a multifamily and residential fund · seasoned fund manager with excellent track ... we identify...

Pathfinder Partners Opportunity Fund VII, L.P. A Multifamily and Residential Fund

4380 La Jolla Village Drive, Suite 250 | San Diego, CA 92122 | Phone: 858.875.4400 | www.pathfinderfunds.com

Seasoned fund manager with excellent track record launching 7th opportunity fund

Outstanding brand reputation and deep relationships drive robust deal flow pipeline

Conservative underwriting approach; institutional level asset management

Disciplined and thoughtful use of debt leverage

Overview of Pathfinder Pathfinder Track RecordFrom May 2010 to September 2018 we fully-cycled 72 investments, generating the following project-level returns:

Equity MultipleGross

Net

1.6x1.4x

Pathfinder Investment StrategyWe focus on smaller multifamily properties that are “below the radar” of larger funds/buyers

We only acquire properties where we can add significant value; we seek properties which have been starved of capital

We identify sellers with a catalyst to sell — life-cycle events, liquidating funds, distressed, non-profit organizations with non-core real estate

We leverage our extensive relationships, strong reputation and the trust built with our investors through the management of our prior funds

Value-add, Class-B apartments Target markets: San Diego, Denver, Seattle, Portland, Phoenix, Las Vegas and Sacramento

Fatigued owners, liquidating funds and non-profits who don’t maintain or adequately invest in their properties

“Off-market” transactions sourced from our extensive network

1

2

3

4 We Invest at the Intersection of Opportunistic, Value-Add and Distressed Situations

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6Funds

Sponsored

109Properties Acquired

72 Dispositions

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Fund VII Target Returns• 16-18% gross / 12-14% net IRR • 1.9x-2.1x gross / 1.6x-1.8x net Equity Multiple

IRRGross

Net

26%20%

Value-Add

Distressed Opportunistic

What We Are Buying

Who We Are Buying From

Pathfinder Partners Opportunity Fund VII, L.P. A Multifamily and Residential Fund

(See Disclosures)


San DiegoOne of the most desirable and supply-costrained housing markets in U.S. Rents expected to rise 3.8% in 2018 and 3.7% in 2019.

DenverA shortage of affordable housing. Rents have increased 61.8% (7.7% per year) since 2009. Further rent increases projected through 2020.

Pathfinder Target Markets Benefiting from Robust Population and Job Growth

Seattle Rents increased 4.9% in 2017. Escalating rents combined with high occupancies (94.7% in Feb. 2018) causing upward pressure on rental rates.

Phoenix Current demand for housing is greater than new supply. Solid job growth creating upward pressure on rental rates and home prices.

Las Vegas Projected annual rent increases averaging 3.8% expected through 2020. Current demand for housing is greater than supply.

PortlandRents increased 2.9% in 2017. Rents are expected to increase at higher rates than the U.S. average through 2020.


Pathfinder’s Competitive Strengths

Deep relationships and strong reputation drive deal flow pipeline

Fund focused on value-add, Class-B apartments

Fund will only acquire properties in existing Target Markets (San Diego/Southern California, Seattle, Portland, Denver, Phoenix, Las Vegas and Sacramento)

Investors Benefit from Pathfinder’s Proprietary Sourcing and Extensive Value-Add, Multifamily Experience in Existing Target Markets

Incorporates deep research into market dynamics, sub-markets and competitive set

Supported by comprehensive third-party research of market trends, historical and projected occupancies and rent growth and competition

Institutional-level due diligence reduces risk

Conservative Underwriting and Acquisition Approach

Strategic focus on driving property income through higher rental/other income and hands-on oversight of expense reduction opportunities

Best-in-class property management, tenant marketing and rent optimization techniques

Deep renovation experience aimed at materially altering a property’s profile, tenant appeal and value

Institutional Level Asset Management

Seventh broad-based real estate opportunity fund

Successfully managed six broad-based opportunity funds and two specialty funds since founding in 2006

72 dispositions have generated gross project-level IRR of 26% (20% net) and gross equity multiple of 1.6x (1.4x net)

Seasoned Fund Manager | Excellent Track Record

(See Disclosures)


Why Value-Add, Class-B Apartments?

• Multifamily has highly favorable fundamentals (95%+ occupancy and robust rent growth in all Pathfinder markets) due to an acute supply/demand imbalance in housing and a societal shift toward renting that is expected to continue through 2025.

• The homeownership rate, 69.3% in 2004, declined to 62.5% in 2017 and is projected to decline to 61% in 2025 as millions who owned homes rent, driving occupancies and rent growth. In Pathfinder’s markets, home prices are well above the national average, creating a substantial need for more affordable apartments. (see chart on the right)

• Job growth is strong and housing supply is constrained. The U.S. ratio of employment growth to home construction (employment-to-permit or E/P ratio) is 1.8 to 1. A balanced E/P ratio is 1.1 to 1.5; in many of Pathfinder’s markets, E/P ratios are much higher (2.2 in San Diego, 1.8 in Seattle and Portland).

• Housing supply must increase to keep pace with population growth; projecting 6.2 million more renters through 2025. The U.S. is in a housing supply/demand imbalance, with more renters than rental units. The population has increased each year for 55 years; the supply of housing needs to increase simply to maintain the current imbalanced condition. There are 45.7 million rental households today, growing 12.7% to 51.9 million in 2025.

• New apartment supply is concentrated in expensive, Class-A properties. Due to the high cost of land and labor, most new construction is Class-A apartments, in urban areas, not more affordable apartments.

• High land/construction costs make it difficult for builders to deliver entry-level homes. Home prices are growing faster than rents and home construction is depressed in Pathfinder’s markets. Renters who would otherwise purchase must continue to rent.

• Home affordability is weakening, which will likely propel more owners/potential owners to rent. The 30-year fixed mortgage rate is well below historical averages. If interest rates and home prices rise as expected, mortgage payments could increase 36% through 2020. Rising costs will push millions of potential buyers to remain renters and even cause some existing owners to become renters, further exacerbating the supply/demand imbalance. The Tax Cuts and Jobs Act, signed into law in December 2017, advantages renting at the expense of homeownership because it doubles the standard deduction and caps deductions on mortgage interest and property taxes. Some fund investors may also benefit from tax advantages on pass-through income included in the Act.

• Apartments have a long record of providing the highest risk-adjusted returns compared to other property types. (National Multifamily Housing Council)

Massive Supply-Demand Imbalance for Apartments

Superior Long-Term Performance for Apartments vs. Other Properties

High Homes Prices Driving More to Apartments

Data below from a report commissioned by Pathfinder in December 2017 from John Burns Real Estate Consulting, LLC (“JBREC”)


Offering $100,000,000 to $150,000,000

General Partner’s Commitment $5,000,000

Committed Capital $45,000,000

Minimum Investment $100,000

Major Investors $1,000,000+

Investment Period Dec. 31, 2019

Target Internal Rates of Return (gross) 16%-18%

Target Equity Multiple (gross) 2.0x-2.2x

Preferred Return 8% / 9% (Major Investors)

Management Fee (on contributed capital) 1.5%

Acquisition Fee 1.0% (waived for Major Investors)

Profit Distributions 80% Investors / 20% GP

Initial Closing / Final Closing March 2018 / Dec. 2018

Pathfinder Fund VII Summary of TermsA Multifamily and Residential Fund


Executive Team

25+ years real estate / legal experiencePrior head of Real Estate department at San Diego’s largest law firmAdvised clients on $7 billion of multifamily transactionsB.A., Colorado College; Cum Laude, J.D., UCLA

Lorne Polger Co-Founder and Senior Managing Director

Oversees acqusitions and dispositions

••••

30+ years investment, real estate and senior management experiencePartner in investment banking/venture capital firmFounder/CEO of several companiesB.S., Finance, University of Missouri, Columbia (honors); M.B.A, Pepperdine University (highest honors)

Mitch Siegler Co-Founder and Senior Managing Director

Oversees corporate strategy and company operations

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20+ years of real estate, wealth management and business experienceExecutive positions with big four accounting and NYSE-traded firmsParticipated in placement of $1 billion in debt and equity securitiesPreviously COO and CFO for Grubb & Ellis BRE Commercial (now Cushman & Wakefield)B.A. in Business Economics, UCLA (Cum Laude), CPA

Brent Rivard Managing Director, and COO/CFO

Oversees financial, accounting, banking, compliance and IT functions

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20+ years commerical real estate experienceInvolved with acquisitions, dispositions and/or financing of $8 billion of real estateFormer executive with CB Richard Ellis, Burnham Real Estate (Cushman & Wakefield)B.B.A., Real Estate, Univ. of Wisconsin, Madison; M.B.A., San Diego State University

Scot Eisendrath Managing Director, Acquisitions and Investments

Oversees financial modeling and analytics

••••

INFORMATION IS AS OF SEPTEMBER 2018. THIS PRESENTATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY, EQUITY, DEBT, OR OTHER CAPITAL INVESTMENT IN PATHFINDER PARTNERS OPPORTUNITY FUND VII, L.P. OR ANY OF ITS SUBSIDIARIES OR AFFILIATES (COLLECTIVELY,“PATHFINDER”), OR IN ANY OTHER ENTITY, OR IN THE OPPORTUNITIES DESCRIBED HEREIN. THE INFORMATION SET FORTH HEREIN DOES NOT PURPORT TO BE COMPLETE. ANY SOLICITATIONS OR OFFERS TO BUY SECURITIES WILL BE MADE ONLY PURSUANT TO A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (“MEMORANDUM”), WHICH WILL DESCRIBE IN DETAIL THE SECURITIES, INVESTMENT STRATEGY, AND RELATED RISKS AND WHICH WILL QUALIFY THIS PRESENTATION IN ITS ENTIRETY. Prospective investors may not subscribe for securities until they have received a copy of the Memorandum and are determined to have met certain criteria described therein. An investment in the securities involves a high degree of risk and is suitable only for sophisticated and qualified investors who are “accredited investors” under Regulation D under the Securities Act of 1933. Prospective investors are advised to review the Memorandum and consult their own advisors regarding any potential investment in the securities. All information included herein is preliminary and subject to change, without notice. Pathfinder, the provider of the information herein, has assumed no duty to the recipient hereof, including no duty to update the information. Certain information is projected and based on assumptions and estimates as to current market conditions and to future events that may or may not occur. Any past performance does not guarantee future results. Information presented herein is confidential and for discussion purposes only and is made available subject to recipient’s agreement to maintain the same on a confidential basis. In the event recipient desires to share or provide the information with any person, he shall first receive Pathfinder’s written consent. The contents of this presentation shall not constitute legal, tax or investment advice. Consult your own legal counsel, accountant, or financial advisor as to legal, tax, accounting, and related matters concerning any matter described herein, including an investment in any security or opportunity described herein. The Net Internal Rate of Return (“IRR”) and Net Equity Multiple returns do not represent actual results. Actual results were adjusted to illustrate what investment returns would have been if these investments would have been made by the Fund and cash distributed in accordance with its terms. All IRR values included in this presentation represent annualized returns. An IRR calculation takes into account the length of time from the initial investment to ultimate realization and, for a given dollar amount realized, the IRR will generally decrease as the investment holding period increases. The IRR calculations included herein are intended to approximate the “internal rate of return to the investor” as if: (1) the individual properties had been purchased and owned by the Fund, (2) fees paid to Pathfinder during the holding period included a 1.5% Fund management fee and no other fees, (3) Fund-level operating expenses such as professional service fees for audit and tax services, legal services and estimated due diligence costs, and (4) cash distributions of operating cash flow, refinance and sales proceeds were made to the investors pursuant to the Fund cash distribution provisions, including payment of a Carried Interest to Pathfinder. The IRR calculations presented incorporate the actual capital contributions and actual cash distributions of operating cash flow, refinance and sale proceeds with respect to each of the investments sold, as adjusted to reflect the management fees and Carried Interest payments that would have been paid to Pathfinder had the subject properties been acquired by the Fund. The IRR calculations do not take into account the time value of money for the Fund or idle cash.

a multifamily and residential fund · seasoned fund manager with excellent track ... we identify...

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