Grubb & Ellis Co. has found a white knight to keep the commercial real estate brokerage in business, though the company’s days as an Orange County-based business might be numbered.
The Santa Ana-based company said last week that it has filed for bankruptcy and will sell “substantially” all of its assets to New York-based brokerage BGC Partners LP in a deal valued at $30 million.
BGC Partners last year acquired another commercial real estate brokerage, New York-based Newmark Knight Frank, for $63 million and stock.
BGC Partners has a market value of about $850 million. Its chief executive, Howard Lutnick, also runs New York-based investment bank Cantor Fitzgerald LP.
A combination of Newmark Knight and Grubb & Ellis is expected once the deal for the latter closes, though the details of a merger haven’t been announced. Such a combo would form the fourth-largest commercial real estate company in the country, according to court filings.
Grubb & Ellis counts about 1,300 brokers nationally and 3,000 employees in total. Newmark had about 425 brokers and 7,000 employees as of last year.
Some industry executives believe BGC Partners eventually will move most Grubb & Ellis’ executive offices—now located in Santa Ana—to New York, once the deal closes and the two brokerages’ operations are combined.
Recent Departures
Grubb & Ellis’ local brokerage offices in Newport Beach and Orange have seen significant personnel losses in recent months amid the company’s financial troubles. But those operations are expected to remain intact.
BGC Partners agreed to buy Grubb & Ellis out of bankruptcy through a $30 million credit bid, effectively using debt it holds as currency. It recently acquired a bulk of the brokerage’s senior secured debt from Santa Monica-based hedge fund Colony Capital LLC and its affiliates.
Approval of the prepackaged sale is considered a foregone conclusion once the court formally holds its auction proceedings in the Southern District of New York’s bankruptcy court in late March. The transaction should be completed by early to mid-April, officials said.
The announcement of a deal with BGC Partners concludes a nearly year-long process in which Grubb & Ellis—strapped with mounting debt and declining revenue—sought out financing and explored a sale.
Solicitations
Grubb & Ellis said in court filings that more than 40 companies were solicited for potential offers, sparking interest from Miami-based private equity company H.I.G. Capital LLC, among others.
Nothing gelled until the deal with BGC Partners, which came as Grubb & Ellis neared default on several key loans.
Some $30 million now owed to BGC Partners was set to come due at the start of March. That, along with heavy brokerage personnel losses and the loss of two big facility management accounts, precipitated the bankruptcy filing, according to court documents.
The company’s bankruptcy petition lists $150 million in assets and $167 million in debts.
• Headquarters: Santa Ana
• Business: commercial real estate brokerage
• Founded: 1958
• Ticker symbol: GRBE (OTC)
• Market value: about $2 million
• Notable: BCG partners expected to acquire “substantially” all of its assets in deal valued at $30 million
BGC Partners is providing Grubb & Ellis $4.8 million in financing to shore up operations while the company is in bankruptcy.
The leadership teams of the two brokerages are currently discussing integration plans, including where the companies’ headquarters will be located, a Grubb & Ellis spokesperson said.
“There will be virtually no overlap” between the two companies’ operations, said Newmark Knight Chief Executive Barry Gosin in a message to employees last week.
There is “a natural complementarity between Grubb and Ellis’ transaction and management services business and our sales and leasing operations,” Gosin said.
New York appears to be the most likely option for the combined businesses’ headquarters, according to multiple sources familiar with the companies.
Local brokerage officials declined to comment on the proposed transaction.
Grubb & Ellis has been based in OC since 2007, when the then-Chicago-based company merged with Santa Ana-based NNN Realty Advisors. The company counted a market value of about $300 million at the time.
The subsequent real estate downturn turned that deal into a money-loser, dragging down the company’s value into penny-stock territory as of last week.
NNN Effect
Grubb & Ellis officials didn’t mince words in describing the ill-fated merger with NNN Realty in its bankruptcy court filings.
“[The] merger could not have come at a worse time,” chief financial officer Michael Rispoli said in a court filing last week.
Grubb & Ellis’ recent financial woes have taken its toll on its brokerage ranks across the nation.
Brokers representing 30% of the company’s 2011 revenue have left Grubb & Ellis due to “financial instability,” according to the company.
OC Drain
Losses in Orange County are probably close to 20% or so, according to officials familiar with Grubb & Ellis’ local operations.
The company is estimated to have about 60 local brokers in its Newport Beach and Orange offices.
Notable area brokers that have recently left Grubb & Ellis include Oliver Fleener, David Giglio and Lori Smith, who joined the Irvine office of Transwestern; Greg Puccinelli, who joined the Irvine office of Jones Lang LaSalle; Chon Kantikovit, who is with the local office of Cushman & Wakefield Inc.; and Mark Baziak, whose retail team moved to Colliers International’s Irvine office late last year.
