Pathfinder Newsletter - 2025 February

THE PATHFINDER

REPORT February 2025

IN THIS ISSUE 2

CHARTING THE COURSE Trumponomics 2.0: (aka “Move Fast and Break Things”)

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FINDING YOUR PATH The Chickens are Coming Home to Roost

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GUEST FEATURE Early Lessons from the L.A. Fires

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ZEITGEIST: NEWS HIGHLIGHTS

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TRAILBLAZING Casa Madrid, Chula Vista (San Diego), CA

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NOTABLES AND QUOTABLES Diligence

CHARTING THE COURSE Pathfinder Multifamily Opportunity Fund IX, L.P.

Trumponomics 2.0: (aka “Move Fast and Break Things”)

By Mitch Siegler, Senior Managing Director

If, after the first weeks of the Trump administration, you’re feeling like you’ve been riding a bucking bronco (or maybe you feel like the horse that’s been ‘ridden hard and put away wet’), you’re not alone. Plenty of corporate executives, investment managers and foreign leaders also feel whipsawed.

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Generally, reading the macroeconomic tea leaves is part art and part science. Nowadays, it’s a bit of a random walk. To quote Gerard McDonald, economist at 22v Research, “Anyone not plugged directly into the new administration will have difficulty assessing the macroeconomic outlook because policy shocks are likely to be dominant here.”

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Exhibit “A”: Treasury Secretary Scott Bessent has set an ambitious “3-3-3” plan, including cutting the deficit in half to 3% of GDP, boosting real economic growth to 3% and boosting U.S. domestic oil production by three million barrels per day.

May it come to pass! If we stretch the limits of our imaginations on the latter two goals, it still takes a giant leap of faith to buy into the first one – even if Elon Musk and his Department of Government Efficiency (DOGE) hit it out of the park with cost-cutting. (While we would all like to see fiscal prudence, slashing the deficit by 50% – in the near term, not in out years, as is the usual D.C. budgeting game – is ambitious for anyone who knows the first thing about how the sausage is made in Washington.

We’ll unpack this further in a bit.)

While we can’t possibly assess all the moving parts in the economic maelstrom that is the first few weeks of the Trump administration, here are a few thoughts about several major economic factors – the Federal budget deficit, economic growth, energy, interest rates, tariffs, taxes and immigration.

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Federal Budget Deficit – the CBO projects the deficit will total 6.2% of gross domestic product (GDP) in 2025, shrink to 5.2% by 2027 and climb again to 6.1% by 2033. (These projections are founded on optimistic assumptions, like no recession during the next decade; some economists feel a recession could be just on the horizon.)

So, how realistic is it to cut the deficit in half? (Spoiler alert: not very.) In 2023, the U.S. government spent $6.2 trillion, with $1.7 trillion on discretionary spending, $3.8 trillion on mandatory spending (entitlements like Social Security and Medicare), and $659 billion on net interest. So, there’s little we can do about 61% of the spending. And, the 10-year treasury bill, an average of 3.87% in 2023, sits at 4.58% today – nearly 20% higher. So, that $659 billion in net interest would have been more than $100 billion higher with today’s higher interest rates. If the deficits grow, the Treasury will need to boost interest rates, perhaps by a lot, to sell the bonds.

Only about 25% of the government spending pie – the discretionary piece – is up for grabs by DOGE – and that’s before we talk about potentially higher interest rates (more on that below).

Economic Growth – The U.S. economy continues to perform much better than most developed nations, owing to our strong positions in the technology and services sectors. The fourth quarter 2024 U.S. quarterover-quarter growth rate – 2.3% – was down by almost one-third from the third quarter level of 3.2%.

Harkening back to the Treasury Secretary’s 3.0% growth goal, we need to boost growth by about one-third from the prior quarter and sustain it at that level to achieve his objective. It’s possible, sure, but it’s no layup.

Compared to Europe, however, the U.S. is a bright,

shining star; European growth plummeted from 3.4% in 2022 to just 0.8% in 2023 (and is expected to be basically flat in 2024. In isolation, improved economic growth is certainly achievable but stay with us for a bit for a perspective on how other puzzle pieces – like interest rates and inflation – could impact growth.

Energy – President Trump sums up the new administration’s energy policy in three words: “drill baby drill”. We’re all for clean air and water and the U.S. needs to balance environmental considerations with energy independence, which could reduce gas prices and inflation. It could also provide important intangible benefits (especially vis a vis two major adversaries, Russia and Iran). A balanced approach acknowledges that shifting the economy away from fossil fuels toward solar/wind and electric-powered vehicles is easier said than done since our modern economy is the product of centuries of fossil fuel use. Any energy transition will require investment and occur over time.

Interest Rates – Higher interest rates are a key risk to sustained progress on reducing the Federal budget deficit. Higher rates also pose risks for the bond market, equities, real estate and capital investment. Just a couple of months ago, the vibe was that we would see several interest rate cuts in 2025. In the current ‘higher for longer’ environment, we may see very few – or no – cuts this year. Some, like Ray Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund, is concerned about the implications of U.S. debt levels, which he likens to plaque in the arteries. Eventually, excessive debt becomes constricting, squeezing out other spending and leading to the equivalent of a financial heart attack. Prior to that happening, investors catch on, selling bonds – which can lead to higher, even much higher, interest rates. Suffice to say that the interest rate environment – and forecast – is quite uncertain.

Tariffs – Trump’s blunt force tariff threats are sending leaders in Canada and Mexico into a tizzy. The threat of tariffs could also have major implications for trade with China and could serve to bring Panama and Denmark (Greenland is an autonomous Danish territory) to the bargaining table. The threat of tariffs creates uncertainty, like forcing U.S. companies to stock up on inventory to safeguard against further supply chain disruptions. That sucks up precious working capital and is a distraction for management. (Of course, tariffs are a boondoggle for

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same time, but tariffs are one of them. (All that said, China has been violating trade rules and intellectual property norms for eons so tariffs on certain Chinese goods may be appropriate.)

lobbyists, who are hard at work seeking exemptions for their clients.)

On Sunday, February 2, tariffs of 25% on all imports were threatened against Canada and Mexico; these were postponed for 30 days after Canada’s Trudeau and Mexico’s Sheinbaum promised to take meaningful steps to tamp down the flow of fentanyl and strengthen border patrols to limit illegal immigration. Our heads are spinning.

Most Americans understand that the President is likely using the threat of tariffs to negotiate with nations he perceives use unfair trade practices (or, in his words, “are ripping us off ”). Raymond James economist Eugenio Aleman thinks “the Trump administration is using tariffs as a negotiating tool and while they’re not going to be as bad as many think, there is a risk of overdoing it.” (As an aside, Aleman sees a 40% risk of a recession this year.)

What’s not always acknowledged is that the countries impacted can reciprocate with their own tariffs at the stroke of a pen, leveling the playing field. Less often discussed is that businesses make investment decisions when they have confidence in the future. Uncertainty – like about how tariffs may impact global trade or economic growth – diminishes confidence and investment. If you’ve studied the past few centuries of global trade or read Adam Smith’s “The Wealth of Nations”, you’ll know that trade adds to choices and prices are lower when each country excels at what it does best. From our perspective, implementing wholesale tariffs would be madness. Very few things can be inflationary and recessionary at the

Taxes – Understanding the likely corporate and individual tax rates, what’s deductible and exempt from tax is key in providing business leaders and investors clarity to make wise decisions. Earlier, we touched on the Federal budget deficit, which is around 6.2% of GDP. If Congress extends the Trump tax cuts, U.S. government debt would jump to about 7.5% of GDP, according to the Congressional Budget Office. Both are way too high since the debt must be sold to buyers in the rest of the world; they’re wary given how much U.S. debt they currently have, because of the threat of tariffs and trade friction and other geopolitical risks. One thing is clear: we have absolutely, positively, no idea where any of this is heading today so we’ll await further clarity before wading deeper into the tax waters.

Immigration – The President has long made immigration a cornerstone of his platform. We need more engineers and scientists and should have more H-1B visas. We also need gardeners, agricultural workers, construction workers, housekeepers and more – it’s unrealistic to slam the door shut on immigration. Polls show that a large majority of Americans believe both that our immigration system is broken, and that uncontrolled, illegal immigration depresses wages and has other negative effects on our society. Americans don’t want to see millions of people who are living, working and paying taxes in this country deported. We welcome sensible, thoughtful and collaborative approaches to these challenges.

There’s a lot to unpack after just a few weeks of the new administration. Buckle up – it could be a wild ride.

Mitch Siegler is Senior Managing Director of Pathfinder Partners. Prior to co-founding Pathfinder in 2006, Mitch founded and served as CEO of several companies and was a partner with an investment banking and venture capital firm. He can be reached at msiegler@pathfinderfunds.com.

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FINDING YOUR PATH

The Chickens are Coming Home to Roost

By Lorne Polger, Senior Managing Director “Daddy always told me, with a knowing look Every debt gets settled, in the devil’s book You can’t run forever, down that twistin’ road Cause the chickens are comin, to collect what’s owed Yeah - them chickens are comin’ To collect what’s owed” - Chaotic Herman, 2025

Truth be told, I’m a bit of a deal junkie. I still love the adrenaline rush of working decades of relationships to find an interesting deal, talking about it, thinking about it and strategizing about it. So, it was a bit tough for me to spend two years sitting on the sidelines waiting for investment metrics to balance so that investing in something new made sense again.

I’m glad we waited. Looking in the rearview mirror, there was little that we missed out on over the last couple of years when interest rates jumped and remained elevated, and sellers’ pricing expectations did not match up with market conditions.

But today, things have started to change. The commercial real estate (CRE) sector is facing a significant volume of loan maturities in the coming years, with a notable portion of loans held by debt funds. Debt funds (non-bank lenders which provide financing for real estate projects), became prominent players in CRE lending during the go-go years of 2020-2022, when higher leverage was not available from traditional lending sources like banks, insurance companies and the government-sponsored entities (GSE lenders), Fannie Mae and Freddie Mac, primarily due to constraints on debt service coverage ratios. Here are a few specific observations about upcoming multifamily loan maturities: • Peak Loan Maturities: According to CRE loan analytics firm Trepp, approximately $2.8 trillion in CRE loans will mature between 2024 and 2028.

Of this, an estimated $533 billion is scheduled to mature in 2025.

• Multifamily Sector Exposure: According to CPA firm MossAdams, the multifamily sector accounts for about 33% of the maturing loans from 2024 through 2026, including $190 billion this year.

• Debt Fund Involvement: Debt funds were instrumental in providing financing across various CRE sectors, including multifamily, especially during the peak value period between 2020-2022, when traditional lenders could not underwrite the loans or borrowers pushed the envelope for higher proceeds.

Given their significant loan origination role then, debt funds are on the hook for a substantial portion of the maturing loans now.

There are several key factors driving the issue, including: • Rising Interest Rates: Many apartment loans were issued at historically low rates (3% range) and are now coming due in a much higher interest rate environment (6% range). Owners who relied on floating-rate debt or short-term (3-5 year) financing are particularly vulnerable.

• Loan-to-Value (LTV) Challenges: Property values have declined due to higher cap rates and weaker or negative rent growth in some markets which are temporarily oversupplied. Lenders are requiring more equity now to refinance, which many owners do not have.

• Tighter Lending Standards: Banks, life insurance companies, and GSE lenders have become much more selective. Loan proceeds are lower, requiring equity injections or leading to foreclosures or pressure from lenders leading to property sales.

The market conditions create several implications for investors, including: • Refinancing Challenges: Some borrowers will encounter difficulties refinancing maturing loans due to higher interest rates and stricter lending standards.

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• Strategic Considerations: Investors should scrutinize the quality of underlying assets, market fundamentals and sponsor track records when evaluating potential investments in distressed CRE assets.

• Distress on the Horizon: Many syndicators and private owners who used high leverage or bridge loans may struggle to refinance their loans. Some properties may be forced into distress sales, loan workouts, or foreclosure.

Because debt funds are unregulated and mostly unreported, we can’t provide exact figures on the specific percentage of the looming maturities they comprise. But the percentage is significant. Don’t believe me that it’s coming? Let’s look at an example. (“The story you are about to see is true…the names have been changed to protect the innocent” – borrowing from a line from the ‘60s television show Dragnet).

Bountiful Capital, a mythical, Texas -based CRE syndicator that raises money from retail investors in $25,000 chunks, purchased the value-add, 100-unit, 1970s-built Oasis Garden Apartments in Phoenix in the fall of 2021 (the peak of the market). At the time, Net Operating Income (NOI) was $1 million. Bountiful bought the project at a 3% cap rate for $33,333,333.

Their business plan was to renovate all the units and improve the common areas, increase the rents and NOI, and sell the property in about three years. As a direct result of their renovations, they expected to increase NOI from $1,000,000 to $1,400,000 and exit the property at a 3.5% cap rate, providing a tidy gross profit of over $6 million, about a 1.8x equity multiple and a 25% internal rate of return (IRR).

Because the cap rate was so low on their purchase, Bountiful would struggle to get more than 55-60% debt leverage from traditional lenders. And without that leverage, the IRR on their equity would have been very modest. So, what did they do?

They found a debt fund that provided 80% debt leverage to juice their returns. Instead of putting 50% down and getting a fixed rate loan in the 3% range, Bountiful took out a floating rate loan from an unregulated debt fund at 80% leverage for a three-year term. To hedge the risk of the floating rate, they purchased a rate cap to limit the number of increases that could occur on the loan.

The cost of a two-year rate cap was about $50,000 at that time.

Shortly after their purchase, three seismic shifts occurred that upset the business plan for the folks at Bountiful Capital. First, they underestimated the impact of the flood of new supply that came to the market. Over 17,000 new units were delivered in Phoenix in 2023, over 21,000 new units came online in 2024 and Yardi expects approximately 26,000 units will be delivered in 2025. This new supply created significant downward pressure on rents. So instead of seeing 10% annual rent increases (30% rent increases over three years) that were forecast back in 2021, rents dropped.

Second, expenses rose higher than budgeted. Inflation was the culprit here, along with a dramatic increase in insurance rates caused by massive claims from floods, fires and other events that occurred around the country.

Rising expenses directly hit NOI. Third, interest rates rose dramatically and are expected to be higher for longer, notwithstanding the three rate reductions that the Fed implemented in 2024. Over time, those rate increases impacted capitalization rates, such that Bountiful’s 1980s vintage deal in Phoenix today would trade not at their underwritten 3.5% cap rate, but instead, a much higher 5.5% cap rate. (Higher cap rates equate to lower values.) In addition, Bountiful’s two-year interest rate cap came due in 2023. Since the new interest rate on the floating loan would be over 8%, they purchased an additional one-year cap for about $500,000, further impacting their returns.

So, let’s look at the math today. Say Bountiful completed some of their renovations (they had to stop at some point because as rents fell, renovations no longer made sense)

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and were able to increase NOI by 10%, to $1,100,000 (a portion of the increase was muted due to those higher expenses). What is the value today at the current market rate cap of 5.5%? $20 million! All their equity has been wiped out, along with about a third of the debt. Ouch!

Now, many of those borrowers like Bountiful and those debt fund lenders kicked the can down the road in 2024. After all, that’s only a loss on paper. You don’t realize the loss unless you sell. And in 2024, most were betting that interest rates were going down, which could drive cap rates back down and values back up.

But that hope was fleeting.

Today, rates remain near recent highs. And very few are predicting that the Fed will cut rates further in 2025; in fact, some pundits are forecasting rate increases. Pity the guys at Bountiful who did not communicate these issues with their investors along the way.

In our hypothetical example, Bountiful could theoretically refinance their debt. But given today’s $20 million valuation, they would be limited to a loan in the $12 million range. So, they would have to stroke a check for more than double their original equity of $7 million to save the deal. Some institutional owners who can play the long game may do that but very few syndicators will.

Most investors who put $25,000 in a deal are unlikely or unwilling to triple down on that type of investment.

This isn’t just hypothetical. In the last few months, we’ve seen several deals in Denver and Phoenix trade at levels where upwards of 40% of the capitalization stack (the equity and some of the debt) have been wiped out, mostly in 1970s vintage, value-add deals. Of course, the markets with the greatest amounts of new supply are hardest hit. There’s more of that coming in 2025 and 2026. Perhaps a lot more.

This was very much the prevailing sentiment at the national apartment conference that members of the Pathfinder team attended in Las Vegas in late January.

Over the course of three days, we met with brokers, lenders, investors and service providers. In the ten markets we are active in, brokers indicated that deals would start to come to market this year in forced sale situations. It started with a trickle. We think that it grows; whether it grows to a raging river over time will remain to be seen.

For a deal junkie (and those with investable cash), the chickens have come home to roost. It’s time to saddle up and get ready. The next 18-24 months should provide some interesting investment opportunities.

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. He can be reached at lpolger@pathfinderfunds.com.

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GUEST FEATURE

Early Lessons from the L.A. Fires

By Brent Rivard, Managing Director The L.A fires that started on January 7th were devastating and widespread. We all seem to know people who were impacted in some way – whether they lost their home or business or have friends or family members who were directly impacted.

I grew up in Los Angeles and my wife and I attended UCLA. To watch such a wide area of my home city and areas I’ve driven many times burn to the ground was difficult to take in. I can’t imagine losing our home; our thoughts are with everyone impacted by the fires.

Black swan events – those that are low likelihood but have devastating consequences when they happen – do occur. The L.A. fires fit firmly into that category.

The initial numbers are staggering. More than 12,000 homes, businesses, schools and other structures have been destroyed. Preliminary estimates indicate more than $30 billion in insured losses and up to $250 billion in total losses. Those losses would make these fires not only the largest loss from a wildfire in California, but the largest loss from a wildfire anywhere in the United States. This catastrophic event will have a long-term impact on the city of Los Angeles and a downstream effect on thousands of displaced residents.

As a homeowner, a property owner and a partner in a multifamily investment firm, I can’t help but try to learn some lessons from what happened in L.A. How can we prepare for events like this personally, professionally and as a community? What are some of the early lessons that we can translate into actionable steps to both assess and mitigate risks?

Personal Planning I’ll admit that our family is not ready for a fire evacuation, but we should be. Our neighborhood backs up to canyons that are at risk for fire, and we’ve had friends from L.A. evacuate their homes and stay with us in San

Diego. But it could never happen to us...! I think the first step is recognition that we are all at risk. The changes in the strength and frequency of the winds in Southern California and increasing density in neighborhoods like Alta Dena and Pacific Palisades should wake us up. Fires move fast and the more prepared we are, the higher our chance of surviving and thriving following a natural disaster. Within 48 hours of the start of the L.A. fires, there were several fire preparation checklists being circulated over email. The best one I received (and will be using) is a 17-page document developed by residents in Lahaina, Maui (Hawaii), which experienced a similar black swan fire event in August 2023.

If you don’t have a preparation checklist, email me and I’ll send you this one. It’s a comprehensive list of not only what to bring with you when you evacuate, but steps to take with your home before and during an evacuation.

The early lesson learned from watching the L.A. fires and hearing the stories of those impacted is to do more advance preparation with our homes and families. That includes physical preparation, maintaining a disaster recovery plan and making sure we have proper and adequate insurance policies.

Insurance We don’t have enough information to determine the longterm impact of the L.A. fires on the California insurance industry. What we do know is that every property owner will feel the impact, which is expected to range from the ability to obtain proper insurance to large cost increases. As the frequency and severity of wildfires rises, insurance companies face greater financial risk, leading to skyrocketing premiums for homeowners. In some cases, insurers may choose (and have chosen) to pull out

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of high-risk areas altogether, leaving property owners with limited options for coverage or forcing them to rely on state-backed insurance programs such as the California Fair Plan.

It remains to be seen if programs such as the California Fair Plan will survive and how settling the losses from the L.A. fires will impact California’s budget and income tax rates. Rates will rise across the board. We’ve already seen the state approve a 22% increase in premiums for State Farm to help cover its losses and that’s likely just the beginning. I recently read an article about how insurance premiums were held down by the state of California and that rates in California didn’t properly reflect the risks of loss or the actual costs of home ownership. Artificially holding down insurance costs is akin to falsely inflating property values. Will property values decrease with rising insurance rates? We’ll see.

Any early lessons from watching the insurance industry react to the L.A. fires? One is to be proactive with your homeowner’s insurance. Most homeowners don’t pay much attention to their coverage and just wait for the renewal. In today’s market, it’s important to get ahead of your insurance renewal. Developing a strong relationship with your insurance broker is important. Make sure they know you and your home and will advocate for you with the insurance companies. Take advantage of discounts or tax incentives for using fire-resistant materials or creating defensible space around your property. It’s also important to understand your coverage limits and how you would be impacted in the event of a disaster. Better to be over-insured than under, but most of us probably don’t know how our coverage relates to rebuilding or alternate housing costs. Speaking of rebuilding and housing…

Temporary Housing and Rebuilding We’ve all heard stories about displaced L.A. residents looking for temporary housing. There’s been everything from bidding wars on rental properties (we’ve heard some crazy stories of $50,000 per month leases) to resale home supply dwindling to predatory landlords taking advantage of the situation. It’s clear that our cities need more robust emergency housing plans, but we all probably need to spend time thinking about our own

emergency plans. Where would you go? Who could you stay with? What type of housing do you need as compared with what you want? I don’t have any answers to these questions. It would be highly dependent on the nature of the disaster but putting some mindshare on it occasionally, could put you in a better position should disaster strike.

What about rebuilding? It’s going to be a long time before we start to see actual structures being rebuilt.

Optimists in L.A. talk in terms of five years; others have much longer time horizons. There’s a lot to be done before construction starts, including clean-up, city infrastructure repairs and planning for what is to be rebuilt. Hopefully, the local governments will create efficient paths for building codes and plan approval to accelerate the process.

It’s been over 18 months since the Lahaina fires and there are just now some homes and structures starting construction. The massive number of structures and homes that need to be replaced in L.A. will eventually put extreme pressure on the availability of building materials and labor. We should prepare for that impact whether we’re planning a home remodel or are in real estate development. The long rebuilding process is also likely to slow down any progress being made on the overall southern California housing shortage, which could have downstream impacts on the economy, population and job growth.

Schools and Education The last area I want to address is the L.A. fire impact on schools and education. One of the most heart-wrenching consequences of the Los Angeles fires is the disruption of education for thousands of children who lost their homes. For many students, the fire not only destroyed

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their homes but also their access to safe schools and the routine that provides stability in their lives. The good news (if you can find any) is that our schools should be more prepared to maintain education continuity due to what we experienced during the Covid-19 pandemic.

Then, schools were forced to provide education on a remote or online basis. Some did it well, and some didn’t. We’re hoping that the experiences learned then will help our youth impacted by the fires to return to a stable educational environment as soon as possible.

There’s More to Learn The devastation caused by the Los Angeles fires has left deep scars on the affected communities, but it has also presented an opportunity to think about how to prepare.

There are more lessons to learn in addition to the short list above. What can we learn about more robust firefighting, water supply, air quality implications, supply chain impacts or access to food/grocery stores in communities where they burned to the ground? We will all spend the next several years monitoring progress in Los Angeles and hopefully learning lessons for ourselves, our communities and our government to mitigate risks from black swan events that are sure to come in the future.

Brent Rivard is Managing Director and COO of Pathfinder Partners, LP. Prior to joining Pathfinder in 2008, Brent was the President of a national wealth management firm and CFO/COO of a one of southern California’s leading privately-held commercial real estate brokerage firms. He can be reached at brivard@pathfinderfunds.com.

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ZEITGEIST – SIGN OF THE TIMES The Economic Benefit of Apartments A common misconception about apartment communities is that they are a burden on local infrastructure, schools and other municipal services. In reality, apartment communities and the 40 million Americans who live in them play a pivotal role in economic growth.

According to research by Hoyt Advisory Services and Eigen10 Advisors, apartments contribute $3.9 trillion to the U.S. economy annually from consumer spending, employment, property operations and taxes.

The construction phase of an apartment community generally takes 24-36 months. During this period, local economies benefit from the purchase of building materials, the employment of architects, engineers and laborers and the spending from these workers at local businesses. On average, the construction of 100 apartments supports 179 jobs and generates $35.7 million in economic activity.

After the apartments are built, jobs are created to lease, manage and maintain the community. Residents contribute to the local economy by spending on goods and services, including entertainment, food, retail and healthcare, which supports local businesses and drives job creation. Residents also require services like transportation, cleaning and childcare, which further stimulates growth. One of the largest drivers of property tax receipts for most municipalities is property taxes paid by apartment owners which in turn contributes to substantial property tax. And resident spending at local businesses generates sales tax revenue that funds infrastructure, schools and other public services.

The development and operation of apartment communities are integral to the economic vitality of America’s cities. Their impact extends beyond providing housing as they drive consumer spending, create jobs and generate tax revenue.

Construction in the Age of Extreme Wildfires Following the recent Lahaina and Los Angeles wildfires – and as the U.S. faces more extreme and longer fire

seasons – government officials continue to update building codes to require more fire-resistant materials for apartments and homes. And while there is no such thing as a fireproof structure, the debate is brewing over which construction materials should be required for rebuilding properties in fire hazard zones.

According to construction experts, constructing apartment buildings from non-combustible materials – like concrete and cement – is slower and more expensive, with costs estimated to be 20-40% higher for a midrise apartment property. Opponents point to the already high costs of apartment construction and the need for low-income housing, which may never be developed if more expensive materials are required. Advocates says the alternative – losing more buildings to future wildfires – is worse and if apartment properties are to be rebuilt in high-risk fire zones, the building codes must mandate fire-resistance materials.

For single-family homes, which are generally one or twostories, there are more options for economically feasible fire-resistant materials given the smaller footprint, simplified engineering demands and lower total cost of construction. These include concrete block, engineered wood, steel, glass, stone, gypsum, brick and cast iron.

Homes can also include design modifications like removing overhanging roofs and eaves that catch embers and utilizing mechanical venting that is designed to shut in the event of a fire.

As the planning for the rebuilding of Lahaina and Los Angeles begins, conversations surrounding building materials and building codes are becoming increasingly more important and may create a future roadmap for construction in fire-prone areas.

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TRAILBLAZING: CASA MADRID, CHULA VISTA (SAN DIEGO), CA “Reimagined Property in San Diego’s Vibrant South Bay”

Seven miles south of downtown San Diego and four miles north of the U.S. / Mexico border, lies Chula Vista – a bustling City that offers a blend of natural beauty, cultural diversity and economic opportunity.

The City’s name, meaning “beautiful view”, reflects its natural surroundings including the Pacific Ocean, San Ysidro Mountains and San Diego Bay and 52 square miles of coastal land, canyons, parks and trails. Last summer, these characteristics attracted Pathfinder to Casa Madrid, an 88-unit apartment community in central Chula Vista – our first acquisition in Pathfinder Multifamily Opportunity Fund IX, LP. Built in 1972, Casa Madrid is in the heart of Chula Vista, three miles east of the San Diego Bay and walkable to an array of local and national retail options. The property features a mix of one, two and three-bedroom apartments and was in mostly original condition at acquisition, providing Pathfinder an opportunity to add value through apartment renovations and common area upgrades.

Since acquiring the property in August, we have repainted the exterior, upgraded the pool with a gas BBQ and new furniture, replaced roofs and installed new windows, signage and exterior lighting. We have also renovated seven apartments by modernizing the kitchens and bathrooms and adding ceiling fans and vinyl plank flooring. Our renovation plan focuses on preserving the property’s existing charm while adding modern design and conveniences.

Upgraded Pool Area and Renovated Building

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Before and After – Renovated Kitchen at Casa Madrid Chula Vista is experiencing a surge in capital investment, with $2.4 billion in active projects aimed at reshaping the local economy and fostering growth.

Notable developments include (i) the $1.35 billion redevelopment of the 535-acre Chula Vista Bayfront featuring 70 acres of new parks, 600,000 square feet of commercial space and 2,850 hotel rooms, (ii) the Amara Bay Project, a 35-acre bayfront site planned for 1,500 condominiums, a 250-room hotel and 400,000

square feet of commercial space and (iii) the University and Innovation District, a 383-acre site planned for a bi-national, multi-institutional university focusing on higher education, research and the arts.

With its strategic location, diverse population and aggressive economic goals, Chula Vista is a city of opportunity and an exceptional place for our residents to call home.

Chula Vista: Did you know?

The University and Innovation District in Chula Vista is a 375-acre project set to transform the city into a hub for education, research and technology. At its heart is a planned multi-institutional university campus complemented by commercial space designed to attract companies in the technology, healthcare and sustainability industries. The Innovation District will also include mixed-use spaces with housing, retail and recreation. The first phase, a 168,000-squarefoot office building and public library, is under construction with completion expected by December.

Site Plan of Chula Vista’s University and Innovation District

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NOTABLES AND QUOTABLES

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“Diligence”

“Diligence is the mother of good fortune.”

- Miguel de Cervantes, Spanish Writer

“Learning is not attained by chance; it must be sought for with ardor and diligence.”

- Abigail Adams, American Women’s Rights Activist

“Prefer diligence before idleness, unless you esteem rust above brightness.”

“Care and diligence bring luck.”

- Thomas Fuller, English Historian

“There is no barrier to success which diligence and perseverance cannot hurdle.”

- Oscar Micheaux, American Author

- Plato, Greek Philosopher

“What we hope ever to do with ease, we must learn first to do with diligence.”

“Diligence overcomes difficulties; sloth makes them.”

- Benjamin Franklin, American Inventor

- Samuel Johnson, English Author

“Diligence makes the rough places plain, the difficult easy and the unsavory tasty.”

- Richard Greenham, English Author

“It is diligence that is supposed to be your greatest possession.”

- Sunday Adelaja, Evangelical Pastor

“Work is doing it. Discipline is doing it every day. Diligence is doing it well every day.”

- Dave Ramsey, American Investor

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IMPORTANT DISCLOSURES Copyright 2025, Pathfinder Partners, L.P. (“Pathfinder”). All rights reserved. This report is prepared for the use of Pathfinder’s clients and business partners and subscribers to this report and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without our written consent.

The information contained within this newsletter is not a solicitation or offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction. Pathfinder does not render or offer to render personal investment advice through our newsletter. Information contained herein is opinion-based reflecting the judgments and observations of Pathfinder personnel and guest authors. Our opinions should be taken in context and not considered the sole or primary source of information.

Materials prepared by Pathfinder research personnel are based on public information. The information herein was obtained from various sources. Pathfinder does not guarantee the accuracy of the information. All opinions, projections and estimates constitute the judgment of the authors as of the date of the report and are subject to change without notice.

This newsletter is not intended and should not be construed as personalized investment advice. Neither Pathfinder nor any of its directors, officers, employees or consultants accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.

Do not assume that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended or undertaken by Pathfinder) made reference to directly or indirectly by Pathfinder in this newsletter, or indirectly via a link to an unaffiliated third-party web site, will be profitable or equal past performance level(s).

Investing involves risk of loss and you should be prepared to bear investment loss, including loss of original investment. Real estate investments are subject to the risks generally inherent to the ownership of real property and loans, including: uncertainty of cash flow to meet fixed and other obligations; uncertainty in capital markets as it relates to both procurements of equity and debt; adverse changes in local market conditions, population trends, neighborhood values, community conditions, general economic conditions, local employment conditions, interest rates, and real estate tax rates; changes in fiscal policies; changes in applicable laws and regulations (including tax laws); uninsured losses; delays in foreclosure; borrower bankruptcy and related legal expenses; and other risks that are beyond the control of Pathfinder or the General Partner. There can be no assurance of profitable operations because the cost of owning the properties may exceed the income produced, particularly since certain expenses related to real estate and its ownership, such as property taxes, utility costs, maintenance costs and insurance, tend to increase over time and are largely beyond the control of the owner. Moreover, although insurance is expected to be obtained to cover most casualty losses and general liability arising from the properties, no insurance will be available to cover cash deficits from ongoing operations.

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