ABC7 Insider Phil Matier got a first look inside the revived building and talked with the building's owner about the future of office work, the Financial District and America's downtowns.
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According to Transamerica developer Michael Shvo, the newly renovated Pyramid will create 7,000 new jobs in San Francisco and generate $2.5 billion annually in revenue for the city.
But Building a Better Bay Area sometimes means taking big risks and Shvo is one developer who hopes a billion-dollar investment will encourage workers to return to downtown San Francisco.
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Matier: "Why would you sink $1 billion into office space in a city that's got a 30% vacancy rate?"
Shvo: It's a great question. So, you know, I walked when I came to see this building for the first time to buy it. I walked around that corner, looked up to the building, and I told my team, 'We have to buy this building.' It's the fact that this is the symbol of San Francisco. No different than the cable cars or the Golden Gate Bridge. This building in our investment here, we have a $1 billion investment that is going to rejuvenate this entire neighborhood. You are in the center. We call it the Pyramid District now because you're in the center of these five amazing -- four or five amazing neighborhoods -- that all collide over here. You know, my dream and my vision from three years ago when we bought the building now came to fruition. Not only because of what we've done here with the building, which you're the first one to see it."
Matier: "But it's a gamble. I mean, with one-third vacancy rate and all these projections we're seeing about, you know, will work, come back, will the offices come back. You think you're going to be able to lease the place out?"
Shvo: "Well, look. We've signed multiple leases. Give it some stats. When I bought the building, the rents here were between $60 to $100 a foot. We've signed leases between $100 to $275."
Matier: "You're actually asking more."
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Shvo: "More than twice what it was before COVID. We can look at all offices as being equal. There are plenty of buildings that I can walk you outside here. And in every city in New York, in Chicago, in Miami there are offices that just have to go because they're not relevant anymore for the future of how people work. The idea with this building and with other buildings that we own because we only operate in the trophy market."
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Matier: "Chicago, Miami, New York, Beverly Hills."
Shvo: "Correct. What you're seeing today and mostly after COVID also is this huge flight to quality, right? Tenants want the best product. Money's not an issue. We're talking today. The stock market is at an all-time high. There's no issue with the economy of this country. The issue is that finally, people understood that their office experience shouldn't be worse than their home experience. What we've done is we've created an experience here in any other building that we've developed or that we remastered. The idea is that the hospitality level of experience, that an office building should be at the highest level. We have to earn the commute. You ask about the future of the office. People have to have a reason to come to work."
Matier: "Right now, employers are having a tough time getting their workers back three days a week. Is that how you're banking on this? That people would come in three days a week?"
Shvo: "I disagree with that statement because we're seeing in our buildings in Chicago, New York and here -- employers or most employers are bringing people back five days a week. That's the way it has been from the beginning of COVID. I've said that the idea of working from home is not sustainable. It was a moment in time. And there's been a huge transformation since. Goldman Sachs, Apple, Facebook, everybody brought employees back five days a week. Finally, they understood that collaboration cannot be done in your pajamas, sitting in your kitchen is a zoo. It's just not feasible. People are meant to be together and to work together. But what are we doing here and what are we doing in our other office buildings? We're giving employers tools to lure people back to work. We have a private redwood park in the middle of San Francisco, something that nobody else has, right? Even in my building in New York, they have buildings that are on Fifth Avenue, that are overlooking the park. Everything you see here is all going to be restaurants, coffee shops, souvenir shops, everything."
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Matier: "And you've got these two buildings too, right?"
Shvo: "I own the entire block."
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Matier: "Okay and what do you see as the future of office work? What kind of people are going to be in offices? Is it going to be tech? Is it going to be artificial intelligence or is it going to be the end for more financial groups, hedge funds? What's the future of American offices? In downtown cities?"
Shvo: "So let's talk about San Francisco specifically, because each city truly has its own kind of unique, unique aspect. I'll tell you who. We're at least in space. We're leasing space to, you know, VCs. You know, the venture capital companies that are at the top of their market, right? Leaders of the industry, financial or financial companies, if it's hedge funds or private equity. And that's at the pyramid in Transamerica. You're seeing more of this kind of late-stage startups. So we're getting a variety of tenants. But what we're doing is connecting everybody, is they're looking for the next generation of office space. They're looking for office space of the future, not the relics, as you said. And that's what you talk about -- the 30% or 40% vacancies. Those happen in buildings that are just not relevant. They have a building with an eight-foot ceiling and small windows. There's no reason for anybody to go to work."
Matier: "But the people on the street -- you walk down the streets here you see tents."
MORE: San Francisco now at 35% office vacancy rate, highest ever recorded: data
Shvo: "I haven't seen tents down here, and I haven't seen the homeless here. So you know, I live in New York. I come here every two to four weeks, depending on the month. And I've never seen San Francisco so busy as I've seen it this week. I've been visiting here. You're seeing the energy back on the street. You're back to seeing people back at the office even here, because we, you know, we monitor occupancy. We're at an all-time peak as far as tenants are bringing people back."
Matier: "So you don't buy the doom loop of San Francisco?"
Shvo: "It's not you move. There is no doom. Writing off San Francisco is not something I would do anytime soon, because like I said, it's an attractive city. The people are great, the food is great. It's a beautiful city. And it's been through a lot. I mean, it's been through fires, through earthquakes. It always survived. And, you know, I have a privilege, and I have a great advantage over you. I'm not from San Francisco, so I can see the beauty of San Francisco. As you know, you guys are all so self-critical about every single thing. But when you come from the outside and you see the beauty of the city, you see the people, you see, you finish the food. It's a marvelous place. And I have the ability and the advantage of operating in all these different markets. San Francisco is one of my favorite cities in America. I've invested $1 billion here. And I can tell you that I've always been positive. And I've said to you, faith is something that you always need to have, not just when times are good. When times are tough, when things happen, you have to believe. And I'm a big believer in the city, and I don't just talk about it. I have $1 billion invested behind my belief."