Douglas Elliman’s profitability falls over 50% with fewer new dev closings

Douglas Elliman’s sales volume rose during the third quarter, but its profitability slipped more than 50 percent thanks to fewer “higher margin” new development closings.

The New York-based brokerage pulled in $190.4 million in revenue, up 3.2 percent from $184.5 million during the prior-year period, according to filings by its parent company, Vector Group. But net income was $4.2 million — down from $8.7 million in 2016.

Those numbers were the result of a strong low-end market but softer new development segment, where Elliman has had fewer closings despite a robust pipeline of projects it is marketing.

“There were more closings in ’16 than in ’17 — quite a bit more,” Chairman Howard Lorber said during an earnings call Tuesday.

Overall, Elliman closed $7 billion worth of sales during the quarter compared to $6.8 billion in 2016. For the first nine months of the year, Elliman closed sales worth $19.8 billion compared to $18.9 billion a year earlier.

Lorber said the low-end of the market is “very, very strong,” as is the high-end. The mid-market segment is “kind of quiet,” he said.

When it comes to new developments, however, Lorber said there’s a dearth of new projects that are on the drawing board. “But we have a big backlog of projects,” he said. In the last six months, he said, Elliman has picked up five or six projects currently being built “where the sales were slow and we took them over.”

Despite a new “multi-million dollar” marketing push that kicked off in May, Lorber hinted at some restraint, given the cyclical nature of the business. “We think our growth will continue,” he said, but “we want to watch our expenses, obviously, so we try to trim down when we can.”

Overall, Vector’s revenue was $484.6 million during the quarter, up 5 percent compared to $459.1 million last year. But the company’s profits slid to $19.3 million, down from $23.2 million in 2016’s third quarter.
Net income for the first nine months of the year was also down. Vector reported $41.8 million in net income through September 30, down 37 percent from $66.5 million in 2016. Revenue for the nine-month period was $1.372 billion in revenue, up from $1.278 billion in 2016.

The slow new development market has dogged Elliman before: In May, Elliman said its profits dipped to just $100,000 — a decline the firm attributed to fewer closings in new projects.

Last week, competitor Realogy said its revenue for the quarter rose 2 percent year-over-year to $1.7 billion. Net income slipped to $95 million from $106 million. During the quarter, Realogy said it spent $53 million on commission expenses during the quarter amid a major recruitment effort.