Can a private equity fund manager that's historically focused on income-producing investments—multifamily, industrial and office—profitably enter the home renovation market? (No, it's not a new house-flipping show on the Wealth Channel.)

This is no ordinary fix-and-flip strategy on which Pathfinder Partners has embarked. Senior managing director Mitch Siegler (with his 6'4" son Jake at the Grand Canyon) tells us that Pathfinder has earmarked $50M to buy and reposition luxury homes in 2014 to '15. The company has six acquisitions under its belt with local operating partners in LA County and is eyeing properties in exclusive areas of San Diego County (think Rancho Santa Fe, La Jolla, and Del Mar, the kinds of places Robin Leach frequents). During the foreclosure crisis, the opportunistic investment firm bought distressed single-family homes, but Mitch says those opportunities are largely over in Pathfinder's Western US markets. However, some of the elements that caused inefficiencies in that market are present in the luxury space, he says.

Pathfinder's first acquisition was a 4,300 SF house in Palos Verdes. Mitch admits that buying homes in the $2M to $5M range (and spending up to $1M a pop on renovation) is a boutique strategy, and involves more than making the homes purdy. Structural work is needed in some cases—moving walls or doors, raising ceiling heights, and increasing square footage. Often, it's a life-cycle event that prompts the owners (or heirs) to sell. According to Mitch, a surprising amount of large, upscale homes haven't been modernized in decades because the owners weren't motivated to undertake a massive renovation. "These are things that in many cases time forgets." While structurally sound and well-located, they may have "yellow shag carpeting and wallpaper that looks like it came from a museum."

So what's the big picture? The traditional areas for investment are still competitive, but there are pockets of opportunity if you dig for them. Mitch says it also says something about the haves and have-nots. "The wealthy people are doing quite well in this economy; there's strong demand for these types of properties when they're renovated nicely and show well." This summer, Mitch hopes to improve his stand-up paddleboard technique. He's recently taken up the sport, plying the waters around San Diego including La Jolla Shores, the Scripps Pier, and Sunset Cliffs.