Real Estate Forum - February 2008

SCOTT D.
PETERS
GRUBB &
ELLIS

The new Grubb & Ellis—the product of a merger between that firm and Santa Ana, CA-based NNN Realty—appears ready to contend with the larger real estate services firms that had overshadowed it in recent years. When the deal closed late last year, many observers remarked that Grubb now had a broader field to play on, and Scott D. Peters, former CEO of NNN and now the head of the combined firm, seems to agree. He explains that this merger was not one of similar companies, but of two different firms with complementary talents. Thus, he says, his immediate task will be to educate clients, investors and Wall Street about what the new Grubb & Ellis has to offer.

“At NNN,” explains the CEO, “we felt that the merger with Grubb was a natural. Here we had a services firm with 50 years of brand recognition, world-class management services, a huge international footprint, tremendous research capabilities and an amazing roster of clients. NNN brought a very strong balance sheet and we had $5.5 billion of assets under management through our 1031-exchange program. In addition, we had a TIC program, a non-traded REIT, a healthcare REIT, an apartment REIT and more than 40,000 financial reps who sell our products. (See News Wrap, page 12.) Both NNN and Grubb had five-year growth plans in place, and this merger accelerates those plans.”

Peters says the five-year plan for the remade Grubb & Ellis includes making the firm one of the top five in its field, but he admits that prospects for growth today are not what they were last summer. “More traditional approaches to debt are prevalent now,” he says. “More fluidity will come back to the debt market eventually. Meanwhile there’s opportunity to execute on some of the things we’ve always wanted to do, and we have the finances to do that. The old Grubb was a transaction-driven company, and thus its revenue would go up and down as economic conditions changed. With our large portfolio of assets under management, we’re much more stable now.”

While he hopes that any slowdown in business will have resolved itself by the second half, Peters says he’ll use the current down period to regroup, take stock and present the company’s services to a new set of prospective clients. “We also have to deal with integration issues. That’s a matter of communication, of ensuring that our workforce understands the nature of the new company.

“Both sets of shareholders were enthusiastic about the merger,” he recalls. “Now it’s a matter of execution, and that’s the exciting part. Both companies were on the right path, so I

don’t see that we need to make any exponential changes. We just need to execute, to hire the right people and make our clients and partners feel that we have the passion to succeed.”

JOSEPH
ROBERT

J.E. ROBERT COS. Staying in the game, being on the spot at the right time is the driving force at J.E. Robert Cos. of McLean, VA.

“Our strategy is to get deals done before anyone knows about them,” says CEO Joseph Robert. “When we started in

1981, our idea was to build an operating platform with all the skill sets under one roof that would let us identify, price and manage the mispricing of risk in non-performing mortgages. The basic theory of arbitrage in the pricing of risk is one we continue to pursue. We ask: ‘What happened? And how can we capitalize on the arbitrage?’ ”

The company, which focuses on sourcing, underwriting and managing a range of equity investments and debt products, has a long history of dealing with troubled assets. According to Robert, between 1981 and 1996 it acquired about $8 billion worth of non-performing assets. “Previously, we focused on large, complicated portfolios. We were among the first firms to assemble a portfolio of commercial loans back in ’ 91. We were the first company rated by a ratings agency as a special servicer—a servicer of non-performing, delinquent or otherwise troubled mortgages.”

Robert notes that capability is particularly useful today, because the opportunities to capitalize on mispriced risk will be driven by the weakened performance of the debt markets. A year or so ago, Robert says, asset-backed securities represented about 6% of the country’s GDP; now that figure is 1%. CDO issuance peaked at 4% of the GDP; now it’s less than 0.5%.

“Much of that debt is now being absorbed by banks on their balance sheets,” he points out. “As a result, there’s not a lot of lending going on, although there is still demand. That creates opportunity, and we’re well positioned to take advantage of that situation.

“Mispricing is ordinarily caused by either fear or greed,” he continues. “Greed did it until the middle of last year. Now the pendulum has swung to the other side, and the markets have dried up and spreads have widened considerably.”

According to Robert, opportunities occur every day, someplace. Finding them, he says, is simply a matter of staying in the deal flow. J.E. Robert has offices in the UK, France, Russia, Georgia and the Ukraine. Meanwhile, its Latin American strategy is about to unfold and the Middle East and Asia are future targets, he says.