartment suggested he would be a good broker himself.
Shvo rose through the ranks of Douglas Elliman and became a top earner before leaving in 2004 to start his own new-development marketing firm, where he was known for bringing in celebrities like John Legend and Giorgio Armani to help market condo apartments.
He became a brand unto himself, even creating his own tagline: “Let’s Shvo.”
Shvo, who’s now 47, took a break during the Great Recession but reemerged as a developer. And he came out swinging. Shvo bought the site of a gas station in the trendy West Chelsea neighborhood next to the High Line, which he turned into a tongue-and-cheek art exhibition displaying sculptures of sheep by the artist François-Xavier Lalanne — which can cost as much as $200,000.
He teamed up with Russian billionaire Vladislav Doronin to buy the upper floors of the landmarked Crown Building, where a five-story penthouse is in contract for $180 million. And he began developing the tallest condo tower in the Financial District at 125 Greenwich Street, which he dubbed the neighborhood’s answer to developer Harry Macklowe’s 432 Park Avenue.
Then Shvo ran into big trouble in 2016 when Manhattan District Attorney Cy Vance charged him with creating a shell company in Montana so that he could avoid paying sales and use tax — a kind of out-of-state sales tax — tied to the purchases of art works, furniture, jewelry and a 2013 Ferrari 458 Spider.
Vance called Shvo’s version of tax evasion “an art form unto itself,” and the real estate mogul faced up to 15 years in prison. The developer pleaded guilty to criminal tax fraud in April 2018 and agreed to pay $3.5 million in back taxes, but by then much of the damage to his public persona had already been done.
Shvo was removed as co-developer on the Crown Building, and his name was scrubbed from the marketing campaigns of his other projects. He sold his stake in 125 Greenwich Street to his partners Bizzi & Partners and Howard Lorber’s New Valley.
He remained a minority investor in the other projects, but to many, his troubles reinforced the perception that he was a better marketer than a developer.
“He’s got all these great ideas and can do a really great presentation. But when it comes to executing, there never seems to be anything there,” said Andrew Gerringer of the Marketing Directors, who worked with Shvo years ago at Elliman.
“What you’ll notice is that he never has the same partners the second time,” Gerringer said in reference to Shvo’s many career phases. “He burns a lot of bridges.”
The comeback kid
While Shvo was working on his plea agreement, he was also stitching together his next big real estate deal.
“What you’ll notice is that he never has the same partners the second time. He burns a lot of bridges.”
For several years the developer had been trying — unsuccessfully — to buy the upper floors of the Gucci building at 685 Fifth Avenue. He decided to bring Bilgili in on the purchase, and one night the two sat down for dinner with a real estate power broker who helped line up the financing that allowed Shvo to kick off the next chapter of his career.
Mitch Sikora, CEO of Manhattan-based JTP Capital, had previously worked with Bilgili to put two funds together with international capital the Turkish mogul used to develop his hotel and student housing projects in Turkey. That included the Soho House in Istanbul.
At the dinner, Bilgili asked Sikora who would be a good match to finance the 685 Fifth purchase. Sikora suggested Deutsche Finance Group and said that, since Biligli had an existing relationship, he should be the one to reach out. (The Munich-based private equity firm with $7 billion in assets under management has no affiliation to Deutsche Bank.)
The deal appealed to Deutsche Finance, which used its connections to loop in Germany’s biggest pension company, Bayerische Versorgungskammer, according to a person familiar with the negotiations.
The partnership paid $135 million cash in August 2018 — just four months after Shvo’s guilty plea — to purchase the upper floors of the Gucci building, which they are developing into condos branded under the Mandarin Oriental hospitality chain.
Big buys
That was the start of a spending spree across America that, considering purchase prices and planned capital investments, comes to nearly $4 billion worth of real estate.
After the deal at 685 Fifth Avenue, the partners paid $103 million in February to buy the Raleigh Hotel in Miami Beach from Tommy Hilfiger. Later that summer they picked up two adjacent hotels, the South Seas Hotel and Richmond Hotel, for nearly $140 million, with plans to build a residential tower designed by architect Kobi Karp.
On the West Coast, the investors paid $130 million in May to buy a site in Beverly Hills at 9200 Wilshire Boulevard, where they plan to build 54 condos. And back in New York, they paid $382 million in March to buy the retail-and-office building in Soho at 530 Broadway.
Not done yet, in September they bought the Coca-Cola building at 711 Fifth Avenue for $937 million — a dramatic deal in typical Shvo fashion.
Coca-Cola refused to sell the building to Shvo even though he had submitted the highest offer. Sources close to the process said his tax case was an issue for the Fortune 500 company, but Shvo remained undeterred.
Just days after Coca-Cola sold the building to Nightingale Properties and the Wafra Group for $909 million, Shvo bought the property from the new owners and paid them $28 million more, demonstrating a persistence that surprised even his biggest critics.
Wharton Properties’ Jeff Sutton, who sold the Soho building to Shvo along with Thor Equities, said Shvo kept all his promises on the complex deal.
“All you need to do is look at Michael’s track record with Deutsche Finance and the deals they have closed in the last 24 months,” he said. “That speaks for itself.”
Cut out
San Francisco’s Transamerica Pyramid is arguably one of the most iconic skyscrapers in the country, and it’s where things started to go wrong between Shvo and Bilgili.
Last fall, they started eyeing the 48-story futurist tower and Chicago’s Big Red office building for more than $1 billion combined. Shvo, Bilgili and Deutsche Finance’s local arm — based out of Denver — signed agreements to purchase the properties from Transamerica Corp. and from John Buck and Morgan Stanley, respectively.
But Bilgili claims that he was led to believe a few months later that the deals fell through, alleging his partners secretly put together separate LLCs to pursue the deal — cutting him out of the equation.
Bilgili filed a complaint in San Francisco Superior Court in July, accusing Shvo and Deutsche Finance of “usurp[ing] business opportunities for themselves” and breaching their fiduciary agreement to the Turkish investor.
But Bilgili wasn’t done suing his joint-venture partners.
In August, on the day before Shvo and Deutsche Finance closed on Chicago’s Big Red, he filed another lawsuit in Manhattan Supreme Court, accusing Shvo of charging nearly $1 million in expenses to the partnership that his pal allegedly couldn’t account for. Those charges include $600,000 in travel expenses and $400,000 in rent for the $30,000-a-month penthouse Shvo stays in at the Setai in Miami.
Bilgili withdrew his New York lawsuit about two weeks after filing it. His attorney, Dan Perry, said they withdrew the case after Shvo agreed to go to arbitration over the expenses.
Shvo’s side, however, argued that Bilgili’s lawsuit was nothing but a publicity stunt and hinted that Shvo may go after his pal for attorney’s fees.
“There was never a legitimate basis to file his procedural lawsuit because there never was a refusal at any time by Mr. Shvo to arbitrate any issues,” said Ruskin, the attorney for Shvo and Deutsche Finance. “He can’t point to any such refusal, not one.”
But Bilgili stands by his claim that his friend schemed to cut him out of future deals.
“There are, in my view, two explanations,” his attorney, Perry, said. “Either Shvo doesn’t want to deal with a partner that’s asking him about expenditures charged to the partnership, or he now has relationships with our investors and feels like he doesn’t need Bilgili anymore.”
Shvo way
Shvo is now in a new phase of his career.
Whereas before he teamed up with others to co-develop properties, he is now the sole developer on the buildings he bought with Deutsche Finance and Bilgili. That means Shvo gets to collect the development fees and promotes on his deals.
His goal is to target iconic properties that have been neglected and bring them into the 21st century.
“This is what we do,” Shvo told a Miami Beach preservation board during an August hearing on his Raleigh Hotel project. “We are currently restoring 11 buildings by probably the most historic architects in this country.”
The board approved the project in early September after Shvo agreed to trim the height of the new residential portion by 25 feet.
Shvo’s success is buoyed by the fact that one of his partners is a German pension fund with a massive balance sheet. Interest rates are negative in Germany and pension companies generally have lower capital demands than other investors. That means a company like BVK is motivated to put its money to work and can generally afford to outbid competitors in order to win properties.
At the same time, Shvo’s been building up his company of 48 employees in preparation for a big development pipeline. Earlier this year, he doubled the size of his Fifth Avenue office to 35,000 square feet to accommodate a larger staff, and he recently tapped Kevin Neuner, a former executive at Building and Land Technology, as his chief financial officer.
As for his legal spats with Bilgili, a source close to the two said they remain friends — even if their business relationship is strained.
And while both sides sling mud over one’s travel expenses or the other’s financial position, the heart of the matter is that these two friends who matched so well in their professional and personal lives have found it necessary to retreat to their own corners.
And despite the fact that controversy continues to follow each chapter of his career — or possibly because of it — Shvo continues to grab attention as he pulls off big deals.
CBRE’s Mary Ann Tighe, the leasing agent at 711 Fifth Avenue, pointed out that partnerships across the real estate industry are being tested by a combination of late-cycle forces and the pandemic.
Now, she said, it’s more common to see partners suing one another to get out of deals.
“This is a difficult time we’re in,” she said. “Only Michael could get sued by someone who wants to be in a partnership.”
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