Santa Ana, CA NNN Realty Advisors Inc Grubb & Ellis Co

When the all-stock transaction is complete and NNN Realty shareholders have received .88 of a Grubb & Ellis share in exchange for each NNN Realty share, they will account for about 59% of the company's ownership. The deal not only adds to the existing Grubb & Ellis operation, NNN's: Triple Net Properties LLC (its TIC, REIT and fund investment sponsor platform), Triple Net Properties Realty Inc. (its property brokerage entity) and NNN Capital Corp. (its broker-dealer), it also will put NNN leadership decidedly at the helm of the new company.

As part of the transaction, announced last month and expected to close in the third or fourth quarter, Scott Peters, NNN Realty president and CEO, will become CEO of Grubb & Ellis, replacing current CEO Mark Rose. Anthony W. Thompson, the founder and chairman of NNN Realty, will become chairman of the Grubb & Ellis board, replacing current chairman C. Michael Kojaian, who will remain as a board member. The board will be expanded to nine members, including six nominees from NNN Realty. The company will continue to operate under the Grubb & Ellis name and trade on its NYSE ticker, but will move its headquarters to NNN Realty's Santa Ana, CA offices.

Management from the two companies say the merger will be beneficial by driving additional business to Grubb & Ellis' existing lines of business, while also attracting potential investors for NNN's products. "The revenue growth for our platforms" is key to the merger, Peters said during a management conference call on May 24. "The ability to utilize the Grubb & Ellis brokerage network to touch and create and educate potential 1031 investors will help us drive our high margin tenant-in-common platform," NNN's management tells TIC Monthly.

"The merger between Grubb & Ellis and NNN Realty Advisors will create a best-of-class real estate services company, which will have an enhanced global competitive position and the ability to grow," the company reports. "The transaction brings together Grubb's 50-year history of reputation and credibility as one of the world's leading full-service commercial real estate organizations and combines it with NNN's position as a leading sponsor of real estate programs for the individual investor. The merger creates significant opportunities to cross-sell services and drive high margin platforms."

Grubb & Ellis has 114 offices (including 63 affiliates) and approximately 5,300 employees, including more than 1,650 brokers. It has 167 million sf of property under management, and, in 2006, tallied $25.3 billion of sales and leasing transactions in North America. NNN Realty has $4.7 billion of assets under management--approximately $3.8 billion in TIC assets--and 34 million sf in its investment programs. By the end of 2007, Peters said it expects to have acquired $3 billion of properties and disposed of $1.1 billion for the year.

The stock market reacted positively to the news, as evidenced by the rising share price of Grubb & Ellis stock. The day the deal was announced, May 22, shares closed at $11.62, up 7.99%. On June 5, shares closed at $12.99.

The announcement caught some by surprise and even had some in the industry scratching their heads. But a number of sources TIC Monthly has spoken to also describe the interest on the part of Grubb & Ellis and the public market presence (with the analyst scrutiny that comes along with it) are positive developments for the TIC industry as a whole.

"TICs are growing up," says Greg Paul, managing director of Salt Lake City-based Omni Brokerage Inc. While it was not that long ago that the TIC market was accused of bidding up prices and not truly knowing real estate, "Now we're being seen as not so much the newcomer but perhaps a more legit player that looks at the real estate like everyone else. Any brand name coming into this space only further legitimizes the industry."

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