As Grubb & Ellis Chapter 11 Begins, Questions Abound

February 23, 2012
By Scott Baltic, Contributing Editor

Though the sale of Grubb & Ellis Inc. to BGC Partners Inc. and Grubb’s bankruptcy filing on Monday bring a harsh clarity to the troubled company’s recent travails, it might be a mistake to assume that we can now, finally, see where the situation is heading.

An individual who’s familiar with Grubb & Ellis, and who spoke with Commercial Property Executive on condition of anonymity, characterized the bankruptcy as “a really rushed filing” and said that during a Tuesday afternoon hearing the judge at the U.S. Bankruptcy Court for the Southern District of New York was openly unhappy with the structure that was proposed.

According to the latest information available online, the meeting of creditors pursuant to Section 341 of the bankruptcy code has not yet been set.

Much hinges on the course of Grubb’s Chapter 11, the source suggested. If it mostly goes smoothly, BGC will have nailed down a great deal for its $25 million. But if pulling the bankruptcy together were to drag on well beyond the 30 to 45 days being mentioned as a time frame, the source wouldn’t be shocked to see BGC walk, rather than keep shelling out debtor-in-possession funding.

“The deal is not done,” the source concluded.

That’s not to say that there’s a rosy outcome anywhere on the horizon for Grubb & Ellis. “The company cannot sustain itself,” the source said. “They’ve been all but insolvent for a year or more.”

And it’s been getting worse. In the past couple of months, Microsoft Corp. reportedly ended its property management relationship with Grubb & Ellis, which will cost the latter about $40 million a year in income. Grubb also lost Kraft Foods Inc. as a property-management client in about the same time frame.

Grubb & Ellis boilerplate currently claims that company has “more than 3,000 professionals” on staff, roughly half the number cited not too long ago. That compares with about 4,000 for BGC Partners itself and more than 7,000 for Newmark Knight Frank, which BGC also owns.

Assuming the bankruptcy goes forward and the sale stands, the source expects that Grubb & Ellis staff will be cut further and offices will be closed, including a number of offices that have been unprofitable for years. “You’re going to see a lot of people go.”

Yet another wrinkle: Any commissions that were earned by Grubb & Ellis brokers, but were unpaid as of the Chapter 11 filing, are presumably now unsecured debts. The source suggested that BGC, which would have to approve payment of any unsecured debts, might pay brokers only if they contractually committed to stay with the company. Outside brokers who are owed commissions are likely just out of luck.

Check back with CPE for more on this situation as it develops.

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