If anyone is truly shocked the sprawling Grubb & Ellis commercial real estate empire has gone broke, they’re either fresh out of college or are smoking something. Maybe they’re doing both.

The meltdown of Grubb & Ellis is a stark warning to anyone in today’s business world who still thinks bean counting trumps talent.

Santa Ana, Calif.-based Grubb & Ellis spent decades trying to buy its way to industry dominance, but instead wound up falling apart after one too many ill-considered mergers. Sadly, it’s a pattern that is being repeated, not just in commercial real estate, but across a range of industries, from financial services to high tech.

And in the case of Grubb & Ellis, the writing was on the wall not just for years, but decades, at least in the crucial Boston market.

“Often you have seen firms were bought up by big, nationally integrated firms that resorted to the mean over time – they lose their entrepreneurial spirit,” said Eric Sheffels, president of Leggat McCall Properties.

Long, Sad Decline

By all accounts, the final chapter for Grubb & Ellis began back in 2007, with its merger with NNN Realty Advisors. Things went downhill quickly as a combination of merger debt and an epic recession dragged Grubb down.

The final straw came when star broker Jack Kerrigan, who had anchored the Boston office for decades and was one of the company’s major players, defected last year to an upstart Canadian competitor.

Whether Kerrigan helped bring the house down, or simply fled before the roof caved, is neither here nor there.

It’s long been understood in industry circles that Grubb & Ellis’ viability, at least in Boston, was intimately tied to keeping Kerrigan on the payroll. But without knocking Kerrigan, a born sales guy, how did things get to this point for Grubb?

Well possibly the real turning point came much farther back, when Grubb & Ellis attempted to buy its way into the top position in the Boston market, acquiring the brokerage arm of real estate firm Leggat McCall. Buying market share must have seemed like a smart move at first. But it turned sour when the firm’s stars departed for greener pastures.

Grubb & Ellis has spent the decades since searching for a formula that would work in Boston, apparently to no avail. I remember more than a decade ago interviewing one of a number of short-lived Grubb & Ellis office managers who vowed to turn the lone wolves and stars on his staff into corporate team players. In a business driven by charismatic deal makers, it was a foolhardy approach and prompted snickering at Grubb’s various crosstown rivals.

He lasted a little over a year.

A Common Tale

Let’s not just beat on up Grubb & Ellis – commercial real estate in Boston and across the country is filled with firms made up of refugees from various botched mergers and acquisitions. Richards Barry Joyce & Partners, now one of the heavyweights of the Boston market, was launched by brokers who fled national brokerages to strike out on their own. The only surprising thing about Grubb is the firm stuck to the same failed game plan for so long.

Nor is this folly confined to commercial real estate.

There’s a long history of merger-mania backfiring spectacularly in the financial services world.

Name a major bank merger that went according to plan and didn’t result in mass carnage and an exodus of talented executives to smaller upstarts.

Boston has had some interesting cases of money management firms getting bought up, only to see the assets – both in star mangers and their clients – literally walk out the door after the new regime takes over.

Often these are slow motion train wrecks – everyone but the guys ensconced at the very top can see disaster looming. There’s a grace period when everyone watches to see if the bad stuff everyone has been warning about happens – then a steady stream of defections.

The mistake the Grubb & Ellis’ of the world make is they con themselves into thinking they are buying an old fashioned fiefdom, complete with a supply of serfs to do the work.

Maybe that worked in the 70s, 80s and even 1990s, when changing jobs and leaving the corporate mothership was not for the faint of heart and could potentially wreck or permanently sidetrack one’s painstakingly constructed career.

But the serfs these days have a mind of their own, and, in this increasingly mobile era when all one needs to start a business is a wireless device and coffee shop perch, they are liable to bolt when things get nasty.

If there is no real plan to keep the stars that made the business happy and producing – if it’s just a game of looting some lucrative contracts – you might as well just start burning money.

“That is a problem when your assets walk out the door,” Leggat McCall’s Sheffels said.