San Francisco office-to-condo conversion lines up largest-ever PACE financing

Property Assessed Clean Energy financing hit a new milestone earlier this month, with the completion of the largest-ever PACE financing.

The roughly $256 million condo inventory financing on a conversion of San Francisco’s Aronson Building into the Four Seasons Residences repays existing construction debt. It also gives the sponsor a long runway for sales, said Michele Pitale, a managing director at Greenwich-based PACE specialist Counterpointe Sustainable Real Estate, which provided the financing. The sponsor, according to public records, is Westbrook Partners.

“The financing is significant because of its size and the role it played in allowing the sponsor to refinance maturing construction debt,” Pitale added.

In addition to the office to multifamily conversion of the existing 10-story property at 706 Mission Street, the sponsor has constructed an adjacent 43-story multifamily tower. The first four floors of the existing property at 706 Mission are deeded to the city of San Francisco for the Mexican Museum, an affiliate of the Smithsonian Institute.

The property’s green credentials include 27-30 percent reduction of energy and water use over what is specified in the code, a LEED certification and the ability to capture rainwater for not-potable uses, Pitale added.

Institutional focus

The institutional nature of the project, however, is nothing unusual for the growing sector, Pitale said. Counterpointe, which focuses on sustainable energy finance for commercial real estate properties, has been seeing an increase in inquiries from sponsors who want to enhance the sustainability of new and existing properties and access debt with a relatively low cost of capital.

“As liquidity tightens, commercial PACE becomes an important tool. Counterpointe worked with the owner to provide flexibility during the sales process on this ultra lux and sustainable building,” Pitale said.

The firm recently completed a $122 million full-stack financing for a multifamily property that broke ground in January, with a loan comprised of an $88 million construction loan and another $34 million of PACE financing. “Sponsors are seeking financing that lowers cost of capital and helps projects pencil out,” Pitale added. “C-PACE can be accretive and add value in today’s market.”

Counterpointe is one of the oldest PACE program administrators in the US, getting its start in the first statewide program for all property types. In May, Massachusetts Mutual Life Insurance Company purchased a majority stake in Counterpointe Sustainable Advisors.