Pathfinder Partners LLC, a San Diego-based private equity fund manager that makes opportunistic real estate investments, has launched a new investment platform to acquire and reposition luxury homes, with a goal of funding more than $50 million in residential real estate over the next year.
The firm has tested the new platform over the last nine months and together with local operating partners, acquired six upscale homes in Southern California neighborhoods, including Rancho Palos Verdes, Bel Air, Rolling Hills, Westwood, Pacific Palisades and the Hollywood Hills, said Mitch Siegler, Pathfinder’s senior managing director and co-founder.
“We have received significant capital commitments exclusively targeted toward luxury homes, which will supplement capital allocated from Pathfinder’s existing Opportunity Funds, and plan to invest $50 million to acquire and renovate luxury homes in 2014-2015,” he said.
Pathfinder’s latest venture capitalizes on inefficiencies in the residential marketplace, Siegler said.
“There is a historically low inventory of modernized luxury homes in Southern California’s best neighborhoods, where many homes are more than 50 years old and haven’t been updated in decades,” he said. “Many buyers want a ‘turn-key’ experience and aren’t interested in the time, expense and effort required to do a substantial remodel or addition. By acquiring such homes, updating and renovating them and then reselling them in about 12 months, we and our partners create tremendous value and expect to generate attractive risk-adjusted returns for our investors.”
Pathfinder has been testing the new platform -- acquiring properties for $1.5 million to $3 million in exclusive Los Angeles communities and investing $500,000 to $1 million to transform them. The first property, a 4,300-square-foot view home in Palos Verdes, was acquired in July 2013 and came to market in late April. The other homes are under renovation and will go to market later in 2014.
“This segment is more challenging for the traditional ‘fix-and-flip’ investors,” Siegler said, citing debt financing issues and a limited pool of investor capital for all-cash acquisitions. “Yet there are a number of Los Angeles residents, as well as foreign buyers with cash, who see luxury homes as a relative bargain and others who are not dependent on obtaining debt financing.”
He said Pathfinder’s strategies may include direct investments, joint venture equity, preferred equity and participating debt, as they acquire properties in the $2 million to $5 million range and modernize them by moving walls and entryways, raising ceiling heights, improving view corridors, increasing property square footage, updating bathrooms, kitchens, appliances and fixtures and incorporating amenities like steam showers and entertainment rooms.
Pathfinder has acquired more than $675 million of distressed notes and properties since its inception in 2006, Siegler said, focusing on properties that are below the radar of large institutional investors.