Private-Equity Investments in Grubb & Ellis May Signal Larger Deal

October 18, 2011
By Barbra Murray, Contributing Editor

When Grubb & Ellis Co. tapped JMP Securities in March to spearhead the exploration of strategic alternatives for driving growth, the real estate services and investment management firm signaled that it was opening the door to a sale or merger. Now it looks like Island Capital Group L.L.C. and Colony Capital L.L.C. may be the ones to walk through it. Grubb & Ellis’ announcement on Monday that it is in exclusive negotiations with affiliates of the two private equity firms has ramped up speculation that a deal is afoot.

Grubb & Ellis had already received some unsolicited inquiries before it brought JMP Securities aboard, but later in March, it became clear that Colony was a serious player when the company put up $18 million in financing. That moved Grubb & Ellis to grant Colony an exclusive 60-day negotiating period to consider a “potential larger strategic investment.”

Apparently, Colony is considering going well beyond that earlier investment and has also brought in a new partner:  C-III Capital Partners L.L.C., an affiliate of Island Capital Group. Word of the negotiations with Grubb & Ellis was accompanied by news that C-III Capital has pledged to add $10 million to the $18 million credit facility that Colony had provided, and is acquiring $4 million of Colony’s investment. That leaves both partners with a 50/50 investment in Grubb & Ellis and a position as significant stakeholders in the firm.

“A transaction with these two highly regarded firms would provide the scale for us to more efficiently and effectively serve our clients and broker-dealer partners,” Grubb & Ellis president and CEO Thomas D’Arcy stated on Monday. And having the means to provide those services tops D’Arcy’s priorities. “My main goal has been to create as much opportunity for the employees of Grubb & Ellis as possible, that we provide the resources that they need to be successful,”  D’Arcy told CPE during an interview in 2010, the year after he joined the company. “Because I think if we do that, that will lead to what our core mission is, which is really the servicing of our clients. … And then all that will feed into long-term value for our shareholders.”

A decision to join forces with Colony and C-III Capital would top a year of major moves for Grubb & Ellis. In August, the firm exited the tenant-in-common business with the disposition of Daymark Realty Advisors Inc., and in October, it sold real estate investment fund business Alesco Global Advisors.