By Al Barbarino
BGC received approval from the U.S. Bankruptcy Court to acquire Grubb & Ellis yesterday (Tuesday) after a bankruptcy hearing last week failed to attract competing bids. However, the process of retaining Grubb’s talent pool and management contracts remains.
The yearlong process to buy the real estate firm has caused significant turnover, with many of the brokerage’s top deal makers leaving to join other firms.
“People were frustrated with the process and the brokers in particular haven’t been able to gain any traction or do their business out there,” said Joe Swingle, a former executive managing director at Grubb & Ellis who left the firm in September last year to join Cassidy Turley. “Opportunities presented themselves over the last year, so a lot of people, like myself, have considered other options.”
BGC is offering all staff and management their current salaries and commission structures if they agree to stay with the firm for a certain period of time, said an executive at Grubb & Ellis who wished to remain anonymous due to the sensitivity of the deal.
But another former employee who left the firm more than five years ago described the offer to pay the commissions that were earned before the bankruptcy through loans as “absolutely unconscionable.”
“The brokers caught in the bankruptcy stand to lose commissions that have already been earned,” the broker said, “So they are not only getting screwed now, but they’ll be getting screwed on an ongoing basis.”
Among the latest to leave the firm are Henry Goldfarb and Stanley Lindenfeld, who joined several of their former colleagues at Lee & Associates just this week. While one ex-executive at Grubb & Ellis said the number of brokers has been halved since he was laid off with about 70 other employees in the summer of 2009, he predicted that the news of the approval would ease tensions.
“The staff members who are still there have done a great job of holding things down,” the former executive said. “Now that the unsettling issue of ‘what’s going to happen’ has happened, I think they will be okay.”
BGC seems to think so too. Upon breaking the official news of the federal approval, BGC management boasted that they now have more than 100 offices in North America and 250 million square feet of property and facilities management, when combined with their acquisition of Newmark Knight Frank last year.
“As we welcome the Grubb & Ellis team to the BGC family, we intend to apply our financial strength, powerful proprietary technology, and deep marketplace relationships to provide Grubb & Ellis and its professionals with the resources they need to thrive and grow,” said Howard W. Lutnick, chairman and chief executive officer of BGC, in a statement.
“With Newmark Knight Frank’s strategic consultative approach to creating value for clients and leading position in the New York market, along with Grubb & Ellis’ strength in transactional, management, and valuation services, our two organizations are highly complementary,” added Barry M. Gosin, CEO of Newmark Knight Frank. “We share a client-focused culture, and together, Grubb & Ellis and Newmark Knight Frank create a powerhouse in real estate with a significant competitive advantage, built upon the foundation of BGC’s proven and powerful model.”
NKF president James D. Kuhn added, “Since becoming part of BGC last fall, Newmark Knight Frank has benefited substantially from BGC’s capital strength, proprietary technologies, and relationships with the world’s leading financial institutions and other organizations. The addition of Grubb & Ellis will dramatically increase our footprint and expand our business lines, including Grubb & Ellis’ prominent industrial practice. We are firm in our conviction that Grubb & Ellis will deepen its capabilities, attract the best talent, and deliver outstanding performance just as Newmark Knight Frank has as part of the BGC platform.”
But while Grubb is well-respected, it is also a distressed, having declared bankruptcy in February, and presents a set of new challenges that were absent during BGC’s acquisition of Newmark Knight Frank. In addition to a continued drop off in the firm’s talent pool, there are concerns that some owners could take their management business elsewhere after a customary 30 day notice period.
Grubb & Ellis has retained national facilities management business from Royal Bank of Scotland, ETNA, and the Hartford Group, as well as premier New York assignments at the Sony Building at 550 Madison Avenue, Riverside Church and Union Theological Seminary.
“Many of the clients have been with Grubb for many years,” said a former staffer. “While other companies might attempt to win over some management contracts, at the end of the day, it’s an operating company and clients will stay with you. They know one another, they see that the platform is there and that business is moving on and up.”
Microsoft, Kraft, Goldman Sachs and the New York Stock exchange have already taken their business elsewhere. The trend amplifies fears that Grubb & Ellis could become a mere reflection of what it once was.
“A lot of these private owners are going to follow the teams, regardless of the company, if they have a team that’s performing well,” Swingle said. “I’m certain that a number of them are considering their options.
“It’s kind of sad to see what’s happening to Grubb & Ellis.”