The Commercial Observer: How did Grubb & Ellis brace for the recession when it first came on the horizon?
Mr. Arena: What I’m most proud of is that during this whole period, from last September to today, we have not lost one person here in New York. We didn’t lay a person off. We shared the sacrifice amongst the people in the office. And, to me, that’s our biggest accomplishment. And that’s what differentiates one culture from another: The way you honor your stakeholders, whether it be your clients, your shareholders or employees of the firm, differentiates one firm from another.
Were there sacrifices elsewhere?
We may be the only firm that has grown its transaction business on a net basis, year over year. We’ve added people; we’ve been actively recruiting. So if your question is what have we done this year, we’ve done a couple of things. The first thing is we slimmed down our infrastructure, and we prepared for what we knew was going to be a period where we were going to have to watch costs scrupulously, and we did that. Two, we positioned the firm for growth, one by focusing on clients even more intensely. So, for instance, we’ve created practice areas around what we think clients are looking for and what we’re hearing clients are looking for today.
Now seems like a good time to pay off debt. Has that been part of the strategy?
This has been a hard year for real estate service firms. We’ve certainly had our share of issues. Most of the issues have been around the capital structures. How are they financing their firms and how do those firms move forward in the future? Two weeks ago, we recapitalized our firm. We raised $90 million of equity. We are essentially debt-free. We have plenty of operating capital for investment in people and we have solid operating revenues, so we’re essentially debt-free.
How does that make it easier going forward?
You want to be dealing with firms you know are going to be around for a while. Two, you want to be dealing with firms that aren’t distracted by their own internal issues. Particularly, if you’re a client, you want someone 100 percent focused on your objectives and not on internal corporate concerns. Third, you want a firm that can spend the resources necessary to treat their people well, hire and retain the best people and invest in clients and new technology and new processes and new ways of thinking.
What’s the future hold for Grubb & Ellis?
We have a pretty big investment management business, which operates outside of Santa Ana, Calif., which has never had a place here in New York City. We’re going to launch our investment management business here in New York City. We have $6.5 billion under investment management today. In the first six months of the year, we raised $495 million. We’re going to expand it and launch it out of this office in New York City.
Tell me about some of your most recent deals.
We’ve done a lot of subleasing. We’ve probably been as or more active than anybody else in the subleasing market. We’ve done around 500,000 square feet of subleasing up to this point, a lot of it downtown. Certainly, a lot of it was at 7 World Trade.
Why so many subleases?
Year over year, the amount of space on the market subleased increased by 125 percent. It’s been a violent year. If you think about the metrics from one year to another, the amount of sublet space on the market has increased by 125 percent—it’s from roughly, say, 7 million to roughly 14 million; that’s why so many subleases. A lot of people are trying to get out of obligations they can no longer pay for. The other metric that I think is a violent metric is the sales metric. It’s 82 percent down, the amount of sales from one year to another. That’s a violent swing in business.