Grubb & Ellis Reports Yearly, Quarterly Losses

 As interim CEO Gary Hunt commented during the company's earnings conference call yesterday, the company is operating in "one of the weakest transaction markets in decades," a fact that is reflected in the declining Grubb & Ellis revenues in that category. Hunt also noted that first-quarter vacancy rates increased in all four main property types in the first quarter--office, industrial, retail and multifamily--while "Drivers of demand for each property type all weakened in response to the recession."

Looking forward, Hunt said that although some of the stock market's recent rallies were encouraging, and although some economists are saying that the recession could end late this year, no viable signs of recovery are visible in the commercial real estate markets yet."We are not counting on any short-term relief," the Grubb & Ellis interim CEO said.

In its tally of the effect of the recession and other factors on transaction services, Grubb & Ellis reported that transaction services revenue for the fourth quarter of 2008, for example, dropped to $67.1 million, compared with $93.6 million for the same period in the previous year. For the full year, the transaction services revenue slid to $240.3 million, compared with $312.3 million for 2007.

In the first quarter of this year, transaction revenue dropped to $33.5 million from $59.1 million a year ago. On a year-over-year basis, the company's leasing revenue decreased by 18%, while investment sales revenue declined by 72%. These figures compare with 43% and 80% year-over-year declines in leasing and investment sales activity industrywide, according to industry statistics as well as Grubb & Ellis' analysis.

In contrast to the decline in revenue from transactions, revenue from the company's global client services business has been increasing as a growing number of corporations decide to outsource their real estate operations. Much if not most of this revenue falls under the heading of management services revenue, which climbed to $253.7 million in 2008, compared with $214.6 million for Grubb & Ellis and NNN Realty Advisors combined in 2007. Management services revenue grew to $65.5 million for the first quarter of 2009 from $61.8 million in the same period a year ago, with Grubb & Ellis winning 26 new management assignments during the quarter.

The recession has reduced investment management revenue for the company, but Grubb & Ellis reported that it raised more money for its investment programs in the fourth quarter and full year 2008 than it did in the same periods of 2007. It said the increase in equity raised was driven by the company's public nontraded REITs, which raised approximately $592.7 million in 2008, compared with $278 million in 2007. On the other hand, the company's tenant-in-common 1031 exchange programs raised far less--$176.9 million in equity during 2008, compared with $452.2 million in 2007.

The company cited a number of highlights for the first quarter, including the amending of its senior secured credit facility, the recruiting of 18 senior-level brokers and its ranking as the No. 1 public nontraded REIT sponsor. It noted that its 26 new property and facilities management assignments totaled 16 million square feet.