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

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According to Mitch Siegler, Pathfinder's seniormanaging director and co-founder, his firm has tested the newplatform over the last nine months and together with localoperating partners, acquired six upscale homes inprime southern California neighborhoods, including RanchoPalos Verdes, Bel Air, Rolling Hills, Westwood,Pacific Palisades and the HollywoodHills.

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“We have received significant capital commitments exclusivelytargeted toward luxury homes which will supplement capitalallocated from Pathfinder's existing OpportunityFunds, and plan to invest $50 million to acquire andrenovate luxury homes in 2014-2015,” he said.

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Pathfinder's latest venture capitalizes on inefficiencies in theresidential marketplace, Siegler said. “There is a historically lowinventory of modernized luxury homes in southern California's bestneighborhoods, where many homes are more than 50 years old andhaven't been updated in decades,” he said. “Many buyers want aturn-key experience and aren't interested in the time, expense andeffort required to do a substantial remodel or addition. Byacquiring such homes, updating and renovating them and thenreselling them in about 12 months, we and our partners createtremendous value and expect to generate attractive risk-adjustedreturns for our investors.”

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Pathfinder has been testing the new platform – acquiringproperties for $1.5 million to $3 million in exclusive Los Angelescommunities and investing $500,000 to $1 million to transform thehomes. The first property, a 4,300 square footview home in Palos Verdes, was acquired in July2013 and came to market in late April. The other homes arecurrently under renovation and will go to market later in 2014.

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“This segment is more challenging for the traditionalfix-and-flip investors,” Siegler said, citing debt financing issuesand a limited pool of investor capital for all-cash acquisitions.“Yet there are a number of Los Angeles residents, as well asforeign buyers with cash, who see luxury homes as a relativebargain and others who are not dependent on obtaining debtfinancing.”

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He said Pathfinder's strategies may include direct investments,joint venture equity, preferred equity and participating debt, asthey acquire properties in the $2 to $5 millionrange and modernize them by moving walls and entryways,raising ceiling heights, improving view corridors, increasingproperty square footage, updating bathrooms, kitchens, appliancesand fixtures and incorporating amenities like steam showers andentertainment rooms.

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Focusing on properties that are below the radar of largeinstitutional investors, Pathfinder has acquired over $675million of distressed notes and properties since itsinception in 2006, Siegler said. “The strategy in the luxury homespace builds on our strong closing track record and a solidreputation among referral sources and with operating partners.”

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

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David Phillips

David Phillips is a Chicago-based freelance writer and consultant with more than 20 years experience in business and community news. He also has extensive reporting experience in the food manufacturing industry for national trade publications.