Finding Your Path

The Pitfalls of Elephant Hunting and Other Musings for the New Year

By Lorne Polger, Senior Managing Director

Lorne PolgerThis is typically the time of year we set some business and personal goals. A time for reflection, study and thought. What are we going to buy, what are we going to sell, what are we going to renovate, and how much weight are we going to try to lose? Well, let’s skip right over the last one, it usually doesn’t end well for most of us.

The Pathfinder team recently attended one of the largest annual real estate fund conferences in the U.S. I believe it was the seventh year in a row that we’ve attended. A few takeaways:

1. Cautious optimism continues to reign in the real estate world. Whether you are an investor in the commercial or the residential spheres, there is a sense that primary markets (Los Angeles, San Francisco, New York, etc.) will continue to thrive and that secondary markets (Seattle, Denver, San Diego, etc.) will gain more traction among investors searching for higher yield than can be achieved in the primary markets.

Money Stack2. I’m sure glad that Pathfinder doesn’t have $1 billion or more to invest in 2015. Because, if we did, we would be competing with a very large number of other investment groups who also attended the conference who have about a billion (or more) each to put to work this year (in fact, I heard one fellow on a panel talk about his $80 billion allocation for the year; what is he planning to buy, a South American country?). And they are only doing it in big slugs. We heard numbers like $25 and $50 million minimum investment amounts. And that’s just the equity check, not the total deal size. Well, I’ll tell you, being on the forefront of the acquisition side and seeing almost every deal in our target markets and product types, there are only so many $50 to $100 million deals out there. Lots of elephant hunters, but not too many elephants. It gave us a strong feeling of reassurance that putting out equity in $4 to $8 million chunks sets us apart from the masses and should lead to less competition and, by extension, potentially higher returns.

3. Third, there appears to be a Zen-like calm in the marketplace; almost a resignation as to where we are in the cycle (not going to provide a baseball analogy here – they’re way too overused). Yields have been compressed and investors have adapted to lower return expectations. Most of the key players are established. And there are probably not too many more surprises as to emerging markets (we haven’t heard about any great deals in Fairbanks yet).

Construction4. We are clearly at a point in the cycle where new development is launching in earnest. Debt and equity capital are now available and allocated for ground-up deals. That said, the environment doesn’t appear to be frothy or stupid. It’s selective and risk averse (we’re not expecting any imminent announcements of the groundbreaking for an 80-story office tower in Des Moines or a massive condo conversion in Las Vegas; at least not yet). I’d like to think we learned a few lessons from the downturn, although we believe real estate developers – unlike elephants – are known to have the shortest memories of any beast on the planet.

Some business goals for the year ahead. For us, execution is the key, on a number of fronts. On the sale side, we are planning to sell a significant number of assets in the first and second quarters of this year. These are properties that we purchased back in 2010-2012, which we’ve since renovated/stabilized/leased, and are selling as the value has now been added. Our goal is to pick the right brokerage teams, select the right buyers (there are still lots of pretenders out there), work with the right lawyers, escrow and title officers, and of course, deliver some attractive profits to our investors. On the acquisition side, our objectives are to complete the deployment of Pathfinder Opportunity Fund IV and begin to deploy Pathfinder Opportunity Fund V following the successful first closing we held in January. We plan to purchase $100 to $200 million of properties this year. It’s no small task in an increasingly competitive marketplace, but we remain confident in our ability to find investment opportunities that meet our criteria.

We are also focused on completing the raise of our fifth general opportunity fund, Pathfinder Fund V. That Fund will remain open to new investors for the rest of this year. It’s the first time that we will be using general solicitation as a vehicle for fundraising, so it will be a bit of an experiment on what works and what doesn’t in that arena. Fund V will be our largest to date, and as a result, is a key initiative for us for the year.

Some personal goals for the year ahead. Health, family and hobbies are my key themes. I’m rehabbing from my fourth orthopedic surgery in eight years (the dreaded older athlete syndrome) and my wife has insisted there won’t be a fifth. This time around, I’m planning to cooperate. Cycling and yoga in; running out. Our kids are enjoying their college lives and we would like to spend more time with them in their college towns. We’ve also started to explore a culinary-based vacation for the summer. Finally, I’m hoping to continue to grow my burgeoning photography hobby, although the walls are getting a little crowded around the house.

Keep smiling and make it a great year.

Lorne Polger is Senior Managing Director of Pathfinder Partners, LLC. Prior to co-founding Pathfinder in 2006, Lorne was a partner with a leading San Diego law firm, where he headed the Real Estate, Land Use and Environmental Law group. Reach him at