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Commercial Real Estate

Grubb & Ellis Plans on Making Global Expansion a 'Top Priority'

March 10, 1998|From Bloomberg News

NEW YORK — Grubb & Ellis Co., after coming close to bankruptcy in recent years, is riding the real estate boom to prosperity and has designs to expand globally.

"We need to be international," Chairman and Chief Executive Neil Young told the Bloomberg Forum on Monday. "It's a top priority."

Real estate services companies like Northbrook, Ill.-based Grubb & Ellis are for the first time expanding overseas as more U.S. corporations grow internationally and need sites scouted and leases negotiated.

CB Commercial Real Estate Services Group Inc., Cushman & Wakefield Co. and Insignia Financial Group Inc. are just some of Grubb & Ellis' competitors that have expanded their operations into Europe and Asia recently.

Young also sees an opportunity to help U.S. real estate investors find investments overseas now that the domestic market has heated up and made it harder for many to find bargains.

"As it gets very difficult to buy here in the U.S., investment money is going to move into Asia, and it's going to move into Japan," Young said.

Grubb & Ellis provides real estate management, financial and broker services through its own offices and affiliates in 73 markets. Its property management business covers 100 million square feet of space, up from 67 million at the end of 1996.

The fact that Grubb & Ellis is even planning a global expansion is remarkable, given that the company was on the verge of bankruptcy in the early 1990s.

The company went public during the boom days of the 1980s and loaded up on debt to acquire 23 companies for about $225 million. But in the early 1990s, the economy suffered a recession and the real estate market collapsed. Companies cut back on the amount of space they used and leasing activity dried up. The stock fell to $1.63 in 1994.

Grubb & Ellis was forced to restructure its debt, fired co-founder and Chief Executive Harold Ellis and received a cash infusion from an affiliate of investment bank Goldman, Sachs & Co. and Michigan real estate developer C. Michael Kojaian.

Young, who joined Grubb & Ellis in 1984 as a broker, was named president and chief executive in 1996 and given the task of cutting costs and turning the ship around.

"We have now had eight quarters of 20% revenue growth and we have now rationalized our cost structure," Young said.

Today, the economy is strong, companies are looking for additional space to house an expanding work force and office occupancy rates are below 10% for the first time since 1981.

"We think 1998 will pretty much be a snapshot of 1997, and I'm bullish to the year 2000," Young said.

For the first half of fiscal 1998 ended Dec. 31, profit from operations rose 16% to $9.6 million, and revenue increased 20% to $144 million.

In 1997, the stock tripled, making it one of the best performers on the New York Stock Exchange. On Monday, Grubb & Ellis shares rose 19 cents to close at $11.31.

"We would like to take credit for this great surge, but the fact is that [the shares] were trading at such a low price that they had a lot of room to move up," Young said.

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