Douglas Elliman didn’t quite make it into the black in the second quarter, but wound down its losses.
The company reported a net loss of $1.7 million, up from $5.2 million in the same period one year ago. Though it marks the firm’s eighth straight quarterly loss, it’s a vast improvement from the $42 million net loss reported in the first quarter.
“Generationally high interest rates have driven sustained listing inventory shortages across our luxury markets for more than two years,” Chairman Howard Lorber said on the firm’s earnings call on Thursday. “These shortages have resulted in significantly lower transaction volumes.”
Lorber noted that the tide may be beginning to turn based on modest annual upticks in the firm’s revenue and transaction value last quarter. He cited these gains as “evidence of the market’s gradual adjustment to higher interest rates.”
Though Lorber noted that inventory rose in Florida and Texas, the increase hasn’t yet translated to unit growth. BTIG analyst Soham Bhonsle said on the call that units were down 3 percent.
“[People] are still waiting for rate cuts,” Lorber said. “You have inventory build, but there’s really less buyers at most levels, especially at the lower end levels of the market because of rates.”
The Federal Reserve is expected to begin cutting interest rates after its meeting in mid-September, following a reduction in inflation and higher than anticipated unemployment numbers that have some investors concerned about an approaching recession.
“We don’t know how deep the recession would be if there even is one,” Lorber said. “How many times have we heard that a recession is coming? I don’t think there’s going to be any serious recession.”
Consolidated revenues of $286 million, compared to $276 million in the same quarter last year.
In the first half of the year, the company reported an operating loss of $45.1 million and real estate brokerage segment operating loss of $32.3 million, a sharp uptick from the $32.1 million and $18.4 million, reported one year ago.
The brokerage’s results from the first half of the year include a $17.75 million payment as part of its settlement over antitrust lawsuits concerning broker commission guidelines. Elliman paid $7.75 million in June and owes up to two additional $5 million contingent payments by the end of 2027.
The company has been on a cost-reduction expedition for the last two years, with cuts targeting employees, marketing expenses and office space. The firm’s brokerage segment reduced its operating expenses, excluding expenses associated with commissions and settlement litigation, by $11.3 million in the first half of the year, about an 8 percent reduction compared to the same period last year.
“Management has been very deliberate on these expense cuts and has been focused on continuing expenses in a judicious manner,” chief financial officer Bryant Kirkland said. “We’re not penny wise and pound foolish.”
Kirkland also said the company could begin scaling its expenses again if revenues return.
The earnings cap a chaotic few weeks for Elliman’s financials.
Last month, Elliman boosted its cash stores with a $50 million loan from asset manager Kennedy Lewis. The deal included the appointment of a board member, Kennedy Lewis’ co-founder and co-managing partner David Chene.
The loan is geared toward funding “strategic growth and expansion,” though executives on the earnings call didn’t provide specifics related to targets for new markets. Lorber instead pointed to following new development projects into areas where they don’t yet have a foothold, referencing a broker in Tennessee who’s heading sales at a project in the state.
“Our way of expansion now is not to go buy a company or not to start from scratch,” Lorber said. “We’re not going in and taking 5,000 feet and opening a big, beautiful new office. That, we’re not doing. We want to get business first.”
Lorber also noted that Kennedy Lewis is a popular lender with single-family home developers and said the firm plans to tap into that network.
Before last week, its stock price had been hovering around $1 per share, risking delisting.
One week before the company reported second quarter results, investor Brad Tirpak urged fellow shareholders to vote against a proposal concerning executive compensation at the Aug. 21 stockholder meeting, citing Elliman’s streak of losses.
“The board rewards [Lorber] for losing money,” Tirpak said. “Your boss fires you if you lose money, that’s what happens in the real world.”
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The letter also points to the Diversity, Equity and Inclusion portion of Lorber’s bonus, of which he “received the Maximum permissible award” despite news of sexual assault allegations against two of the brokerage’s longtime top producers, Oren and Tal Alexander.
A spokesperson for Elliman said the company will “carefully review” the letter and said its board of directors and management team “maintain an open dialogue with, and value constructive input from, our stockholders.”