Grubb & Ellis Co., one of real estate's leading brand names, continues to explore ways out of its troubles.
Having traded somewhere below $1 since March, last Thursday Grubb's stock hit a low of 12 cents a share, reflecting the state of its real estate holdings and investor sentiment about its future. In 2006, share prices reached a high of $14.50.
DELISTING RISK
As a result, the New York Stock Exchange may remove Grubb & Ellis, one of 21 companies that are “below compliance” with regard to the exchange's continued listing standards, which require maintaining share price and market capitalization minimums.
Grubb & Ellis said in May that it would submit a plan in 45 days to the NYSE that would outline how it would regain listing compliance within 18 months. The plan has not been made public.
Operationally, the company is in the red, although losses this year haven't been as bad as in 2010. For the first nine months of 2011, Grubb & Ellis lost $28.6 million, compared with a loss of $58.6 million in the comparable period a year ago.
Looking into a possible exit strategy, Grubb said in October that it had entered into negotiations regarding a strategic transaction with a subsidiary of the diversified commercial real estate company C-III Capital Partners LLC, which in turn has teamed up with an affiliate of Colony Capital LLC. The clock on that agreement is running out.
Compounding its woes, an expected bright spot for the company — the Grubb & Ellis Healthcare REIT II, a nontraded REIT that was the subject of an optimistic earnings conference call and presentation to analysts and investors several months ago — has turned dim.
On Nov. 7, the REIT's board said that it was severing its relationship with Grubb & Ellis in favor of two newly formed co-sponsors, American Healthcare Investors LLC and Griffin Capital Corp.
WRITING ON THE WALL
Observers saw it coming. Indeed, at the time of the announcement, one due-diligence analyst told clients that the writing was on the wall for the Grubb & Ellis Healthcare REIT II to bolt from the Grubb platform.
“This should have come as no surprise, considering the various issues facing Grubb & Ellis Co.,” Anthony Chereso, president and chief executive of FactRight LLC, wrote in a note last month to broker-dealer clients.
A year earlier, FactRight “advised its broker-dealer clients that although [Grubb] appeared to reflect encouraging trends, the risk and uncertainty associated with the sponsor caused us to place [the REIT] on our watch list and suggested that these concerns constituted a significant red flag,” he wrote.
“If a sponsor is stressed operationally or is not properly capitalized, the investment takes on a different risk profile,” Mr. Chereso wrote. “In the case of Grubb, we were concerned with the viability of Grubb and the direction the company was headed, and the potential impact on the investors in their public and private offerings.”
Grubb & Ellis has said that it is exploring strategic alternatives, including the potential sale or merger of the company, to get past its difficulties.
A Grubb & Ellis spokeswoman, Julia McCartney, declined to comment on the firm's strategic process and what that meant for its future. She also said that she can't comment about the company's listing status on the NYSE.
The departure of the Grubb & Ellis Healthcare REIT was one of several stressful events in a tumultuous year at Grubb, which manages more than $5 billion in real estate assets and is one of the most widely recognized firms in commercial real estate brokerage. In March, the company hired an investment bank, JMP Securities, to explore the potential sale or merger.
In August, it sold the asset manager for its tenant-in-common properties, Daymark Realty Advisors Inc., which manages a portfolio of more than 100 TICs. Grubb & Ellis got into the TIC business as part of the company's merger in 2007 with NNN Realty Advisors Inc.
In October, the company completed the sale of its real estate investment fund business, Alesco Global Advisors LLC, to Lazard Asset Management LLC.
According to an April report in the Orange County Register, the commercial real estate downturn hurt Grubb's business, resulting in a drop in leasing and sales.
The merger with NNN Realty also hurt the company, as it was done just as the number of TIC deals and fees resulting from them plummeted, according to the Register.
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