Douglas Elliman to spin off from Vector Group, its parent company
Douglas Elliman, Long Island's largest residential brokerage by sales, is seeking to become a publicly traded company. Credit: Raychel Brightman
Douglas Elliman, one of the nation's largest residential real estate firms and a major player in the Long Island market, said Monday it plans to spin off from its parent company, Miami-based Vector Group. The new public company, whose shares will trade on the New York Stock Exchange under the ticker symbol DOUG, will focus solely on real estate.
Vector Group said the spinoff would make Douglas Elliman more palatable to investors who avoid bets on cigarette companies, which Vector owns, as part of an ethical investing strategy.
"Tobacco has good, consistent cash flow, but there are still certain funds and institutions that won’t invest in it," Howard Lorber, president and chief executive officer of Vector Group, said in an interview with Bloomberg News on Monday afternoon. "This opens up the capital markets directly for our real estate business."
Vector's cigarette brands include Pyramid, Eagle 20's and Grand Prix.
Wealth management clients, particularly younger ones, are showing a greater interest in companies with strong environmental, social and governance principles than they did a decade ago, said David Frisch, president of Frisch Financial, an investment management and financial planning firm in Melville. Still, Frisch questioned whether Douglas Elliman would grab the attention of those types of investors compared with companies investing in renewable energy, for example.
"I just think they're looking to take their two core services and really become more focused in each one in the hope the appreciation in the two companies will be better than in the one combined company," Frisch said.
Douglas Elliman is going out on its own after a year of significant appreciation of home prices in the markets where it operates, including Long Island. It reported $1 billion in revenue through the end of September, which was double the amount it generated during the same period in 2020, when the pandemic delayed many sales. It had $78.5 million in net income in the first nine months of 2021, following a $60.4 million loss in the same period a year earlier.
Vector Group said higher home sales activity, low mortgage rates and growing home ownership among millennials were helping to fuel Douglas Elliman's business.
"This strong demand combined with low inventory has resulted in significant price appreciation in many sectors of the market, including in many of our luxury markets," Richard Lampen, executive vice president and chief operating officer of Vector Group, said during an investor presentation Monday.
The company said it sold more homes than any other brokerage on Long Island last year. It said it was involved in $9.2 billion worth of real estate deals in the New York City suburbs, which include Long Island, Westchester and Fairfield County in Connecticut, in the first nine months of 2021. That represents a 19.8% market share in those areas. In New York City, it brokered $12.9 billion worth of deals through the end of September and also controls about one-fifth of the market.
The company was the sixth-largest brokerage in the United States based on sales volume in 2019 behind Realogy Brokerage Group, HomeServices of America, Compass, eXp Realty and Redfin.
"An important point of differentiation for Elliman from Realogy and Compass is that the primary focus of our business is on the leading densely populated international finance and technology hubs, where housing inventory is at premium price levels," Lorber said during the presentation to investors.
Douglas Elliman also has brokerages in California, Colorado, Florida, Massachusetts, New Jersey and Texas.
In addition to its residential brokerage, the company markets new development, manages properties and provides ancillary services related to title insurance, escrow funds and mortgage financing. The deal is subject to review by the Securities and Exchange Commission.
The company aims to use the spinoff to better recruit agents, make acquisitions to enter new markets and invest in real estate technology companies that can improve its operations
If the deal is approved, Vector Group shareholders would receive one share of the new company for every two shares they hold in Vector.
Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.
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