Pathfinder director finds opportunities in foreclosure properties

While some lament properties they lost or may soon lose to foreclosure, others, such as Lorne Polger, Pathfinder Partners LLC co-founder and senior managing director, see opportunities.

Polger, who formerly headed the Real Estate and Environmental Law Team at Procopio, Cory, Hargreaves and Savitch LLP, represented clients in more than $6 billion of apartment, condominium and condominium conversion transactions throughout the United States before Pathfinder was founded in 2006. Polger co-founded the firm with Mitch Siegler, who worked for venture capital and investment banking companies prior to joining Polger.

The University Towne Centre-area company's business is to make opportunistic investments in distressed real estate assets and defaulted loans. Most often, Pathfinder will foreclose on these loans and end up as the owner of the underlying real estate.

"We have bought close to $200 million in notes and REO property," Polger said. "There are lots of opportunities."

Pathfinder chooses its assets carefully. Polger said out of 50 or 100 prospective transactions he sees each week, he might choose one that makes sense for the company.

Pathfinder's first offering was a modest $5 million targeted private equity fund in late 2006 that was used toward acquiring broken condominium conversion properties in South Florida.

In 2008, Pathfinder shifted gears and developed a fund to buy pools of foreclosed single-family homes, but there was a problem.

"We could never find anything at the right price," Polger said.


Lorne Polger is the co-founder and senior managing director of Pathfinder Partners LLC. Daily Transcript photo

In January of this year, Pathfinder teamed up with Denver-based Pittman Development Group to acquire 64 townhouse and condominium units in Denver. The distressed properties reportedly had notes worth about $12.7 million before they went into default.

In May 2010 Pathfinder developed a fund that, in Polger's words, has the capability to buy $250 million in first trust deed notes and REO (bank-owned) properties.

"There are a lot more defaulted notes than REO properties," Polger noted.

Pathfinder also offers workout services -- working with borrowers to restructure, modify or repurchase commercial real estate loans via bridge financing and/or equity investments.

Pathfinder's primary target areas are those markets that experienced the most construction during the boom times -- California, Florida, Arizona, Nevada, Texas, Washington and Oregon.

In San Diego County, Pathfinders assets here include the Venture Commerce Center, a 44,000-square-foot office condominium project in Sorrento Valley. Pathfinder and its partner acquired the promissory note secured by first trust deed position, on 41,000 square feet (10 of 11 units) in the project in December 2008.

The Venture Commerce Center recently underwent a multi-million dollar renovation, which includes new landscaping throughout the project. Both buildings have new roofs, windows, doors and HVAC units. Each suite includes a private entrance and a view of the Los Penasquitos Creek.

The Valencia Homes development that Pathfinder now owns is a 72-unit, detached, single-family home project consisting of 22 completed and partially-completed units and 50 finished lots in Coachella. Pathfinder acquired the project from a multi-billion dollar national bank that it didn't identify in July 2010.

Polger said the original homes sold for almost twice their current value and Pathfinder considers the homes to be the best available in the submarket. The 50 finished lots, adjacent to the homes, average 7,200 square feet.

Working quickly is the key to acquiring these assets at the best possible prices.

"Our goal is to underwrite and close within 30 days ..." Polger said. "There are a lot of things for us to buy."

While some of his fellow commercial property owners are saying the market has bottomed out, Polger believes it has a ways to fall yet.

"I'm a big believer that we're not through the worst of this cycle," Polger continued.

Polger, who said it is better to have a discounted transaction than an empty building, said he has seen rents continue to deteriorate.

"And even if companies are doing ok, they are shrinking their space," Polger said.

So why would Pathfinder want these buildings? Polger suggests it is about taking the long-term view.

Polger said the advantage San Diego has over a metropolitan area such as Phoenix or Las Vegas is that, with a few exceptions, it didn't see the huge amount of overbuilding. He said this is particularly true of apartments where the countywide vacancy is 5 percent or less depending on the survey.

"Unlike Las Vegas, the cost of land is so high here. Las Vegas also lost 10 percent of its population in the recession," Polger continued.

Pathfinder will consider apartments, office and industrial buildings if they are well-located and grocery-anchored retail, and even office condominiums if they are well-located suburban properties such as the Venture Commerce Center.

"We're not buying empty office buildings," Polger said.

Pathfinder will also complete projects, such as it is about to do in the case of a 33-unit apartment property it is in escrow to purchase in Los Angeles.

"That project is about 75 percent complete," he said.

At Mer Soleil, a part of the Otay Ranch masterplan in Chula Vista, Pathfinder Partners and its capital partner acquired the promissory note secured by first trust deed position, on 62 remaining units (40 of 102 units had been sold) in June 2008.

"That was a loan bought from IndyMac Bank just before that institution was taken over in 2008," Polger said. "We sold out the 62 condos."

In January Pathfinder foreclosed on a vacant medical office building and a strip shopping center at 301 University Ave. in Hillcrest between Third and Fourth avenues in Hillcrest.

"We're talking with a national retailer," Polger said adding that the existing property will have to be demolished first.

Along with its other ventures Polger said Pathfinder is purchasing single-family homes and holding them for rent.

"Our partners have bought 50 homes in San Diego to date and when they come in they pay all cash," he said.