While Buyers Describe Acquisition As 'Highly Complementary' With Newmark Knight Frank, Grubb Still Faces Creditors, Legacy of Past Financial Woes
This week a bankruptcy court judge approved the sale of the venerable but cash-strapped Grubb & Ellis Co. to BGC Partners, Inc., ushering in the latest in a series of changes that have roiled the commercial real estate brokerage business. Next comes the hard work involved in exiting bankruptcy and integrating the new acquisition.
Among the challenges the two firms face are preserving Grubb & Ellis's property and facilities management and brokerage business, retaining its remaining brokers, satisfying the claims of certain unsecured creditors, and merging the offices and cultures of Grubb and Newmark Knight Frank, the CRE services firm acquired by BGC last year.
Despite the recent loss of contracts with Kraft and Microsoft, Grubb & Ellis still has significant property management business. Between Newmark Knight Frank and Grubb & Ellis, the pair of BGC-owned service providers would have 250 million square feet in property and facilities management under contract and more than 100 offices in North America, as well as a national appraisal business.
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U.S. Bankruptcy Judge Martin Glenn on Tuesday morning approved BGC's bid to acquire substantially all of the assets of Grubb & Ellis, and BGC said it expects to close on the buyout shortly. A court filing by Grubb & Ellis last week set the anticipated closing of the transaction at March 30, although the announcement of the sale approval did not didn't specify a date.
As the bankruptcy winds down, the court is expected to consider the claims of several remaining objectors to the sale, including brokers who say they are owed earned commissions. Glenn is expected to weigh those claims at a court hearing on April 18.
According to various media reports, BGC has offered to retain current salaries and commission structures for Grubb & Ellis staff and management in exchange for an agreement to stay with the new entity for a certain period of time.
"There are a lot of question marks that still need to be addressed, and with that leaves the potential for uncertainty, not only for the acquirer, but also the agent and most importantly, the client," said Edward Indvik, CEO of Lee & Associates, which has hired several former Grubb & Ellis brokers in recent months. "Grubb & Ellis has a long history as an entreprenueral house for brokers with a brand that has had real currency over many decades. But certainly, that has deteriorated somewhat due to the financial issues over the last several years."
Countering that view, BGC and Newmark Knight Frank executives outlined the opportunities and strengths of the combined firms.
"We intend to apply our financial strength, powerful proprietary technology and deep marketplace relationships to provide Grubb & Ellis and its professionals with the resources they need to thrive and grow," said Howard W. Lutnick, chairman and CEO of BGC. "Alongside Newmark Knight Frank, the acquisition of Grubb & Ellis creates a game-changing platform that further positions BGC as one of the most innovative and dynamic players in commercial real estate."
"As BGC continues to attract the best talent, invest in our world-class technology, and apply capital to build and expand into new markets, we are committed to providing Grubb & Ellis with the right tools and support to increase its strength and scale," Lutnick added.
Michael Lehrman, global head of real estate at BGC, said "the expansion of BGC's commercial real estate platform creates exciting new opportunities for our entire organization, including the talented Grubb & Ellis real estate professionals who are coming on board, as well as new opportunities for them to provide outstanding value to their clients."
Lehrman described the joining as "creating one of the most exciting platforms in the real estate market."
Barry M. Gosin, CEO of NKF, said his firm's strategic consultative approach to creating value for clients and its leading position in the New York market, combined with Grubb & Ellis' strength in transaction, management and valuation services, makes the joining of the two organizations "highly complementary."
"We share a client-focused culture, and together, Grubb & Ellis and Newmark Knight Frank create a powerhouse in real estate with a significant competitive advantage, built upon the foundation of BGC's proven and powerful model," Gosin said.
NKF President James D. Kuhn said the company has benefited substantially from BGC's capital strength, proprietary technologies and relationships with leading global financial institutions and other organizations since joining with BGC last fall.
"The addition of Grubb & Ellis will dramatically increase our footprint and expand our business lines, including Grubb & Ellis' prominent industrial practice. We are firm in our conviction that Grubb & Ellis will deepen its capabilities, attract the best talent, and deliver outstanding performance just as Newmark Knight Frank has as part of the BGC platform," Kuhn said.
Many of the Grubb & Ellis business lines, including the hotel, multifamily, private-client investment sales and the financial asset strategic management groups, will enhance NKF's capital markets program, Kuhn added.
The transaction was executed as a debtor-in-possession asset sale under Section 363 of the U.S. Bankruptcy Code. Cantor Fitzgerald & Co., an affiliate of Cantor Fitzgerald, L.P. acted as a financial adviser to BGC in connection with this transaction.
Grubb & Ellis filed for bankruptcy protection on Feb. 20 and entered into a letter of intent in which BGC Partners, acting as a stalking horse buyer, acquired the brokerage’s outstanding secured debt and submit the minimum bid to acquire substantially all of Grubb's assets, providing debtor-in-possession financing of $4.8 million to fund its operations during the bankruptcy process.
No other bidder besides BGC, the parent company of Newmark Knight Frank, emerged to buy the CRE services firm by the March 20 deadline, prompting Grubb & Ellis to cancel a planned auction.