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‘Fatigued Owners’ Are a New Breed in San Diego
Carrie Rossenfeld |


The Beck Group’s Dallas Arboretum Rory Meyers Children’s Adventure Garden is one of the projects competing for the Urban Land Institute award.

Pathfinder Partners is bullish on multifamily and residential development. The San Diego-based fund manager recently announced the initial closing of Pathfinder Opportunity Fund V—a private real estate fund focused on acquiring multifamily and other residential real estate, which launched in November 2014—and the fact that investors committed approximately $30-million to the initial closing. With a target fundraise of $100 million to $150 million, the fund will remain open to new investors through December.


We spoke exclusively with Pathfinder’s senior managing director/co-founder Mitch Siegler about the firm’s strategy for Fund V, the headwinds and tailwinds influencing the multifamily and residential sectors and where the greatest opportunities lie for investment in these categories in the San Diego market. What is your firm’s current strategy for Fund V?

Siegler: This fund builds on a team that started in 2006 when we created the firm. We have found tremendous opportunity in the wake of the financial crisis as properties were being sold by financial institutions, banks and CMBS special servicers. The market is morphing to a stage we call “fatigued owners.” They didn’t lose their properties, but they’re eight to 10 years older and have either had health issues or passed away and their estates are dealing with these real estate issues. The properties add themselves to our value and transformational approach. By infusing capital into these properties, we’ve demonstrated an ability to dramatically improve their financial performance through increased rent and better management. It’s where distressed opportunities meet a value-add situation, and we can capitalize on the fatigue that has been a byproduct of the financial crisis. What are the headwinds and tailwinds influencing the residential and multifamily real estate sectors currently?

Siegler: The headwinds include rising interest rates, which will crimp development to the extent that they will translate to higher cap rates. That will have implications. Debt is pretty available for those improving older A and B buildings, but it will be more expensive. Some of that stock has gotten old and tired because a lot of people didn’t invest in the last eight to 10 years.


The tailwinds include a lack of product built between 2007 and 2012 in the mid-tier Western and Midwestern cities in which we operate: Denver, Phoenix, Portland, San Diego and Seattle. We’re seeing more construction in this sector in these markets, but it’s barely making a dent in the pent-up demand created by five or six years of no supply. We think there is a fairly significant supply/demand imbalance. The pace to which jobs are being created compared to the number of new units being built is well below the normal trend line, even with all the cranes in the sky. We believe occupancy at 95%-plus and rent growth over the next couple of years will drive this supply to be absorbed and create another few years of tailwind, if you will. We also think the decline in the homeownership rate is not going to reverse itself any time soon. We don’t think people are going to increase their purchase of homes. The marriage rate is declining for Millennials, so I don’t see the homeownership rate wildly swinging back up to where it was or even growing any time soon. People will live in apartments. What do you look for in residential properties to purchase with your finds?

Siegler: We are particularly attracted to properties that give downside protection while providing optionality on the exit. We have a 100-unit vintage townhome project in Portland, OR, that we bought from one of these fatigued owners—the widow of the original developer—and we bought it at a 25% discount to where you could probably sell townhomes at retail. That’s not our business plan, but the downside protection is the physical things we can do to improve the property to support higher rents, and we have two ways to exit: rent it up or sell the townhomes down the road. These are the attributes of a perfect Pathfinder deal. Where do the greatest opportunities lie for multifamily and residential investment in the San Diego market?

Siegler: There are a lot of submarkets we think are attractive. The theme for us is finding little pockets for infill development. We have a 21-unit townhome project in Chula Vista, and we’re acquiring some land down the street from that project to build additional units in the same neighborhood. We have property in Vista where we’ll build apartments—Vista gets it; they welcome growth and they need apartment units because young people need a place to live. It’s an interesting submarket. We also have a project out in La Mesa where we have some newly built condos and a parcel next door to build additional units. These projects are close to trolley stops.Transit-oriented is important to us because not everybody renting in these areas has a car. They might ride a bike or work very close to their apartment.