Shvo Takes German Backer To Arbitration For $85M
Michael Shvo, whose flashy American real estate developments have been in part funded by German pensioner money, is clashing with the primary source of that investment.
Shvo has brought an arbitration case against Bayerische Versorgungskammer, known as BVK, claiming he is owed more than $85M in various fees. He took the dispute to Judicial Arbitration and Mediation Services, an alternative dispute resolution organization, as two executives who had a hand in funneling German pensioner money to his projects have left their jobs.
The internal turmoil follows reports of stalled development and defaults by Shvo, which resulted in the Bavarian State Parliament questioning BVK over potential losses following reporting by Munich-based tabloid Abendzeitung.
In a statement to Bisnow in response to questions about the Shvo investments, BVK said that it “has been dealing with the issues you have raised in detail for some time” and has opened its own review through outside experts.
The investigations are ongoing, and BVK is continuing to examine whether any additional adjustments to its processes are necessary, a spokesperson for the fund said.
“Without going into detail about individual investments or partners, we would like to state the following as a matter of principle: We continuously review how we can invest in a security-oriented manner while maximizing value for our members, insured persons, and beneficiaries,” BVK said in its statement. “It is therefore not unusual to seek a separation, possibly prematurely, depending on the performance of an investment, the overall market, or the existing interest of third parties.”
BVK has invested a total of €611M, roughly $712M, in Shvo real estate development and renovation projects, according to a parliamentary document obtained by Bisnow and translated from German via Google Translate.
BVK has repeatedly said that it has no direct, contractual relationship with Shvo. Instead, its capital was put in a fund managed by Deutsche Finance America, alongside other German funds, which in turn is invested in real estate projects.
But Shvo is now attempting to recoup $85M in payments from BVK directly through JAMS. The arbitration includes a notice of default that alleges that BVK failed to pay Shvo $27M in payments tied to various properties, with $21M in carried interest for the Transamerica Pyramid. The arbitration was first reported by Abendzeitung, also known as AZ, and a copy of the notice was obtained by Bisnow.
Shvo declined to comment on its relationship with BVK and on the reporting of AZ.
BVK confirmed that Rainer Komenda, its long-serving head of real estate investment management, is no longer with the pension fund, but it declined to comment further, citing “legal obligations.” AZ first reported his departure.
Jason Lucas, who oversaw BVK’s investment at DFA, is also no longer in his role, AZ reported. BVK declined to comment on Lucas, and Deutsche Finance Group, the parent group of DFA, declined to comment for this story.
BVK began its expansion beyond its home country in 2015. By 2021, more than half of its real estate investments were outside of Germany, with an expressed “need for growth in the real estate portfolio in the USA,” it wrote in its annual report that year.
Since launching its strategy, BVK has become one of America’s top foreign investors. It was No. 15 on PERE’s 2024 global investor ranking, with $32.7B allocated to real estate as of the end of 2023.
Shvo is known for pursuing grandiose projects, which include the Coca-Cola Building on Fifth Avenue in Manhattan, The Raleigh hotel in Miami, Mandarin Oriental Residences in Beverly Hills, and the Transamerica Pyramid in San Francisco.
But after throwing hundreds of millions into each of those developments, some have encountered troubles in recent years.
In Miami Beach, Shvo has spent years getting the redevelopment of the historic Raleigh hotel off the ground. But last year, he laid off several of the company’s Miami employees. Then, in January, materials obtained by Bisnow showed that the developer retained Newmark to help recapitalize the project as an undisclosed partner was looking for an exit.
Last month, after six years of stalled construction, Business Insider reported that Nahla Capital bid $275M to purchase the property, which consists of three adjacent hotels in the Art Deco Historic District. Shvo has the option to match the offer and retain control. Shvo declined to comment on the status of The Raleigh.
In Beverly Hills, Shvo completed the Mandarin Oriental Residences in May 2024, but then defaulted on $200M in loans four months later. He sold 10 of the 54 units and offloaded the remainder to Centurion Real Estate Partners.
BVK has invested in both The Raleigh and the Mandarin Oriental, in addition to several other Shvo projects.
“It is important for us to emphasize that any losses in individual investments in a broadly diversified investment portfolio such as ours have no impact on the pension benefits of our members, insured persons, and beneficiaries,” BVK said in a statement.
BVK said it had a capital-weighted net return of around 3.4% in 2024, achieving “a key investment objective” and exceeding the interest rate requirements of the pension funds it manages.
“This would not have been possible if there had been substantial negative effects,” BVK said.
Potential losses were a fear of Bavarian State Parliament officials, who questioned BVK after earlier reporting by AZ brought attention to its investments in Shvo's projects.
“According to media reports, the Bavarian Ministry of the Interior's supreme authority Versorgungskammer (BVK) invested high three-digit million amounts directly or indirectly in luxury real estate in the USA, which was developed by a convicted tax evader,” Bavarian Parliament officials wrote in a letter last year. “High losses are looming, forcing those responsible at BVK to explain themselves.”
In 2018, Shvo pleaded guilty to tax evasion related to personal goods. Under his plea agreement, he was required to pay $3.5M in taxes and penalties.
BVK representatives responded to officials’ questions at a Bavarian State Parliament Budget Committee meeting April 2.
“The state parliament subsequently considered the matter to have been sufficiently answered,” BVK said in its statement.
The arbitration dispute comes on the heels of a major legal win for Shvo. Last year, Shvo was sued by Core Club for $600M after the two partnered to bring the prestigious members-only hospitality group to 711 Fifth Ave., the Transamerica Pyramid and Milan.
Core Club alleged that Shvo failed to deliver on promised developments, performed substandard construction and fraudulently seized a 50% stake in the club's business. Shvo countersued, arguing that the club defaulted on a $750M loan and didn't invest in the properties as per the terms of their agreement.
In a judgment filed this week, a New York Supreme Court judge ruled that Core must pay Shvo nearly $1M, including interest, because of the default. Core’s original suit against Shvo, which is being heard by the same judge, is ongoing.
“The court’s decision affirms what we have maintained from the beginning: SHVO has acted appropriately, responsibly, and in good faith throughout this process,” Wachtel Missry Managing Partner Morris Missry, who served as the attorney for Shvo, said in a statement in response to the judgment. “We are gratified that the court saw through Core Club’s transparent attempts to discredit SHVO’s reputation and evade their tenant obligations and has ruled in our favor.”
Core Club said its legal battle with Shvo doesn't end here.
“As always, Michael Shvo is trying to distort the facts and take information out of context,” Marc Kasowitz, who is representing Core Club, said in a statement. “The court’s decision yesterday is a very small piece of the overall dispute; it does not exonerate Shvo’s fraudulent misconduct, and in any event, it is being appealed. Perhaps Mr. Shvo is trying to distract from the news of his failing property portfolio.”
UPDATE, AUG. 7, 9:45 P.M. ET: A statement from Core Club has been added.
UPDATE, AUG. 8, 9:30 A.M. ET: This story has been updated to include how much BVK has invested in Shvo's projects.
