The next two months could go a long way toward determining whether Santa Ana-based Grubb & Ellis Co. remains a publicly traded company.
The commercial real estate brokerage late last month said it had struck a potentially lifesaving $18 million financing deal with Colony Capital LLC, a Los Angeles-based hedge fund manager. That came about a week after Grubb’s hiring of an investment bank to explore a possible sale of the company.
Now comes the waiting. As part of the financing deal, Colony—led by billionaire real estate investor Tom Barrack—has 60 days to comb through Grubb’s financials before deciding if it wants a larger stake.
If so, Grubb will get another 25 days to seek other offers.
Sources familiar with the situation believe there could be interest from other national brokerages as Grubb’s name remains well known in commercial real estate.
Last month, Grubb said it had received “unsolicited inquiries” from potential suitors, which prompted its decision to bring on San Francisco-based JMP Securities LLC to advise on a potential sale.
The most likely scenario, according to sources contacted by the Business Journal, is for Grubb to be taken private by Colony or another company.
A new owner likely would take over Grubb’s brokerage and management services businesses and jettison less profitable ones.
“The (Grubb) name will be retained, but other than that, who knows—I think it’s in the hands of its institutional holders right now,” said one former company official.
“I think they’re going to be sold off,” said Martin Pupil, regional managing director for brokerage Colliers International. “Grubb will come out of this differently, this time.”
Scale or Niche
Successful brokerages these days either have a national and international reach or operate on a niche basis with a strong presence in select markets, Pupil said.
Grubb falls somewhere in between.
“Our business is a tough, low-margin business,” Pupil said. “The middle market is tough.”
Grubb executives couldn’t be reached for comment last week.
At the time of the initial Colony financing on March 30, Grubb Chief Executive Thomas D’Arcy noted that the hedge fund manager had “a strong track record of identifying undervalued real estate and corporate investment opportunities.”
Grubb could be considered undervalued.
The company ranks No. 26 on our 2011 list of the largest public companies here that starts on page 14.
Its shares are down about 66% in the past 12 months to a recent market value of about $50 million.
Grubb—and its shares—have been on a rollercoaster in recent years, battered by the commercial real estate downturn as well as an ill-fated combination with Santa Ana-based NNN Realty Advisors in 2007.
NNN’s legacy Triple Net Properties, which organizes and runs tenant-in-common real estate deals that pool together smaller investors, has become a liability.
In February, Grubb started a separate company—Daymark Realty Advisors—to manage the assets from NNN Realty.
In the past month, an office building investment Daymark runs in Pleasanton defaulted on its mortgage, and a building near St. Louis has been lost to foreclosure, according to local reports.
If loans tied to other Daymark-managed properties go bad, both Grubb and Daymark could be on the hook for close to $25 million in recourse guarantees this year, according to the company’s latest annual report.
Including $90 million of preferred stock, Grubb is carrying more than $140 million in debt, a Wall Street Journal story noted last week.
Colony’s financing comes with a starting interest rate of 11%, and increases another half a percent each quarter.
