TAMPA – It was the best of times, it was the worst of times. In 2008 Tampa-based Mercury Advisors, LLC, found itself in a financial predicament as its newest project, Grand Central at Kennedy, came out of the ground.
“We had excellent sales,” said Ken Stoltenberg, Managing Member, Mercury Advisors, LLC. “It seemed as though Grand Central was going to be another big success, but then the real estate market crashed, literally overnight.”
Grand Central is a $145 million mixed-use community with 392 condominium units and approximately 200,000 square feet of retail and office space.
“In the early going things were looking great,” said Stoltenberg. “We had closed on half the units and were well on the way to completing the project and turning over the association to the residents.”
As with all condominium projects, Mercury Advisors, as the developer, guaranteed the association’s budget, by paying for any shortfalls in monthly assessments, insurance, and taxes for both unsold and delinquent units. According to Stoltenberg, initial projections were well within its development budget.
“But then the crisis hit,” he recalled. “We started seeing owners walk away. It started as a trickle and then become more drastic. More than 60 owners failed to make their mortgage payments or pay the association monthly assessments. We ended up keeping the boat afloat, but didn’t anticipate that we might have to sustain it for what would be years of a stalled real estate market.”
At the time of the real estate crash, a unique specialty financial services company emerged on the scene with a pledge to assist struggling condominium associations that were experiencing the same problems as Grand Central.
Tampa-based LM Funding, LLC, would assist community associations by purchasing a portion of the proceeds of the delinquent accounts receivables and manage the collection of the delinquent accounts and the accompanying accounts receivable. Assessments that were recovered were returned to the associations and LM Funding would make its money by keeping the late fees and interest that had accrued on the accounts.
“The concept works because the money we fund helps with property values and in turn, rising property values make collecting delinquent accounts a lot easier to collect,” said Bruce Rodgers, Chairman and CEO of LM Funding. “The major advantage to associations was the immediate cash in-flow, and future potential of collecting their delinquent receivable balance. To top it off, LM Funding covered the cost of all legal fees. Making it so there is really no risk to the association.”
The timing couldn’t have been better for Grand Central at Kennedy.
“We were actually LM Funding’s first client,” said Stoltenberg. “As real estate investors and developers, we certainly understood the concept. But the big question was, would it work?”
With the promise of much needed cash and no legal fee liability, combined with the real estate and financial expertise of LM Funding, Stoltenberg and his partners decided to give it a shot.
LM Funding went to work, focusing on the two types of buyers at Grand Central:
- Purchasers who closed on units, but never occupied them; and
- Purchasers who lived in the units, but quickly found out they could not meet the mortgage payments and monthly assessments.
Mercury Advisors turned over more than 60 accounts to LM Funding. The process became more complex as lenders foreclosed, requiring LM Funding to pursue collections from major banks and financial institutions.
Since the turnover, LM Funding has returned more than $500,000 in past-due assessments to the Grand Central at Kennedy association. Today, the community is almost sold out, and Mercury Advisors can step away, relinquish its seats on the board, and move on to other development activities.
“At that time, we had no other good options but to turn over our accounts to LM Funding,” added Stoltenberg. “We really had nothing to lose. Quite frankly, their success was our lifeline.”
Other associations throughout Florida and in other states are experiencing similar success. Through June of 2015, LM Funding has purchased the rights to collect on more than $274 million in association receivables in nearly 500 associations in Florida, Washington, and Colorado. It has returned more than $55 million dollars to its client associations.
LM Funding completed a successful IPO in October of 2015. The company raised more than $10 million which will be used for expansion into other states.
According to Rodgers, investors were attracted to LM Funding’s business model and what appears to be strong and predictable returns.
“The one challenge we had with investors was demonstrating that while the returns were predictable, the time frames were not,” said Rodgers. “Due to the complex process, returns can take several years. Once they understood how we vetted the purchase of units, they understood. Investors also liked the fact that the business model was difficult to duplicate and the competition we have faced has struggled with the complexities of underwriting, financing, and tracking the collection process.”
LM Funding has established a variety of financial programs for community associations. The firm continues to prove that its system is viable during good and bad times in the real estate market.
“They have really found a niche that is needed in the market,” added Stoltenberg. “They have a great strategy and service that developers should include in their association’s governing documents as a safeguard against unforeseen delinquency problems. It allowed us to maintain Grand Central during some difficult times which resulted in us having a successful project.”
About LM Funding America
LM Funding America, Inc., together with its subsidiaries, is a specialty finance company that provides funding to nonprofit community associations (Associations) primarily located in the state of Florida, as well as in the states of Washington and Colorado. The company offers funding to Associations by purchasing a certain portion of the associations’ rights to delinquent accounts that are selected by the Associations arising from unpaid Association assessments. It is also involved in the business of purchasing delinquent accounts on various terms tailored to suit each Association’s financial needs, including under its New Neighbor Guaranty™ program. The company was founded in 2008 and is based in Tampa, Florida. The company’s common shares and warrants trade on the NASDAQ Capital Market under the symbols “LMFA” and “LMFAW”.