Loan Agreement Could Lead to "Larger Strategic Investment" In G&E By Private Equity Firm
Grubb & Ellis Company (NYSE: GBE
) announced that it has received an $18 million financing commitment from private equity firm Colony Capital, LLC. In turn, the Los Angeles-based international investment firm has secured the right to negotiate exclusively for 60 days with Grubb & Ellis to evaluate a "potential larger strategic investment" in the Santa Ana, CA-based real estate services firm, which announced 10 days ago
it is weighing a possible sale or merger.
Colony Capital, focused primarily on debt and equity investments in real estate and operating companies, was founded by billionaire investor Thomas J Barrack Jr. Grubb & Ellis President and CEO, Thomas P. D’Arcy said in a filing and press release Wednesday that Colony Capital has "a strong track record of identifying undervalued real estate and corporate investment opportunities, and we welcome their support and the confidence they have shown in Grubb & Ellis."
According to a term sheet included in a filing by GBE with the Securities and Exchange Commission, the senior loan facility, secured by Grubb's accounts receivables, has a starting interest rate of 11% which would step up by an additional 50 basis points at the end of each quarter following the May 1, 2011 closing date on outstanding loan funds.
At closing, Colony will receive a closing fee of $180,000, plus a three-year common-stock purchase warrant exercisable for up to 6,712,000 shares of Grubb's common stock, provided the warrants are not redeemed unless a fundamental change occurs and the price paid for the company’s common stock reaches $1.10 per share or greater.
"We will work with Colony over the next 60 days as they focus on a possible larger strategic transaction," D'Arcy said. "With this show of support by Colony, our clients and partners should feel confident that our experienced team of professionals will continue to provide the same outstanding service that they have come to expect from us."
Under the funding commitment, if GBE and Colony agree to enter into a formal transaction, Grubb & Ellis reserves the right to solicit competing deals for 25 business days. JMP Securities, hired by Grubb to explore strategic options, served as financial advisor on the financing. Grubb & Ellis announced the retaining of JMP after disclosing it has received unsolicited inquiries from potential buyers or investors.
Colony Capital, known for what it terms "cautious contrarianism" for its strategic investments in out-of-favor assets or sectors, has invested $45 billion in over 13,000 assets since 1991, including a defaulted loan on Michael Jackson's Neverland Ranch, several portfolios of residential and commercial structured loans owned by the Federal Deposit Insurance Corp. and a stake in the $663 million purchase of Miramax Films. Colony has raised over $6.9 billion in equity capital since 2006.