SAN DIEGO—With a goal of funding over $50 million in residential real estate over the next year, Pathfinder Partners LLC, has launched a new investment platform to acquire and reposition luxury homes.

According to Mitch Siegler, Pathfinder's senior managing director and co-founder, his firm has tested the new platform over the last nine months and together with local operating partners, acquired six upscale homes in prime southern California neighborhoods, including Rancho Palos Verdes, Bel Air, Rolling Hills, Westwood, Pacific Palisades and the Hollywood Hills. 

“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 the homes. 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 currently 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 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.

Focusing on properties that are below the radar of large institutional investors, Pathfinder has acquired over $675 million of distressed notes and properties since its inception in 2006, Siegler said. “The strategy in the luxury home space builds on our strong closing track record and a solid reputation among referral sources and with operating partners.”

Headquartered in San Diego, Pathfinder Partners was founded by Lorne Polger and Siegler in 2006 to make opportunistic investments in distressed real estate assets and defaulted loans.