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SANTA ANA, CA-Grubb & Ellis Co. lost $5.1 million in the second quarter ended June 30, but the loss of eight cents per share included costs of $4.7 million related to the merger of Grubb & Ellis and NNN Realty Advisors last year. Interim CEO Gary Hunt, during the Grubb & Ellis earnings conference call Tuesday, called the results “strong” in light of market conditions.

Hunt has been acting CEO since the resignation July 10 of Scott D. Peters, who remains with the firm as chairman and CEO of Grubb & Ellis Healthcare REIT and as executive vice president of Grubb & Ellis Apartment REIT. Hunt said that Grubb & Ellis is in the early stages of its search for a permanent CEO.

Commenting on the $5.1 million quarterly loss, Hunt said, “It is extremely important to put these numbers into context in light of current market conditions.” The interim Grubb & Ellis CEO cited the economic slowdown and “tightening credit conditions that have brought the capital markets to a virtual halt.” Before the slowdown in the commercial real estate markets began about a year ago, Hunt said, “Grubb & Ellis and NNN Realty Advisors, like their peers, were benefiting from a robust commercial real estate and capital markets environment.”

Hunt pointed out that commercial real estate investment volume was down 69% industry-wide in the first half of this year versus last year, with cap rates rising, vacancies rising and softening rental markets. Those conditions, he said, are likely to produce some forced asset sales, especially for owners who bought in the past several years with high debt and overly optimistic expectations.

Regarding the credit crunch, the interim Grubb & Ellis CEO noted that the industry continues to struggle with “the non-issuance of CMBS.” Loans are available from banks and insurance companies, he pointed out, but he added, “Many banks are focused on maintaining their capital reserves to guard against further losses in their residential loan portfolios, and insurance companies are already said to be bumping up against their annual allocations to real estate.”

The upshot of these conditions is that, while capital for development and investment transactions remains available, “It is more difficult to obtain, with lower loan-to-value ratios and more onerous terms, such as the return of recourse lending,” Hunt said.

Richard Pehlke, the company’s executive vice president and CFO, said that Grubb & Ellis remains on track with its integration process following the NNN Realty Advisors merger. “We are a much stronger organization, both operationally and financially, than we were a year ago,” Pehlke said.

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