With this investment, Kennedy Lewis co-founder and co-managing partner David Chene will join Douglas Elliman’s board of directors. Douglas Elliman also released preliminary second-quarter 2024 financial results.
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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 from the credit-focused alternative asset manager will be used to strengthen Douglas Elliman’s balance sheet and fuel growth.
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Howard M. Lorber | Douglas Elliman
“Kennedy Lewis’ investment in Douglas Elliman is a testament to our agency, business model and strategic plan,” Douglas Elliman CEO Howard Lorber said in a statement.
“With his extensive experience in residential real estate, we are pleased that Kennedy Lewis has chosen to support Douglas Elliman’s strategic initiatives and look forward to leveraging the firm’s network and knowledge base as we work together to drive long-term shareholder value.” In contrast, we are also encouraged by the performance in the second quarter of 2024 and expect to be cash flow positive in the second quarter.
With this investment, Douglas Elliman issued $50 million in senior secured convertible notes due July 2, 2029, to the Kennedy Lewis Fund. The convertible notes will bear interest at an annual rate of 7.0%, payable in cash or, at the discretion of Douglas Elliman, in kind (alternative assets), and at an annual rate of 8.0%, due semiannually.
Douglas Elliman added that the notes may be converted into shares at an initial interest rate of $1.50, subject to anti-dilution adjustments. According to the Institute of Corporate Finance, a typical anti-dilution adjustment provision allows investors to purchase a certain percentage of additional shares at a new price after a security is issued in order to maintain their ownership ratio.
Another provision of the investment agreement is that Kennedy Lewis will be able to nominate a director to Douglas Elliman’s board as long as their fund holds at least one-third of Douglas Elliman’s initial investment.
Darren L. Richman Kennedy Lewis
As a result, Kennedy Lewis co-founder and co-managing partner David Chene will join Douglas Elliman’s board of directors, effective immediately. Patrick Bartels, independent director of Redan Advisors, will also join the board. The new members succeed Ronald J. Kramer and Lynn Mestel.
Kennedy Lewis has a history of real estate investments, including Lennar Homes and Toll Brothers. Douglas Elliman said it expects the asset manager to leverage its wealth of experience through the investment.
Chene and Darren L. Richman of Kennedy Lewis, co-founders and co-managing partners of the firm, expressed enthusiasm for the opportunity.
“We are pleased to partner with Douglas Elliman, which has one of the strongest brands and most reputable agents in residential real estate, with compelling growth opportunities and a strong partnership with the management team,” the partners said. Work together to make the most of this opportunity.
David K. Cheney | David K. Chene Kennedy Lewis
“Douglas Elliman is in an industry we know very well, and we have researched and invested in residential real estate and homebuilders for multiple cycles. We see growing luxury goods where Douglas Elliman is focused The market has attractive long-term market dynamics and believes the company is well-positioned to leverage additional financial and strategic resources to solidify its leadership position in the field.
Nearly three years ago, Douglas Elliman charted a path to a separation from parent company Vector Group in 2021, with plans to go public. Since then, the company, like many real estate companies, has racked up losses over the years as the residential real estate market cools from the pandemic frenzy. At that time, revenue in the third quarter of 2021 was as high as US$350 million, and the company’s net profit was approximately US$25 million. It also has about $200 million in cash on hand.
Alongside Tuesday’s announcement, Douglas Elliman also released some preliminary financial results for the second season.
The company said total unaudited transaction value in the second quarter of 2024 is expected to be $10.25 billion to $11.25 billion, compared with just $7.1 billion a year ago. Cash and cash equivalents are expected to be approximately $92.0 million as of March 31, 2024, up from $91.5 million. The second quarter payment is $7.75 million.
The company’s actual second-quarter results may differ from these forecasts.
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