Wall Street appears to be expecting something for troubled Santa Ana-based Grubb & Ellis Co.
The commercial real estate brokerage and investor, whose stock was decimated during the downturn, saw a big run-up last week—days before a sizeable debt payment is due.
Grubb’s shares were up about 75% last week with heavier than usual trading. The surge brought Grubb’s stock to its highpoint for the year.
The company had a market value of about $115 million last week.
Grubb hasn’t been worth that much since just before last fall’s Wall Street meltdown.
But the company remains a shadow of its former self. It was valued at six times as much in 2007, when Chicago-based Grubb & Ellis combined with real estate investor NNN Realty Advisors Inc. of Santa Ana.
The stock surge comes at an interesting time, a week before Grubb faces a big debt payment and is required by a lender to complete a restructuring agreement.
Some investors could be betting Grubb has a lifesaving refinancing deal in place.
In May, Grubb reworked a $38 million revolving credit line it had with a unit of Deutsche Bank AG.
Among other provisions, the lender required Grubb to pay back at least 72% of the credit line—a little more than $27 million—by the end of September.
Larger Refinancing
The move was to be part of a larger refinancing for Grubb that had yet to be completed by late last week.
Grubb officials last week declined to comment on the refinancing.
They said in August that they were working with an outside adviser on financing. But they declined at the time to detail much more of the process.
The amount due isn’t staggering, but it’s big for Grubb. The company had about $15 million in free cash as of June 30, plus another $18 million in restricted cash that only can be used for specific purposes.
If Grubb isn’t able to rework its finances and make its debt payment, it could be forced to pay off the entire $38 million credit line.
A related $29 million line could come fully due by the beginning of next year, according to company filings with the Securities and Exchange Commission.
The outstanding balance on the two credit lines was $66 million as of June 30.
Deutsche Bank has the right to acquire 15% of Grubb’s common stock at a nominal price if a refinancing isn’t completed by the end of September.
Sources outside the company said Grubb is telling employees it expects a refinancing plan in the works will put Grubb on much better financial footing, but it offered few specifics.
The company’s said to be looking to raise about $50 million or so, according to sources.
That’s added to ongoing speculation about the future of the company, as well as who a potential financial partner or investor may be.
There’s unsubstantiated talk that Grubb’s refinancing strategy includes a takeover or buyout, perhaps by a private equity firm that could look to sell off parts of Grubb’s business.
Hopes of a buyout also could be behind the recent uptick in Grubb’s stock, according to some company watchers.
Last week, officials from the New York Stock Exchange contacted Grubb about the recent surge in trading of its shares.
Grubb said in a statement it knew of “no reason for the recent increased trading activity.”
Other Reasons
Part of Grubb’s recent surge likely also is due in part to a general uptick in stocks for a number of commercial real estate companies that saw their valuations pummeled during the downturn.
Stocks of two other large commercial brokerages, Chicago-based Jones Lang LaSalle Inc. and Los Angeles-based CB Richard Ellis Group Inc., have seen steady increases in the past few months.
Among other prominent real estate companies doing business in Orange County, beleaguered Los Angeles-based landlord Maguire Properties Inc. has seen its shares more than double during September.
If Grubb’s stock surge holds up, it may resolve one issue hanging over the company.
In August, the New York Stock Exchange told Grubb it faced delisting unless it could bring its share price back above $1 for at least 30 days by January.
Grubb received a similar warning from the exchange earlier this year. Enforcement was delayed due to the down market that had depressed hundreds of companies’ market values.
There’s been talk in recent weeks that Grubb could be in default on leases for several of its offices, a claim the company refutes.
Other than one case filed last month in Orange County Superior Court, for an office Grubb leased in Santa Ana’s Hutton Center office complex, there’s no local records supporting the recent industry chatter.
Court records show Foster City-based Legacy Partners filed an unlawful detainer action against Grubb late last month for its Hutton Centre property.
Unlawful detainers usually are filed by a landlord when a tenant stops paying rent or stays on after a lease has expired.
