Oaktree Capital Lands $240M C-PACE Deal for LA Office Tower

Oaktree Capital Management has scored $24 million in C-PACE financing to renovate a 48-story office tower it seized two years ago in a foreclosure in Downtown Los Angeles.

The locally based investor secured the retroactive Commercial Property Assessed Clean Energy financing for its 914,000-square-foot building at 444 South Flower Street, in Bunker Hill, the Commercial Observer reported.

The clean-energy financing was provided by PACE Loan Group, based in Minneapolis.

The funds will pay for prior sustainability upgrades to the property’s heating, ventilation and air-conditioning systems, as well as its plumbing, lighting and exteriors.

C-PACE financing allows building owners to borrow at low rates to make efficient energy upgrades. It’s not a loan, but a property tax assessment at a fixed rate that pays back the upgrade costs over time.

The 48-story skyscraper, built in 1981 and among the tallest in L.A., has featured in TV shows and movies, including the opening credits of the 1980s NBC drama “L.A. Law.” Anchor tenants include the U.S. Securities and Exchange Commission, Morgan Stanley, Industrious and law firm Fisher Phillips.

Oaktree acquired the office tower in a December 2022 foreclosure auction from Coretrust Capital Partners, based in L.A., The Real Deal reported.

Coretrust bought the building then known as the Citigroup Center from Hines in 2016 for $336 million, or $368 per square foot. That year, it took on a $230 million loan from the Bank of China.

To refinance the property in 2018, Coretrust secured a $64.7 million mezzanine loan from Oaktree on the building, court records show, and a $209.6 million senior loan from insurance company AIG.

The mezzanine loan had an interest rate of about 8.6 percent and was due in December 2021, but Oaktree and Coretrust came to a forbearance agreement two months later, according to court documents

The lender took over the property after it went into forbearance.

California’s C-PACE program enables landlords to finance sustainability improvements retroactively for up to three years after projects are completed, according to the Observer.

“In a marketplace where (environmental, social and governance) continues to be a priority for tenants, it’s essential that we continue to lead by example,” Bryan Sather, managing director at Oaktree, said in a statement. “By investing in sustainability, we not only enhance the tenant experience, but secure long-term value and differentiate 444 South Flower from competitive office assets.”

Southern California has seen other retroactive C-PACE deals over the past year, including a $90.4 million financing for Machine Investment Group and Taconic Capital Advisors for two adjacent Hyatt hotels in Hollywood, according to the Observer.

That month, The Briad Group also received $40 million in clean energy financing for a newly opened Marriott hotel in San Diego, the Observer reported.

— Dana Bartholomew

Correction: This story previously referenced the loan as being $240 million. This was a typo; it is a $24 million loan.