Grubb & Ellis: More Profit, Less Drama

Tom D’Arcy has some simple goals for Santa Ana’s Grubb & Ellis Co. this year: turn a profit, groom it for growth and eliminate any soap opera-type storylines.

“There was a lot of drama associated with the company,” said D’Arcy, a Massachusetts native who joined Grubb as chief executive in late 2009.

He is the fourth chief executive the company’s had since 2007—hence the drama.

The executive management changes began taking place as Grubb, then based in Chicago, was acquired by Santa Ana real estate investor NNN Realty Advisors Inc. in a 2007 deal valued at $750 million. The deal closed just in time to feel the brunt of the downturn in the commercial real estate market.

A subsequent board battle led by former chairman Tony Thompson—NNN Realty’s founder and now head of Irvine’s Thompson National Properties—only added to the intrigue surrounding the two companies as they worked to combine business lines, employees and cultures.

Since July 2008, Gary Hunt, a former Irvine Company executive, had been running Grubb on an interim basis until D’Arcy was appointed.

D’Arcy is a low-key leader with more than 25 years of commercial real estate experience, including executive roles at Oakbrook, Ill.-based Inland Real Estate Corp. and Fort Wayne, Ind.-based Equity Investment Group. He said he’s not interested in revisiting prior boardroom battles.

“I see a real strong company here now, with strong real estate executives,” D’Arcy said. “I don’t care about (the past). The only thing we’re focused on now is making more money for our investors.”

Grubb appears to be in a better position to make money this year, following a rough 2009 that saw it lose nearly $80 million. The company had a market value of about $90 million last week.

“It was a difficult 2009,” D’Arcy said. “It wasn’t just Grubb. 2009 wasn’t easy for anyone” in commercial real estate.

From a property sales perspective, commercial real estate saw its worst slump since the savings and loan crisis of the early 1990s, according to New York-based Real Capital Analytics Inc.

Outlook

The good news is that the worst of the real estate downturn appears to be in the past, at least in terms of leasing and sales.

The commercial real estate market likely bottomed out in the third quarter of 2009, according to D’Arcy.

“Things are trending better,” he said.

Grubb expects 2010 investment sales to increase 25% to 30% from a year earlier. Leasing could be up 10% to 15%.

The company’s also projecting that it will be cash-flow positive in the second half of this year and profitable by the end of 2010.

Grubb lost $23.8 million in the first quarter on revenue of $132.5 million.

“Commercial real estate is going to come back,” D’Arcy said.

D’Arcy was named to lead the company last November, just after the Grubb finalized a $90 million financing deal that eliminated its near-term debt worries.

The deal “was a big event for the company. I wanted to make sure that was completed” before taking on the top spot at Grubb, D’Arcy said.

Grubb recently got an additional $30 million investment, giving it more than $50 million in cash to use for growing the business.

“We are intensely focused on growth,” D’Arcy said.

Some of that newfound money’s being used to attract top brokers to Grubb, which counts more than 100 offices in the country.

The company’s hired about 120 brokers since mid-2008, including nearly 20 this year alone. They’ve replaced about 175 less productive brokers.

Recent local hires include Garth Hogan, who joined Grubb’s Newport Beach office as executive managing director of its healthcare and medical office practice group. Hogan was the chief executive and founder of Newport Beach’s Medical Realty Advisors and has worked on more than $1 billion worth of deals in his career.

The company’s also looking to grow businesses that fit in with Grubb’s core brokerage, property management and advisory services.

Grubb said it would be starting a national appraisal and valuation practice, under the Landauer name. The practice plans to be in “every key market” by year’s end, the company said.

The appraisal and valuation business lines likely will require an $8 million to $10 million investment over time, according to D’Arcy.

Grubb currently runs two non-traded real estate investment trusts, which focus on buying and running healthcare and apartment buildings for investors.

More funds are possible, said D’Arcy, who has headed up similar companies in the past.

Tenant-in-common deals, where real estate investors are pooled to buy buildings, no longer are a focus for Grubb, according to D’Arcy.

The deals were the main business line for NNN Realty.

“We’re out of the TIC business,” D’Arcy said.

The tenant-in-common industry saw a few hundred million dollars worth of investments last year, down from about $3.5 billion in 2007.

Grubb still manages more than $5 billion worth of assets acquired under NNN Realty.

D’Arcy spends about half his time in Grubb’s Santa Ana headquarters, which counts about 120 employees, and is on the road the rest of the time. He said he’s still looking to find a home “near the office” in Orange County.

A little more than six months into the job, D’Arcy still hasn’t had the time to fully decorate his office, which overlooks the Costa Mesa (55) Freeway. Most of the bookcases behind his desk are empty.

That’s likely more a sign of being busy than a strategic move, although D’Arcy’s employment contract raised questions about whether the company might look to move its headquarters again, either to Chicago or New York.  (credit m. mueller)

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