Grubb Would Join Newmark Knight Frank In Howard Lutnick's Growing Platform of CRE Services Firms
Grubb & Ellis Co., one of the country’s most recognizable CRE services brands which fell on hard financial times during the economic recession, has agreed to file for Chapter 11 bankruptcy protection and sell nearly all of the company's assets in a bankruptcy transaction to BGC Partners, the parent of Newmark Knight Frank.
In a statement, Santa Ana, CA-based Grubb & Ellis said it believes the acquisition by the investment firm headed by Cantor Fitzgerald CEO Howard Lutnick "will bring the much-needed scale and resources the company had been seeking through its strategic process” and will position Grubb & Ellis to "become part of a well-capitalized global platform."
"Following a thorough and rigorous process and the evaluation of all available options, we determined that a partnership with BGC provides the best platform for our brokerage professionals, employees and clients," said Thomas P. D'Arcy, president and chief executive officer of Grubb & Ellis. "We believe the transaction will be seamless for our clients and we expect no disruption to the company's operations.
"Furthermore, we believe our professionals and clients will benefit greatly by being part of the BGC organization, which, with its recent acquisition of Newmark Knight Frank, will bring together two strong brands to create a powerhouse in the commercial real estate
space. BGC's purchase of the company's senior debt and its willingness to provide incremental financing to ensure the smooth execution of the sale process demonstrate its commitment to the success of the Grubb & Ellis business."
To execute the bankruptcy sale, BGC said it has acquired the outstanding secured debt of Grubb & Ellis and has committed to provide debtor-in-possession financing to fund Grubb & Ellis operations during the sale and bankruptcy process. Grubb & Ellis has filed motions requesting that the bankruptcy court approve sale procedures and set a hearing date to approve the sale.
Under the voluntary petition, Grubb & Ellis has entered into a letter of intent in which BGC Partners, acting as a stalking horse buyer, will submit a minimum bid to acquire substantially all of Grubb's assets and provide a senior-secured debtor-in-possession loan of $4.8 million to facilitate a successful sale.
"The expeditious sale of the assets is critical to continuing the debtors' businesses as a going concern, providing uninterrupted services to their valued customers and clients, preserving the jobs of thousands of employees, and maximizing value for all stakeholders," the parties argued in court documents.
The proposed sale will resolve the uncertainties of the debtors' present economic condition by stabilizing its businesses and client base, Grubb & Ellis CFO Michael Rispoli said in a declaration filed with the court.
The parties are executing the transaction under Section 363 of the U.S. Bankruptcy Code, in which a bankruptcy trustee or debtor-in-possession may sell the bankruptcy estate's assets "free and clear" of any interest in such property.
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Lutnick, chairman and CEO of BGC, said the deal reflects the "deep and unwavering commitment" of BGC to build a premier position in real estate services.
"We agreed to acquire Grubb & Ellis because we believe Newmark Knight Frank's and Grubb & Ellis' broad knowledge and extensive brokerage expertise, combined with BGC's powerful proprietary technology and our strong financial backing, will enable Grubb & Ellis to thrive and grow as part of the BGC family of companies."
Barry M. Gosin, CEO of Newmark Knight Frank, pointed to the "tremendous" synergies between NKF's consultative approach to clients and Grubb's transactional and management services capabilities.
James D. Kuhn, NKF president, added that Newmark Knight Frank's business model has been "dramatically strengthened" upon becoming part of BGC and believes Grubb & Ellis's brokers, employees and clients would find the same opportunities to grow.
The announcement comes a week after longtime Grubb & Ellis Co. director C. Michael Kojaian resigned from the company's board of directors,
in part to "avoid actual or apparent conflicts of interest" in connection with his affiliated companies.
Negotiations with several prominent companies in recent months, including BGC, C-III Capital Partners and Colony Capital, had failed to yield an agreement that would infuse enough cash into the company
to continue operations.
However, talks continued with BGC after exclusive negotiations expired in January, culminating in the Tuesday announcement. If competing bidders emerge by March 9, an auction would be held March 21.
However, Brandon Dobell, an equity analyst with William Blair & Associates who follows commercial real estate services firms, does not expect other bidders to emerge and said BGC will likely end up with control of Grubb. Although it remains to be seen what will happen to the Grubb & Ellis brand, the company still has a decent-sized brokerage platform and property management business, Dobell said in a research note.
BGC Partners is among a handful of players, including C-III Capital Partners and UGL, that are most likely to take the leap in building a global real estate business in coming years and join the already established global brands of CBRE, Jones Lang LaSalle, and Colliers, he said.
"With a human capital-focused business model, two major U.S. CRE brands and broker platforms, and a smaller CRE platform in the United Kingdom through U.K. partner Knight Frank’s presence there, we believe BGC will continue to grow its CRE services presence," Dobell said.