Episode 54: Michael Shvo - Chairman and CEO of SHVO

0:01Michael Shvo:This week on Generating Alpha, I sat down with Michael Shvo, founder and CEO of Shvo, and one of the most visionary builders in luxury real estate today. At 23 years old, Michael landed in New York from Israel with$3 ,000 to his name. He started by managing a fleet of taxis, and within a decade, he had become the top broker at Douglas Elliman, doing over$300 million in sales across more than 400 deals. He left to found Shvo in 2004, and within four years, had done billions in transactions worldwide. He pioneered the marriage of fashion and real estate, bringing Armani to residential development before anyone else, and built a firm that now oversees more than$8 billion in assets across New York, Miami, San Francisco, Chicago, and Los Angeles.

0:40Michael Shvo:His portfolio includes some of the most iconic addresses in the country, 711 Fifth Avenue, the Crown Building, Bidwreck in Chicago, the Mandarin Oriental Residences, properties defined not just by scale, but by the art, architecture, and culture woven into every one of them. In our conversation, we talked about arriving in America with nothing, building one of the most recognized names in luxury real estate, what he actually means when he talks about luxury and much more. If you enjoyed this episode, please follow the podcast on Reddit, five stars on Spotify, subscribe on YouTube, and share it to anyone who you think might find it valuable.

1:09Michael Shvo:I really enjoyed having this conversation with Michael, and I hope you guys enjoyed listening. Thank you. Thanks, Michael, for coming on. I really appreciate it. Thank you. Thank you for having me. Well, I want to start where I always do, the beginning. Tell me about your childhood. I'm correct. You grew up in Arasuf, Israel, son of two chemistry professors. What was that environment like? What kind of kid were you? Tell me all about it. It's a good question. You know, my memory doesn't go far. It doesn't go that far. But my parents were academics. They were both organic chemists teaching in Tel Aviv University and then a year in Stanford and a year at Yale.

1:44That's when I first came to the States, 1978 and 1979, which really was the premise of what brought me back here. kind of the American dream as a kid, a six-year-old kid in 1978, when Israel was, you know, very undeveloped country and coming to America and coming to New York, seeing the buildings, seeing everything, the technology at the time, it was magical. So that was, that's kind of where we started, where my kind of love affair with the United States started, and a little bit with real state but as a kid that was you know as a problematic kid wasn't really good with authority then um but we grew up in a place where where it was you know far away from school so it's not like I could walk away and see friends and things of that nature so you know obviously shaped me in a in a specific way but then that's kind of you know through my childhood and then ended up obviously in Israel you go to the army I served in the army three years and I studied a bit you know I got kicked out of high school.

2:48I was, as I said, not best with authority as a kid. Ended up in the United States after I made a lot of money as a kid. As a very young kid, I started trading stocks with nothing, with a few thousand dollars, made millions of dollars as a kid, millions. Wow. I was on gas and oil stocks in Israel, which just doesn't exist. Yeah. Well, really, in Israel. Now they discovered gas. But the punctuation with the stocks was really high. And I figured kind of the trade there. And one day I lost everything as expected, which was the biggest blessing in that sense. Got on the plane the next day, had$3 ,000 of cash in my pocket, ended up in the United States.

3:32Michael Shvo:And from there, if I'm correct, you start managing a fleet of taxis. Why not go back into trading? Like, why is that the first step? I had no money. I was sleeping on the floor in Harlem. I was sleeping in a guy's house on the floor in Harlem. And when I got out of the airport, I took a cab to this guy's house. And I said, how does this taxi thing work? And he explained to me, there's a medallion, there's a car. I ended up buying one Crown Victoria. You're too young to know what a Crown Victoria is. But it's in the old yellow cabs that you see in the movies, in the very old movies. And I leased the medallion.

4:04And I subleased the car and the medallion to two drivers by shifts. And I made a big, three months later, I ended up having 10 yellow cabs and 30 drivers. I was operating them out of a street corner here in Midtown. And that is kind of how I got my start in New York City. Different things kind of happened. And I ended up, in essence, by sheer coincidence, although everything is from God, so there is no sheer coincidence. But I ended up being a real estate broker, knew nobody. I was at a point where after I did the Yellow Cabs for a couple of years, I was in a situation where I had to do different things, do something else.

4:53And somebody told me you should be a real estate broker. So I know nothing about real estate. But he introduced me to a lovely man that ended up hiring me at the time of a company called Sofa Real Estate. which ended up being purchased by Douglas Sullivan. And I became a real estate broker. I started as a rental broker, only renting apartments less than$2 ,000 a month. Every single customer that nobody in the office wanted, and this goes back to the mid-90s, they used to send to me, this is not the days of the internet and all this stuff. There's no street easy. There's no, you know, this is, these are the days that we were wearing beepers, pagers.

5:32and and i used to come to work very early to the office go home very early i go very late in order to pick up all the calls i used to come in the office and off hours when people were not there my first year i've rented 360 apartments i think the most expensive one was 2400 a month eventually a few years later became the top residential broker in the united states and then let Douglas Elliman to start a real estate marketing firm, which is to partner with developers to come up with concept marketing and sales for new developments.

6:07Michael Shvo:And why make the change from Elliman to doing the marketing? It's interesting. So at the time, the Time Warner building, which was the number one building in Columbus Circle, was the new development, kind of the number one development in the country. and I sold a bunch of apartments there to the clients of mine. And I thought it was odd that this building had at the time a billion dollars of inventory, which was a lot in go back to 20 years. I thought it was odd that the way that they marketed the building was through some conference room on an upper floor of a building with some plastic drawings and a plastic model.

6:46And the whole thing didn't add up because down the street you have Louis Vuitton and Chanel and Dior and all these luxury brands that are investing tens of millions of dollars in their store to create a customer experience. But meanwhile, here where you have an inventory that's probably 100 times of what they have in any of these stores, the experience is very plain. So I figured there's a better way to do it. And I started Shpo Marketing, which really we've hired a bunch of people. I've hired a bunch of people from the luxury world. That works for Bergdorf. That works for Gucci. They were from Brioni that understood luxury.

7:23And we brought luxury into real estate, luxury marketing, predominantly.

7:30And it's been, you know, that really, you know, obviously different things change. I think one of the things that, two things that I've done in my career really changed, I think, the industry. When I was a broker, going back a few years, I used to show 40 apartments a day. I maxed out the hours. I figured there's no more growth because there's so many more apartments. Okay, I could show more apartments, more expensive apartments, but at the end of the day, you're limited by the hours of the day. So I end up bringing a guy to work for me. I said, here's a client. Here's a mirror. Take a mirror.

8:06Go show these apartments. Don't say a word. Bring him back to the office. I'll close the deal. And then I took another guy and another guy. I ended up with 27 people that worked for me. that was this the creation of what today is known as the team you know the team or the group concept in residential real estate when i started real estate there was only individuals so i created a team the shbo group and that became in essence the first really the first group oh um in real estate today obviously if you know real estate everybody has a group that is the way the business operates so that's something that that i think was my my first small contribution not so small anymore to the business.

8:44The other thing that was obviously, that's on the brokerage side. On the development side, I'm known for inventing the marriage of fashion and real estate. So I brought Giorgio Armani to design the first residential building in the world to be designed by a fashion designer. That changed the world. I brought Versace and a bunch of other brands into real estate, but in essence, the whole idea of branded residences, the marriage of a totally different industry. Today you have Bulgari hotels and you have noble hotels and you have there's this this mix of luxury and residential is something that i started uh exactly 20 years ago with 20 pine which was the first building um it was designed by again by by armani first building in the world designed by a fashion designer which became the largest world trend and and today branded residences if you're not branded something's off so that is kind of that that's the progression uh that's progression i left dougal sultan because as i said i i thought that there was a huge need in the market um to um i thought there was a huge need in the market to to fill this gap of of taking real estate from playing four walls a kitchen a bathroom to true experience and i think that's what you know we've done since then later when it transitioned into development office retail it's all with that same concept that real estate is about an experience not about the walls the kitchen and the bathroom

10:15Michael Shvo:and tell me about the transition into development we're like what were the first few formative deals and what do you think was like uh what do you think having that background and luxury marketing kind of made you do different in the beginning so you know the the issue there when in my previous business when I was a marketer in essence you're a consultant they pay you you give advice and they can do what you say or not do what you say and at some point I was a bit

10:46tired from in essence trying to sit there and convince other people why they should do certain things to make money for them it didn't make that much more money for me because you're on a percentage But for a developer, it made, you know, big, big, they did the right thing. And, you know, certain developers listened, certain developers didn't listen so much. Instead of just advising others, just do it yourself. And my first project at the time was the Getty on 24th and 10th Avenue, which I brought Peter and Rainer to design. It was a, you know, beautiful building. It was quite known because we put an art exhibition there.

11:25the sheep station which we put sheep in the gas station um the lawn sculptures there which is a huge success at the time so always thinking about unique opportunities to draw attention into you know like for instance there where we installed we took the gas station we transformed it into a sheep station meaning we we um we planted grass inside the gas station picket fence it was the most viewed art show in chelsea at the time or in new york city at the time it ended up driving two real estate deals because I ended up leasing the gallery and even the space above the gallery to an art foundation because they saw the amount of foot traffic that we got there with a great show.

12:06So all these marketing ideas are not just, you know, for the hell of it or just because I'm in the mood to do something cool. There's always a financial drive behind them in order to do something that, you know, drives money to the bottom line.

12:20Michael Shvo:And I'm correct, you actually spent a few years in the art world, I think around the 2008 period. Tell me about that period. Like, what did you learn? I guess not many real estate developers spend time in the art world. And what did you take out of that period? So this is so after in 2007, I gave a keynote speech to the Board of Hilton in December of 2007, where I said that the real estate market is coming to an end, meaning it's going to collapse. I ended up deciding to retire at that point. Wow. And I gave myself 12 months to do that. Sure enough, nine months later, Lehman Ruther collapses. And I was very involved in the art world prior to that.

13:01Buying and selling, because art world is an interesting, it's yet another interesting industry where very much values are driven by perception. more exactly what real estate is if you take it out the four walls the kitchen the bathroom right if you're if you're down to only the bricks and the mortar you know but any luxury brand if it's a watch if it's a bag it's a car you're not paying because the material to make the one watch is more expensive or to make one bag is more expensive you're paying because somebody convinced you that an Hermes bag or a Chanel bag has more value than a coach bag.

13:47It might not cost more to make. It might cost a peanut more to make. But it's not 500 times more or 1 ,000 times. It's some crazy ratios. Same thing with watches. You can sell a watch for half a million dollars. Okay, maybe it'll cost$2 ,000,$3 ,000 to make. It doesn't cost a quarter million dollars to make. So that's the beauty of luxury. Luxury is basically the idea that you convince people to go ahead and pay for something that's above and beyond the material value of what it is.

14:27Michael Shvo:And what do you classify as the Shvo perception? What do you want Shvo building to be perceived as? Look, I think for us, the important thing is that it's very driven by service, right? The quality of the finishes and things of that nature is something that a lot of people could do, and that's a taste dish. You might like one designer. I might like another designer. But one thing that we're very focused, both on the residential world, but specifically in the commercial buildings, which is kind of the evolution because commercial buildings are inherently secondary to residential as far as quality, just because nobody's been paying attention, is a service.

15:06service is something that doesn't exist in the commercial world it exists in the in hospitality world exists at a lower level um in the in the commercial world in the residential world but not in the commercial world and during the time and going back to that time um when you were kind of

15:25Michael Shvo:looking at art um other than perception marketing was there anything you still had about that kind of influences how you guys build buildings today um or yeah in what way in what way in the sense of how you integrate art into chevaux developments or how you think about design or these kinds of things so look you know we've worked today half half the buildings that we design are by norman foster or by peter marino each one of them has obviously a touch to to the top architects in the world uh peter marino is very involved in the design world and the art world in the sense that he commissioned specific artists and so does norman foster to do site specific installation we've done that throughout the buildings but well the other thing that i do is we use our sites because they're prime real estate to display art to the public i believe that art is something that a lot of people you know there's people that go to museums and go to galleries but there's people that don't mostly because they're they feel like they don't understand and and there's a they're scared.

16:25It's very simple. There's a idea I don't really understand it. I don't see it. So what I've tried to do with every one of our sites, being the Transamerica Pairabit, being the Getty, being the Raleigh, any of these sites, to install public art on those sites because these sites are so prime we only deal with super prime real estate and it brings people, it brings the public there to view the art. It's a little bit of what we give back to the public creates attention. But the beautiful thing about it is that we're now able to bring art to the public in a very high traffic locations.

17:04Michael Shvo:And talking about those architects, how do those relationships work? And I guess, like, are there any freedoms that you give your architects that maybe other developers don't? How's your relationship unique with them? It's a good question. So, you know, the one thing about about working with architects, like being a Marine or a Northrop foster. For me, I mean, I'm very close with both of them on a personal level. They're good friends of mine. And I think that that relationship makes the buildings that much better because it's a true collaboration. But the one important thing is, and this is where developers make mistakes.

17:39You know, they all want to hire the big name architect. Their fee, okay, they charge a lot more money, but that's not going to break the bank. What ends up being expensive is that their design is expensive to execute. And a lot of people want the Peter Marinos or the Norman Foster or the Renzo Piano or Herzog and the Warren, which are all architects that I build the buildings with. But they don't pay. They ended up not willing to pay for the product, for the design. And they try to cut the corners after that. And given the idea, Peter Marino is an architect that doesn't work with developers because he knows that they don't spend the money to build the proper Peter Marino building.

18:20He's done four buildings for me. So I think that our commitment and my commitment to quality and execution is very high to make sure that we align with the designer on their idea of quality, their idea of what they're designing, make sure that it's executed at the correct level. And that's, I think, where a lot of developers get it wrong. Like I said, they want the brand, they want the names, They want the design, but they're not spending the money that's needed to execute that.

18:53Michael Shvo:And touching a bit on the kind of developments you've done over time, I guess if you had to pick one during your entire career that you'd see as the most monumental or the most meaningful to you, and what was the story behind that development? Yeah. Each one of them has its own story. I mean, the Trans-America Pyramid, which we just sold, what we've done there, I think, changed San Francisco, right? We took a building that when I bought the building, people thought I was crazy. They told me the area is dead. It's on the wrong side of town. It's a dilapidated building. And it became the number one building in San Francisco.

19:24We took rents from$60 to$300. Rents tripled in the building, truly tripled in the building. Number one building in San Francisco. Again, we repositioned the entire building between the foster design, the art, the restaurants. So that not only had an effect on the building itself, but on the entire neighborhood. We rezoned Miami Beach and got the 20-story building approved in Miami Beach. Those are things that really have an effect beyond. I'm just giving you an example of things that are beyond the circle of the building itself. Because I think what's nice with real estate, that if you do things right, and you have to do the right building in the right locations, you have the ability not only to affect your little universe, but you're affecting, you know, the entire community or the entire neighborhood.

20:18Michael Shvo:And you've obviously had a lot of success in real estate, both as a broker and then as a developer. And I like that story where you hired, I guess, I think it was 27, right? Where to show the apartments and they came to you to close. I guess you rose up the ranks at Douglas Elliman. I did get you, the what? Where you hired the, built the first team and you hired people to show them the apartments and then you closed them. You obviously rose up the ranks of Douglas Ellman very quickly and you built Shvo in kind of a shorter period than most people build their development companies. I guess, do you see a lot of your talent in developing as innate?

20:52Michael Shvo:Do you see it as learned? Like, how do you, why is Michael Shvo great at what he does? So it's, I'll tell you, it's really the, my experience as a broker is what gave me the ability to do what I do as a developer. Yeah. Because the one interesting thing about a developer is the most successful developers, the most big developers in New York or even the country come from a background of either construction, legal, things of that, architecture maybe. I'm the one that came from the consumer side, meaning I walked people with their hand, held their hand, walked them into the apartments and I know what type of windows they like, what type of bedrooms they like, where they want the bathroom.

21:36So I have firsthand experience of what the buyer wants. And that's something that we really pride ourselves on is spending a tremendous amount of time on understanding the buyer before we start building a building. You know, there's the idea that build it and they will come. I don't believe that that's a good strategy. Yes, if the market's on fire, everybody comes to anything. But if the market's not on fire or if you want to get it super premium for your building, you got to build something that's very targeted for the right person at the right place at the right time.

22:06Michael Shvo:And I want to take a moment to touch on kind of a specific moment in your career. I've done 53 of these interviews so far. This is the 54th. And a common thread I've been is kind of in the careers of ultra successful people, there generally is like a handful of times in which they go really against the grain. They go very contrarian and they bet a lot. And I think one of these moments for you, I guess, was during the pandemic, you went on one of the most aggressive acquisition runs of your career. Trans-America Pyramid, Big Red in Chicago, 7-11-5th if I'm correct. spending billions during the pandemic while everyone else is just not buying anything what was the logic behind that and like how did you build that conviction to actually go out and do that so i'll tell you where it started started really um you know during covid or just before covid but you know i remember i was in an interview on in um just when covid started you know we had i was on a podcast with the real deal and amir the publisher of the real deal says to me, you know, what's going to happen with this COVID thing?

23:05So I remember saying that I was sitting in my house. I said, listen, you know, we're all sitting in our house. We're spraying the Amazon boxes, you know, and leaving them out for two days and spraying them. That's crazy stuff. And we think the end of the world's coming. This feels like the end of the world. So I said, listen, I'm a religious Jew. The only the only answer that I have is for the Bible. I pulled up the Bible. I said, you know, when God decided, when God flooded the world, and he told, after he fled the world, Noah survived in the ark with the animals. When he came out, he made a covenant with him, and he says to him, I will never again destroy mankind.

23:53Okay? I quoted that from the Bible. I said, look, that tells you, that basically tells you that this is not the end of the world. So that's the only thing I know, it's not the end of the world. That means we should all be buying real estate because it's the best opportunity. If we know the answer already, that the world is not coming to an end, we know that it's the best time to buy real estate. And then the question asks, well, people, they're saying that everybody's going to work from home going forward. So yet again, I pulled the Bible. And when Adam, when man was created,

24:29God said it's not good that man will be alone I said okay it says this here so you think that now the whole world is going to all sit in their pajamas in their kitchen on zoom for the rest of their life it says here that it's not good for a man to be alone this was referenced because he created a woman for him but the point is being alone is not from the creation of human being it's not something that we're supposed to do we're supposed to be with other people so I said this whole notion of work from home is nonsense and it's going to go away I went on CNBC and Bloomberg and every TV outlet that you can said the same thing the reality is that's what got me to buy these bills I had conviction not because I'm a genius because it says in the book it says in the book very simple it's not the end of the world and humans are not meant to be alone.

25:27So if you see that and you see real estate prices dropping, interest rates are at worth zero. We're taking loans between 2.5%, 3 % all in fixed for 10 years. So we still have these loans. Today, those loans will be 6 % to 7%. So the answer is I got the answer from God.

25:48Michael Shvo:And at this point, Shreve is over 8 billion bucks in assets, handful of cities, how would you describe the larger vision and like what do you want for it to become what's next for it so look i've sold i've sold some real estate we had some interesting opportunity on partners with the german state pension fund and some there were some opportunities to do to do certain exits that were you know that made sense of at the time i'm a one-trick pony i know how to do one thing and one thing only, you know, super prime real estate. And I always say, you know, it reminds me when the pandemic hit, the interesting thing is everybody thought that you're going to buy assets for pennies on the dollar.