Colony Capital Invests $18M in Grubb & Ellis

SANTA ANA, CA-Grubb & Ellis Co., which announced recently that it had hired JMP Securities to explore strategic alternatives for the company, has received an $18 million financing commitment from Santa Monica, CA-based Colony Capital LLC, the private investment firm founded by chairman and CEO Thomas J. Barrack Jr. In conjunction with the financing, Colony was granted the right to an exclusive 60-day negotiating period during which it can evaluate a potential larger strategic investment with Grubb & Ellis, according to an announcement from the Santa Ana-based real estate services firm. If the company and Colony enter into a definitive agreement for a strategic transaction, Grubb & Ellis retains the right to solicit competing strategic transactions for a period of 25 business days.

Thomas P. D’Arcy, president and chief executive officer of Grubb & Ellis, commented in a prepared statement that was part of the announcement: “We will work with Colony over the next 60 days as they focus on a possible larger strategic transaction." When it recently announced the hiring of JMP, which served as financial adviser to Grubb & Ellis in connection with the Colony financing, Grubb & Ellis said that the strategic alternatives to be explored would include the potential sale or merger of the company.

The financing deal with Grubb & Ellis is the latest in a series of investments for Colony Capital, which has been involved in some of the largest FDIC deals to date and has been active on a number of other fronts. In 2009, for example, Colony launched a publicly traded REIT, Colony Financial, that focuses primarily on acquiring, originating and managing performing, sub-performing and non-performing commercial mortgage loans.

More recently, Colony led a consortium of investors in acquiring two FDIC loan portfolios with an unpaid balance of $817 million that include 1,505 residential and commercial acquisition, development and construction loans. In Los Angeles recently, funds managed by Colony Capital and R.W. Selby & Co. acquired a portfolio of seven student housing properties adjacent to the University of Southern California comprising 223 units and 836 beds from Westar Associates for $98 million.

In early 2010, investment vehicles managed by Colony paid $90.5 million for a 40% interest in an LLC created by the FDIC to hold assets of 22 failed-bank receiverships and became the managing equity owner of the LLC. Colony was one of 21 bidders who vied for the 40% ownership interest in the LLC, which owned a portfolio of approximately 1,200 distressed commercial real estate loans with an unpaid principal balance of $1.02 billion, of which 70% were delinquent.

Founded in 1991 by chairman and CEO Thomas J. Barrack Jr., Colony Capital was one of the pioneers in buying distressed assets from the Resolution Trust Corp., the federal agency that was formed to dispose of the assets of failed savings and loans after the S&L industry collapse. Later, Colony expanded to Europe and Asia, establishing offices throughout those regions. Its Colony Financial is believed to be the first publicly traded REIT that was ever formed for the specific purpose of acquiring distressed assets.