Danielle Douglas is associate editor of Real Estate Forum

SANTA ANA, CA-Shareholders of Grubb & Ellis and NNN Realty Advisors voted in favor of the merger of the two companies Thursday, setting the stage for the merger to be completed "as soon as is practical," according to a statement announcing the votes. Following the close of the merger, the company will retain the Grubb & Ellis name and will continue to be listed on the New York Stock Exchange under the ticker symbol GBE.

The merger, which was previously approved by the boards of directors of both companies, will occur through the issuance of 0.88 shares of Grubb & Ellis common stock for each share of NNN common stock outstanding. The newly merged company, which will be based here, will create a full-service commercial real estate asset management and services firm with a capitalization of $725 million.

The merger will occur through the issuance of 0.88 shares of Grubb common stock for each share of NNN common stock outstanding. In the merged company, NNN president and CEO Scott D. Peters will join the Grubb board and become CEO of the combined firm. Mark Rose, the CEO of Grubb and Ellis, will leave the organization following a transition period, while Anthony Thompson, founder and chairman of NNN Realty Advisors, will be the chairman of the merged entity.

In remarks made when the merger was first announced earlier this year, Peters said that the fees that the combination will generate for Grubb & Ellis are just one of the revenue streams that will result from the deal. Peters pointed out that NNN will now be able to call on the the Grubb brokerage network to "touch and create and educate potential 1031 investors who will help drive our high-margin tenant-in-common platform."

Analysts have been mixed in their reviews of the merger, with many questioning the benefit to the brokerage house. However, Brandt Sakakeeny, research analyst at Deutsche Bank in New York City, deems the deal a solid union for both parties.

"I think that for Grubb's shareholders it's particularly compelling, given the transactional nature of NNN's business and the predictable revenue and fee stream that it generates," he explains. "For NNN investors, while I'm sure they are disappointed by the contraction in the share price for Grubb and others in the field, given the share exchange, there is no other way they could access the public markets in light of the current sentiment about the commercial real estate market."

Sakakeeny also sees the Grubb & Ellis as an effective vehicle for driving increased 1031 TIC exchange investors into NNN's programs. While Sakakeeny says the merger will afford Grubb a much more balanced portfolio of capabilities, he says that it doesn't immediately strengthen Grubb's brokerage business. Unlike other recent mergers, such as CB Richard Ellis' purchase of Trammel Crow, this deal does not combine two existing brokerages.

Rather, he sees the merger helping Grubb's brokerage business tap different capabilities, including its property management business. Short-term prospects for the combined company are unclear, says Sakakeeny, given the near-term volatility of the credit markets. However, he forecasts that the shares, "could triple over the next few years due to the power of the combined companies and the strong growth potential in 1031 exchanges, as they become an ever-increasing use of investor cash, especially if Democrats take over and capital gains taxes go up."

NNN, which manages a portfolio valued at approximately $5.4 billion, is the parent company of Triple Net Properties LLC and is one of the country's most active tenant-in-common sponsors. NNN is also the parent of the Triple Net Properties Realty Inc. brokerage operation and NNN Capital Corp., a registered broker-dealer.

The merger is designed to combine the TIC strength and property portfolio of NNN with a worldwide Grubb & Ellis platform that officials of the two firms talked about in a conference call soon after the merger was announced earlier this year. The execs said that Grubb & Ellis will get a boost in its property management portfolio, while NNN Realty Advisors expects to gain broader exposure to investors through its partner's brokerage network.

Among other benefits, the deal will present "an immediate opportunity for Grubb to expand its property management business by bringing in-house significant NNN assets that are currently managed by other third parties," Thompson commented during the conference call. He also said that capital raising by NNN "will drive revenues to multiple G&E business lines," with the brokerage operations that Grubb & Ellis brings to the table earning fees from NNN's acquisitions, disposition and other activities.

The fees that the arrangement will generate for Grubb & Ellis are just one of the revenue streams that will grow from the merger, according to Peters in the conference call. "The real powerful part of this combination is the revenue growth for our platforms," he said.

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Firms' Shareholders OK Grubb-NNN Merger

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