After Grubb & Ellis filed for bankruptcy protection last week, local commercial real estate executives seem less worried about prospects for the company’s closure and more concerned with whether the company will be able to attract and retain employees even if it does survive.
The company is facing $30 million in debt set to mature March 1, and the firm does not have the cash reserves needed to push through the first quarter of the year.
As a result, BGC Partners Inc. recently agreed to purchase the cash-strapped Grubb & Ellis with a $30 million credit bid along with $4.8 million in bankruptcy financing. BGC Partners also acquired brokerage Newmark Knight Frank in October.
Now, the parent company-to-be is expected to take a long, hard look at major markets nationwide where Grubb and Newmark brokers might overlap, and cut loose underperforming salespeople, according to multiple industry sources familiar with the company’s plans.
Even before the filing, Grubb’s Boston office was already falling apart as brokers jumped ship to other firms. The most high-profile exit involved Jack Kerrigan, a 30-year Grubb veteran, taking his team to rival brokerage Avison Young last summer. And about a week before that, former Grubb brokers Paul Delaney and John Coakley joined CresaPartners in Boston.
Beyond Boston, Grubb has lost “hundreds” of brokers nationally, according to multiple industry sources.
Grubb & Ellis employs 3,000 people in 90 offices across the country. In Boston, the firm had about 30 to 35 brokers working from its local office as recently as a year or two ago, insider sources told Banker & Tradesman. Before the bankruptcy even occurred, they were down to between 15 and 20. Now, more likely than not, any remaining brokers will probably be combined with the Newmark people.
Calls to the Boston office of Grubb & Ellis seeking comment were not returned.
‘Non-Event’
Local industry executives did not seem intimidated by the prospects of a leaner, meaner Newmark/Grubb alliance.
“It’s a non-event in the Boston market,” said one executive broker that wished to remain anonymous because he works at a major local firm. “Look, Grubb & Ellis in Boston is probably as good as, if not a better, brokerage than Newmark in Boston. But they’re both still B groups… Two companies like them coming together doesn’t make that entity a formidable competitor.”
The numbers seem to back up the assertion that Grubb & Ellis performed like a middle-tier brokerage in recent years.
Grubb landed eighth in the Boston Business Journal’s 2012 Book of Lists, which ranked the top 24 brokerages for square feet leased in Massachusetts in 2010, the most recent numbers available. And Grubb was again eighth – out of 16 Massachusetts brokerages – that sold the most square footage in the state in 2010.
The firm claimed $150 million in assets with $167 million in liabilities, according to court documents obtained by Banker & Tradesman. The California-based Grubb said that losing its largest property-management contract, valued $40 million in 2011; a merger with real-estate investment firm NNN Realty Advisors Inc. in 2007 that resulted in $10 million in losses in 2011; and continued operating losses from the recession combined to force it to seek bankruptcy protection.
“We believe this transaction enhances our value proposition to our clients and strengthens our position in the commercial real estate marketplace,” Thomas D’Arcy, Grubb’s president and CEO, said in a prepared statement. “BGC’s strong capital base, robust technology and deep commitment to its brokers provide Grubb & Ellis with scale along with the resources needed by our professionals to deliver exceptional service to our clients. We are confident this will be a seamless transition for our clients and that becoming part of BGC is an extremely attractive opportunity for our brokerage professionals and employees.”
Plenty Of Room
But the $64,000 question remains – will any of Grubb’s top remaining brokers be willing to hang around while the company restructures itself, while simultaneously lining themselves up to be considered for a date with the guillotine?
Another industry executive told Banker & Tradesman that what is happening with the company at the corporate level is in no way a reflection on the Boston-based team. But uncertainty creates great anxiety. Brokers just want some certainty and they’ll soon look around for a more capitalized and stable company to run their brokerage from.
“But it’s not an easy thing for brokers to jump to another company and kickstart it again,” the source added.
In the end, it will basically be a waiting game to see how many brokers, if any, will trust the Grubb brand enough to stay on-board while the deck is re-shuffled. Some local brokers have said that it’s going to take several years to rebuild the kind of trust needed for the brokerage to put together a new team of successful players.
“So much of the success of rebuilding the Boston office will depend on how much money and resources the parent company is willing to provide management,” offered another industry source. “I wish those guys over there the best of luck. There’s plenty of room in Boston for a competitor.”
