BGC Partners announced late Monday night that the firm, which last year expanded into the real estate services business by buying Newmark Knight Frank, is further growing in the industry by acquiring the California based company Grubb & Ellis.
After its share price fell below $1 last year, Grubb & Ellis faced being delisted from the New York Stock Exchange and questions persisted for months what would happen to the ailing company as it became a prominent buyout target for rivals. Grubb & Ellis received an $18 million lifeline from Colony Capital. In October, C-III Capital Partners, took a look at the company, buying $4 million of Colony’s debt and raising the $18 million credit facility by another $10 million.
But C-III and Colony eventually passed on a deal to buy and last Friday reached an agreement to sell BGC Partners its debts against Grubb & Ellis for an undisclosed sum, a transaction that paved the way for BGC’s acquisition of the company.
In a conversation with The Commercial Observer on Monday, Barry Gosin, the chief executive officer of Newmark Knight Frank, said that Grubb & Ellis would help bolster NKF’s national presence and also supplement its service lines.
“They’re incredibly complimentary businesses,” Mr. Gosin told The Commercial Observer. “They have brokers in markets where we need more brokers. There’s a lot of synergy, they have facilities management services and other services that builds on the foundation here. It’s a great opportunity for both parties, especially under the BGC banner and all the addition capital and technology that provides us.”
In bankruptcy documents, Grubb & Ellis listed $150 million in assets against $167 million in liabilities.
Brokers familiar with Grubb & Ellis describe a company whose fortunes have steadily declined in recent years as the firm has lost market share and personnel to rivals. One source, who is familiar with both NKF and G&E, said that G&E’s value lies primarily in its corporate clientele. The firm for years positioned itself as a consultant to major companies and manages a stable of commercial assets, low margin businesses that G&E was unable to convert into more lucrative brokerage opportunities.
From this standpoint, the acquisition deal could offer NKF, which has a potent brokerage business led by top performers like David Falk, Mark Weiss, Neil Goldmacher, Jimmy Kuhn, Mr. Gosin and Moshe Sukenik, access to potentially valuable relationships – an aspect of its merger last year with BGC, which NKF executives trumpeted as a chance to work with BGC’s stable of financial clients.
“There just never was enough leadership at Grubb to ever really get the brokerage business aligned with the other services it was doing a lot better with,” the source said.
G&E declared Chapter 11 yesterday and the deal to acquire it was structured in a way in which BGC will extract its assets through what is known as a Section 363 sale process of the U.S. bankruptcy code. BGC’s debt against the company was listed as equivalent to about $30 million and it agreed to provide up to $4.8 million in financing to keep G&E operating during the bankruptcy process, figures that appear to suggest BGC will pay around $34.8 million to do the deal.
“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,” Thomas P. D’Arcy, president and chief executive officer of Grubb & Ellis said in a statement. “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.”
Several G&E brokers in Manhattan who were reached by phone said that they were uncertain what the deal meant and whether they would transition to NKF in the merger.
“It’s all unclear right now what’s going to happen,” one broker said.