As litigation flares against Michael Shvo's property empire, his German backers feel the heat

After a felony conviction for tax fraud threatened to derail his career, real estate developer Michael Shvo plotted an unlikely comeback in recent years by teaming with wealthy European investors and top-tier luxury brands.

Those partners have now found themselves ensnared in legal disputes involving Shvo's creaking real estate empire.

On Monday, a buyer at a Mandarin Oriental-branded condo developed by Shvo on Fifth Avenue in Manhattan filed a civil lawsuit in New York state court against the developer, along with 15 entities and parties connected to him or involved in the ownership and development of the property.

Included is Bayerische Versorgungskammer, Germany's largest pension system, with 111.9 billion euros under management. BVK, as the fund is known, helped bankroll several Shvo projects, including the Mandarin Oriental development.

Also named as defendants in the case are the German financial firms Universal Investment and Deutsche Finance, which served as intermediaries in BVK's investments with Shvo.

The case is the second in recent weeks to target BVK and its German partners alongside Shvo – even as the pension system has described itself as a passive investor with little direct relationship to Shvo and uninvolved in management of the properties where the disputes arose.

Previously, in June, the Core Club, a high-end social, events, and wellness space that opened last year at 711 Fifth Ave., another building owned by Shvo and BVK, sued the pair, along with Deutsche Finance and Universal Investment, seeking $600 million in damages.

In a legal response, Shvo alleged that the Core Club's suit is "a desperate attempt to avoid their clear contractual obligations" and that the club has "proven incapable of paying back their debts, building out their clubs within budget, or attracting enough members to achieve success."

He has sought to dismiss the suit.

The latest case was brought by John Goodman and his wife Diane, who purchased a one-bedroom apartment for $6.1 million at the Mandarin Oriental condo at 685 Fifth Ave. last year. The Goodmans allege that the building suffers from "shoddy workmanship, cheap materials, and unfinished details," that its luxury amenities and services were "incomplete or nonexistent," and that the property's rooftop pool "was plagued by algae."

In the suit, the couple accuse Shvo of "overpromising with sophisticated marketing smoke and mirrors and underdelivering actual product."

BVK, the suit alleges, made the decision "to cut their losses and abandon the project," saddling the Goodmans with a "deteriorating building."

An attorney for Shvo did not immediately respond to a request for comment on the suit.

A representative for BVK denied that it had abandoned the project at 685 Fifth Ave., had stopped financing, or had refused to invest additional capital. "The payment obligations assumed from the mandatory contribution were fulfilled in full," the representative said in a statement. "There are no obligations to make additional contributions."

In previous statements to Business Insider, Belinda Burgmeier, a spokeswoman for BVK, which is based in Munich, said the pension system "has no legal or contractual relationship with Shvo."

She described a complex arrangement of intermediaries in its investments with Shvo, stating that Universal Investment served as BVK's "capital management company" and "invested independently and according to their fund strategy into a target investment fund launched by" Deutsche Finance.

Deutsche Finance "works to our knowledge together with Shvo on a project-related basis," Burgmeier said.

An executive at Deutsche Finance and a spokesperson from Universal Investment did not immediately respond to a request for comment.

Caught in the crossfire of litigation

Goodman, a food services industry executive and board advisor, and his wife, Diane, sued Shvo in a separate case earlier this year over what they alleged were construction defects in their apartment.

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Goodman previously spoke with Business Insider about that dispute, stating that he had initially tried to amicably address the issues directly with Shvo. But during a call at the beginning of the year, he said Shvo berated him in an expletive-filled tirade.

"For no reason, I felt targeted in a very toxic and vulgar way," Goodman previously told Business Insider.

In a previous response to Business Insider, Shvo said he had no recollection of that call.

In June, the Core Club sued Shvo, alleging that he had botched the buildout and delivery of its space at 711 Fifth Ave., reneged on a promise to invest $100 million building its New York space and two new outposts in San Francisco and Milan, Italy, and ran up an unpaid $80,000 tab in New York while being "arrogant, rude, and verbally abusive to staff."

Jennie Enterprise, the Core Club's founder and CEO, named BVK as a defendant in the suit because it "is the beneficial owner" of 711 Fifth Ave. and used "a complex structure of intermediary entities designed to shield" itself "from liability and scrutiny."

In a statement to Business Insider after this article was published on July 29, a representative for BVK denied the lawsuit's allegations that it chose a structure to avoid liability.

In a previous response to Business Insider regarding the suit with the Core Club, Burgmeier stated that BVK "has no relationship with" Jennie Enterprise.

The Goodmans named BVK as a defendant in their new suit because they say the pension system "made the decisive decision to cut their losses and abandon" 685 Fifth Ave.

"They halted further funding, refusing to invest additional capital to rectify the construction defects or address the building's mounting problems," the lawsuit says. "This decision, while financially prudent for BVK, left the Goodmans and other buyers trapped in a deteriorating building with little hope of recourse."

The Goodmans also named the Mandarin Oriental hotel brand as a defendant, stating that 685 Fifth Ave.'s "service standards are severely lacking and in no way Mandarin Oriental caliber."

"Mandarin willfully ignored the red flags and allowed its prestigious name and brand to be used to entice buyers like the Goodmans," the suit states.

A spokeswoman for Mandarin Oriental did not immediately respond to a request for comment.

From star developer to felon — and back

Michael Shvo began his career as a successful residential real estate broker before transitioning into property development in the late 2000s.

His image, however, was damaged in 2016, when Shvo was accused by Manhattan's District Attorney of evading nearly $1.5 million of taxes connected to his purchase of art, furniture, and a Ferrari. Shvo pled guilty in the case in 2018 and agreed to pay $3.5 million in restitution.

Serdar Bilgili, a Turkish real estate developer who became a close friend of Shvo's, introduced Shvo to BVK and helped persuade its executives to look beyond his felony record, according to a lawsuit later filed by Bilgili against Shvo and a person with knowledge of their relationship.

BVK's representative said in its statement that Bilgili's allegation is "unfounded" and that there was no "persuasion to disregard criminal records."

Bilgili later sued Shvo and Deutsche Finance in 2020, saying he was excluded from acquisitions of the San Francisco office tower, the Transamerica building, and 333 South Wabash, a Chicago office property.

In a separate case involving other properties that Bilgili owns a stake in with Shvo and the German investors, including the Mandarin Oriental condo projects, the Raleigh, and 711 Fifth Ave., Bilgili accused Shvo of billing the partnership hundreds of thousands of dollars for inappropriate expenses, including private jet travel.

Both cases were later settled.

Although BVK has said it has no direct relationship with Shvo, a person with knowledge of the connection between BVK and Shvo presented pictures of Rainer Komenda, the head of real estate investment management at BVK, smiling with Shvo at the Transamerica building in San Francisco and at a Mandarin Oriental condo the pair built in Los Angeles.

The BVK representative said it was their understanding that Shvo was at the site as "a service provider" for the fund's investment manager. The meeting was not initiated by BVK, the representative said.

This article was updated on August 21 and September 3 to include responses from BVK.