In its second earnings report after being spun off from a tobacco company, Douglas Elliman came to grips with a harsh reality: It’s difficult to run a profitable brokerage.
Net income fell by more than 50 percent to $6.5 million in the first quarter, down from $14 million the year prior.
Consolidated operating income was $7.9 million, compared with $14.2 million a year ago. Just a quarter earlier, it was $20.1 million.
In part, the first quarter earnings were down due to costs associated with going public. Public company expenses were $6.662 million.
But not all of Elliman’s numbers were down. Consolidated revenues rose to $308.9 million, an increase of 13 percent or $36.1 million from the prior year period. That was thanks in part to Elliman’s real estate brokerage segment achieving a gross transaction value of approximately $11.7 billion, up from $10.1 billion for the first quarter of 2021.
In the past year, the average home price in sales handled by the firm was $1.62 million, indicative of the expensive housing markets in which it operates.
New York City remains Elliman’s largest market with $17.3 billion in gross transaction value in the past 12 months. South Florida was not far behind at $14.7 billion.
The housing market has been hot for most of the pandemic, thanks to low inventory and mortgage rates, accelerated moving plans, a quest for more space and second homes, among other factors.
However, there are signs that rising mortgage rates and more home listings will put an end to the real estate gold rush. Active listings were down 12.2 percent year-over-year in April, but that was the smallest such decline since December 2019, according to Realtor.com.
Chairman and CEO Howard Lorber, though, said the prospect of more expensive mortgages will further motivate Americans to buy homes.
“What I’ve seen in the past over the years is that as rates start going up, that brings people into the market quicker, because they don’t want to be priced out of the market,” Lorber said in a call with investors.
The brokerage continues to branch out into new markets, such as Dallas, where it recently hired 60 agents. Still, when asked about office space, Lorber had an answer that likely would not amuse his commercial counterparts.
“When leases start coming due, we’re going to consolidate and save some substantial money on rent over the next few years,” Lorber said.