SF condo development pays off construction loans with nearly $256M in PACE financing

Nearly $256 million in Commercial Property Assessed Clean Energy financing recently closed and went to pay off construction loans at the Four Seasons Private Residences in San Francisco.

It’s the largest PACE financing amount ever, according to lender Counterpointe Sustainable Real Estate.

This is the first deal the C-PACE capital provider and administrator has completed since Massachusetts Mutual Life Insurance Company purchased a majority interest in its parent company, Counterpointe Sustainable Advisors LLC, in May.

Unlike a traditional loan, which is connected to the borrower, PACE financing comes from either private investors or the government. They are repaid over the years via a tax lien attached to the property itself.

PACE loans can go toward environmental upgrades or construction; they typically stay with the property even in the event of a sale.

The program can also be used to refinance recently completed upgrades, as at the Four Seasons Residences, a property that includes 18 units in the historic ten-story Aronson Building, as well as 128 more in a new-build 43-story tower.

Converting the Aronson, a 120-year-old office building, into residential use involved significant efficiency and resiliency improvements, such as a stormwater recycling system for non potable use, a 1.5-megawatt standby emergency generator, energy upgrades and seismic strengthening in addition to implementing construction waste management. The 27% to 30% reduction in water and energy should create $8 million in utility savings over the 25-year financing term, according to Counterpointe..

The municipal bond issued on the Westbrook Partners condo buildings will be paid back at a fixed rate over 25 years, according to Counterpointe. The company has a bond indenture from the California Statewide Communities Development Authority, which has issued more than $45 billion for the construction, equipping, rehabilitation or modernization of 2,000 projects since it was formed in 1988, according to the agency’s website. Counterpointe purchased the bond to fund the deal.

There are liens connected with individual units, but “CounterpointeSRE worked with the owner to provide an innovative C-PACE structure which allows flexibility during the sales process on this landmark LEED Silver building,” Counterpointe CEO Eric Alini said via email.

Therefore, the condo owners, current and new, will not need to immediately pay back the assessments, which can range from $750,000 to $3.5 million, depending on the size of the unit. Instead owners will begin paying off the assessments when their 2024 property taxes are due in December. Any balances due will be paid for individual units if and when they sell.

“C-PACE represents an innovative way to finance energy improvements and can be value added to large capital stacks,” Alini said. “As market liquidity becomes scarce, innovation such as C-PACE becomes an important tool for property owners and debt investors to advance their vision and projects.”

Westbrook did not comment on the financing deal. Asking prices in the highly amenitized historic building and tower currently range from between $2.3 million and $2.8 million for a one-bedroom to $49 million for its largest penthouse, according to a recent Polaris Pacific report. At least 16 units have sold in the two buildings since sales began closing in late 2020, according to city records.