BVK rejects Transamerica lawsuit, faces pension suit

The managers of Germany’s largest public pension fund want to wipe their hands clean of their increasingly contentious exit from San Francisco’s Transamerica Pyramid.

Earlier this week, Bayerische Versorgungskammer (BVK) — a state-run institution managing the pensions of 2.8 million public employees in Bavaria — rejected accusations raised in a recent lawsuit that it broke investment rules and stiffed one of its partners out of more than $30 million after selling the Transamerica Pyramid in March.

As part of that lawsuit filed last month, Deutsche Finance America claimed BVK “went to concerted, conspicuous lengths” to skip paying the firm its early termination fee of $31.3 million. The firm claimed that BVK paid its other partner — New York developer and face of the Transamerica Pyramid revival, Michael Shvo — $79 million despite the partners having similar termination fee structures. Shvo’s payday, Deutsche Finance America said, raised “grave questions” about the deal.

Representatives of BVK called the allegations “unfounded,” and said they “vigorously reject” them, according to a statement released Tuesday to trade publication, Investment & Pensions Europe.

Partnering with Shvo and Deutsche Finance America, BVK funneled nearly $2 billion into seven U.S. properties, including the Transamerica Pyramid and the Raleigh Hotel in Miami, according to Deutsche Finance’s court filing last week. Although no precise final number has been released, BVK has estimated that losses on those investments could exceed $1 billion.

Deflecting accountability

BVK, which is supervised by Bavaria’s interior ministry, has continuously tried to evade direct responsibility for the series of failed U.S. real estate bets it made with pensioners’ money. It leans on the fact that it used what’s called a “fund-of-funds” structure to invest in the real estate portfolio, where BVK put money into third-party, Luxembourg-based funds that then made the investments.

In March, BVK’s CEO, Axel Uttenreuther, told a German news outlet that Deutsche Finance and Shvo had identified the properties in advance of BVK’s investment. Deutsche Finance has explicitly denied this claim.

Last summer, BVK fired its long-time head of real estate investment management Rainer Komenda after more than 20 years at the helm. Months later, Norman Fackelmann, who served just under Komenda, quit the institution, according to Investments & Pensions Europe. An internal investigation by BVK found Komenda had too close a relationship with its business partners, which included stays at luxury hotels and meals at high-end restaurants. Bloomberg reported that a younger relative of Komenda held internships at Deutsche Finance’s London and Denver outlets, as well as Shvo’s firm.

Komenda sued BVK over his dismissal. In March, a Bavarian court sided with Komenda. According to Investments & Pensions Europe, BVK planned to appeal and had fired Komenda all over again based on “fresh findings from a recent internal investigation.”

The pension fund sought to further distance itself from the Transamerica Pyramid deal with its comments on Tuesday. BVK told Investment & Pensions Europe that it learned of Deutsche Finance’s latest court filing through a “third party” and characterized the dispute as between Deutsche Finance and an externally managed fund of funds.

“BVK is neither a party to the petition nor to the arbitration proceedings,” a representative told the London-based trade publication.

Deutsche Finance America’s lawsuit does not explicitly name BVK as a defendant, but rather two Luxembourg-based investment funds, Elektra 2 and 711 Investments SCS. However, it says BVK acted through the two companies in refusing to pay DFA its fee for early termination of its asset management services on the Transamerica Pyramid.

Losing streak

In March, BVK sold its piece of the San Francisco skyline and the two adjacent properties for $692 million to Cyprus-based investment firm Yoda PLC. The sale marked a more than $200 million loss on the investment, part of the larger, billion-dollar losing streak for BVK’s U.S. portfolio.

At the time of the sale, Yoda PLC reported that, amid the losses for German investors, Shvo would receive a separate $34 million exit package that covered his broker’s pay for representing both sides in the transaction, an early termination fee and the cost of buying out his right of first offer agreement on the property.

Yet, as the estimates of losses grew for German investors, Shvo’s riches seemed to increase. Deutsche Finance America’s court filing last week claimed Shvo actually made $79 million on the deal thanks to an additional $45 million he earned in December after BVK allegedly terminated his contract as asset manager. That timeline contradicts Shvo’s claim that he remained asset manager until the property’s sale in March.

Spokespeople for Shvo have denied he was terminated as asset manager in December and said he stayed on in the role until the building’s sale in March. On several occasions, the spokespeople declined to comment on whether Shvo was paid an additional $45 million in fees.

Deutsche Finance is arguing that it had a fee-protection agreement identical to Shvo’s but received nothing after the property was sold.

The dispute between Deutsche Finance and BVK’s funds remains in arbitration. Meanwhile, lawyers in Bavaria whose pensions are managed by BVK have been gearing up for months for a possible class action-style lawsuit against the state-run pension fund and the state of Bavaria.

Editors Note: A previous version of this story misattributed a claim to Shvo’s spokespeople. The spokespeople declined to comment on whether BVK paid Shvo an additional $45 million in fees. They did not deny it, as previously reported.