“Where are you guys finding deals these days?”

“Boy, it’s a competitive landscape out there, how are you still finding things to buy?”

“How do you win the day on a deal and feel that you are not overpaying?”

Good questions all. Those and similar ones have been posed to us by our investors on a regular basis since we started our company back in 2006.

If you asked me those questions ten or 15 years ago, my answer would be quite like my response today. Relationships account for much of our deal flow.

When we started Pathfinder in 2006, I had a long history of work with lawyers, investors, lenders, bankruptcy trustees, real estate brokers, title insurance executives, receivers, and other influencers. When we started looking for distressed deals back then, I pulled on those relationships to source deals. It was not easy at that time. Most lenders were in complete denial over the extensive problems in their portfolios. And the regulators at that time were quite lax in their oversight, so the banks were not feeling the pressure to sell or mark to market any troubled loans (boy did that ever change a few years later).

But the landscape evolved. During our period of distressed asset buying from 2006-2012, many deals came to us through a casual “catch up” phone call or lunch with an old acquaintance (“if that is what you are looking for, I may have an interesting deal for you”), a dinner that we hosted at a conference, a referral from an investor or someone that we worked with, a person who was on our newsletter distribution list, a broker that Scot or Brent worked with in their prior work lives, someone who may have heard Mitch or me speak at a conference, or even from someone who read about us in an article where we were quoted.

Mitch and I had (and have) similar philosophies when it came to general business principles. First and foremost, treat people with respect. Don’t step over a dollar to save a nickel. Create alignment of interests. Be opportunistic, but don’t swing for the fences. Do what you say and say what you mean. Stay disciplined and focused. And value relationships.

All of those came into play over the years as our business grew. We’ve bought more than 125 commercial properties since 2006 (mostly apartment projects – plus around 125 single-family homes we purchased in San Diego through our Raintree program from 2009-2012). I shake my head at those numbers sometimes.

Over time, more equity capital has come into the market. The level of competition has increased. It has become harder to win deals. The importance of relationships has increased.

Deals were not necessarily won because we had money in the bank or an outstanding track record. We did, but so did many others. Moreover, deals were not necessarily won because you were willing to offer the highest price. That was the case sometimes, but not always. Often, we got the nod because of relationship intangibles. We built a positive reputation in the business community by operating with integrity and following the business principles outlined above. We followed through on our commitments. We were “good guys”, heavily active in the community (both philanthropically and with our time). Influencers knew that we would perform on our commitments, honor agreements, pay commissions and make everyone look good.

We’ve stayed in regular touch with our relationships through personal contact, our newsletters, investor reports, and speaking engagements. We attend conferences to both learn and engage. We pick people’s brains, and perhaps as importantly, allow people to pick ours. We mentor others and are still in regular touch with those who mentored us.

Today, as we seek investments for Pathfinder Partners Opportunity Fund VIII and Pathfinder Income Fund, we find that the level of competition has increased again, and as a result, the importance of our relationships is more meaningful than ever. Last month, we won a deal for the Income Fund, in part, because of a 40-year relationship that I had with the seller. We won a deal for Fund VIII last month, in part, because of the strength of our reputation in the brokerage community. We continue to field calls from relationships relating to off-market opportunities for both funds. And we remain fully engaged with our relationships across the board through calls, Zoom meetings, webinars, and this newsletter. We hope that later this year, we will be able to safely return to enjoying more personal relationships over a meal or a glass of wine.

I’ve learned many lessons from various real estate mentors over the years. But among the most valuable was never burning a bridge (i.e., ruining a relationship). My mentor during my legal career told me to negotiate hard, but close harder; make everyone feel like a winner at the end and you will endear yourself to your clients/investors/business partners/counterparties for the long term. Perhaps that is why I started my career in transaction law instead of litigation. My personality fit better with a win-win dynamic, as opposed to a win-lose one.

In some respects, the more things change, the more things stay the same. Relationships are as important as ever. And deep relationships are incredibly valuable. We treat them as such. It has allowed for our steady growth over the last 15 years, and we believe it will enable our continued growth for the next 15 years.

For our many friends, business partners, investors and influencers reading this: Thank you – we value our relationship with you!

Lorne Polger is Senior Managing Director of Pathfinder Partners. 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 lpolger@pathfinderfunds.com.