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New York-based Douglas Elliman has closed a $50 million growth investment from Kennedy Lewis Investment Management, executives announced Tuesday.
The investment by the credit-focused alternative asset management firm will be deployed to strengthen Douglas Elliman’s balance sheet and bolster growth.
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Howard M. Lorber | Douglas Elliman
“Kennedy Lewis’ investment in Douglas Elliman is a testament to our agents, business model and strategic plan,” Douglas Elliman CEO Howard Lorber said in a statement.
“With deep experience in residential real estate, we are pleased Kennedy Lewis has chosen to support Douglas Elliman’s strategic initiatives and look forward to tapping into the firm’s network and knowledge base as we work together to drive long-term stockholder value. We are also encouraged by stronger performance in the second quarter of 2024 compared to the prior quarter and expect to be cash flow positive in the second quarter.”
With the investment, Douglas Elliman issued $50 million senior secured convertible notes due on July 2, 2029 to Kennedy Lewis funds. The convertible notes carry an interest rate of 7.0 percent per annum payable in cash or, at Douglas Elliman’s discretion, a rate of 8.0 percent per annum paid in kind (alternative assets), and due semi-annually.
The notes may be converted into stock at an initial rate equal to $1.50, subject to anti-dilution adjustments, Douglas Elliman added. Typical anti-dilution adjustment clauses allow investors to maintain their percentage of shares by purchasing a proportionate number of additional shares at their new price after securities are issued, according to the Corporate Finance Institute.
Another term of the investment agreement is that Kennedy Lewis will be able to nominate one director to Douglas Elliman’s board, as long as their funds hold at least one-third of that initial investment into Douglas Elliman.
Darren L. Richman | Kennedy Lewis
As such, Kennedy Lewis co-founder and Co-Managing Partner David Chene will join Douglas Elliman’s board, effective immediately. Patrick Bartels, an independent director from Redan Advisors, is also joining the board. The new members succeed Ronald J. Kramer and Lynn Mestel.
Kennedy Lewis has a history of investing in real estate, including with Lennar Homes and Toll Brothers. With the investment, Douglas Elliman said it anticipates the asset management firm will draw on that wealth of experience.
Kennedy Lewis’ Chene and Darren L. Richman, co-founders and co-managing partners of the firm, expressed enthusiasm about the opportunity.
“We are excited to partner with Douglas Elliman, a firm with one of the strongest brands and most reputable agents in residential real estate and a compelling growth opportunity, and work with the management team to fully capitalize on that opportunity,” the partners said in a joint statement.
David K. Chene | Kennedy Lewis
“Douglas Elliman operates in an industry we understand well, having studied and invested in residential real estate and homebuilders through multiple cycles. We see attractive long-term market dynamics in the growing, luxury markets Douglas Elliman focuses on, and believe the firm is well positioned to utilize additional financial and strategic resources to build on its leading position in the space.”
The move comes about three years after Douglas Elliman charted its own path away from parent company Vector Group in 2021 and made plans to go public. Since then, the firm has seen gradual losses over the years, like many real estate companies, as the residential real estate market cooled down from its pandemic frenzy. At that time, Q3 2021 revenues were up to $350 million and the firm’s net income was about $25 million. It also had about $200 million in cash at hand.
In conjunction with Tuesday’s announcement, Douglas Elliman also released some preliminary second quarter financial results.
The company said its unaudited gross transaction value during Q2 2024 is expected to hit between $10.25 billion to $11.25 billion, compared to just $7.1 billion one year ago. Cash and cash equivalents are expected to hit about $92 million, up from $91.5 million as of March 31, 2024. As part of the commission lawsuit settlement, Douglas Elliman had to pay out $7.75 million during the second quarter, the firm added.
The firm’s actual second quarter results may differ from these projections.
