New York City’s commercial property insiders are digesting the news that Midtown-based finance and property brokerage firm BGC Partners has agreed to buy the assets of the battered national services firm Grubb & Ellis.
They say the acquisition, which Federal Bankruptcy Court documents value at about $34.8 million plus additional, undefined amounts, would bring stability to the California-based Grubb.
BGC made an offer to buy Grubb, which filed a voluntary petition last night to reorganize under Chapter 11 of the bankruptcy code in Federal District Court in Manhattan, BGC said in a statement.
BGC is in an expansion mode, with the October 2011 purchase of the American portion of the firm Newmark Knight Frank, which had about 474 brokers, for $63 million plus stock.
Last month, BGC allowed an option to invest in Grubb, which has about 3,000 employees nationwide, to expire. However, it quietly continued discussions, and negotiated an agreement Feb. 17 to buy the outstanding, secured debt for $30 million from Grubb secured creditors such as Andrew Farkas’ C-III Capital Partners.
In the proposed asset sale, BGC will act as a stalking horse bidder, setting the minimum price under section 363 of the bankruptcy code. If competing bidders arise, an auction is scheduled for March 21.
Insiders have been saying for a year that Grubb brokers in New York — as well as nationally — have been anxious to find new jobs. This acquisition would likely stabilize the firm, they said.
“The announcement seems to indicate the Grubb & Ellis saga is finally resolving itself and now the new leaders of the combined entity can start to build for the future,” Peter Hennessy, president of the New York tri-state region for commercial firm Cassidy Turley, said. “However, there is still a cloud over the brokers at G&E and monies that are owed them for transactions that have closed but have yet to be collected.”
Andrew Lance, a partner at Gibson, Dunn & Crutcher, who heads all the commercial leasing transactions for the law firm in New York, agreed the deal was a positive one for Newmark and Grubb.
“I think having Grubb presumably folded into the Newmark umbrella is a desirable expansion for Newmark,” he said. Yet he did not expect a beefed up Newmark to have a direct impact on the city’s largest firms, CBRE Group and Cushman & Wakefield.
“The success of BGC will be gauged over a long period of time,” he said, because one acquisition will not create a “sea change” in itself.
Others look at the transaction as part of a broader change in the commercial real estate market.
“I see this transaction as part of the new vertical-integration trend in the real estate business, [in which] owner-operators and loan servicers see value in acquiring talented investment sales and leasing teams in-house,” Stephen Meister, partner with Meister Seelig & Fein, said.
BGC’s credit bid is composed of $30 million in the purchased debt plus up to $4.8 million BGC expects to lend Grubb to keep operations afloat until the purchase is completed, likely in March. In addition, the buyer must pay any “cure amounts,” on contracts, that were not specified. The purchase will wipe out all liens against the debt-saddled company. Yet, the court records indicate BGC expects to take over Grubb’s customer contracts and listing agreements.
To confirm the price is the highest Grubb can get for the company, the parties have agreed to the auction, with qualifying bids due two days earlier. If there are no other qualifying bids, BGC will be declared the purchaser, court record say.
BGC has a good cushion protecting it from competing bidders. Other bids need to beat the BGC purchase price by about $2 million, composed of a $1 million breakup fee, plus up to $750,000 in an expense reimbursement, plus an additional $250,000. Then each successive bid must be in increments of $500,000 or more.
Grubb and BGC say in court records that the purchase would create, “the fourth largest commercial real estate company in the United States,” and that the sale should be completed quickly because in the last several weeks Grubb was, “losing clients and brokers.”
Michael Cohen, president of the tri-state region for Colliers International, called it a “bold move.” He expected a shifting of personnel, and added, “I am sure they are contemplating a 1+1= 3 equation,” meaning the value of Newmark and Grubb
together will be greater than the combined value of two companies apart. “Only time will tell.”