It's been a roller coaster year for Northbrook, Ill.-based Grubb & Ellis. The company posted a record fiscal 2000, with revenue and net income increasing 32% and 102%, respectively. In May, Grubb & Ellis announced a partnership with London and Brussels-based real estate services firm Knight Frank, a partnership that's just beginning but has a greatof potential. On the other side of the equation, company CEO Neil Young announced his resignation - somewhat abruptly - in May, and Grubb & Ellis' hometown Chicago press has been a bit harsh. Thanksgiving week, the company's stock (NYSE: GBE) traded at around $5 3/4.
John G. Orrico, president of Grubb & Ellis Real Estate Advisory Services, is in the middle of it all. Employed at the company for six years, Orrico is one of three executives serving in Grubb & Ellis' office of the president, along with Maureen A. Ehrenberg and Brian D. Parker. In November, Orrico was in NREI's hometown, Atlanta, to check out his company's new offices in Buckhead. Orrico took a few minutes to talk about Grubb & Ellis, technology and real estate in general.
NREI: How has Grubb & Ellis benefited from the partnership with Knight Frank?
Orrico: I should start with why we partnered with Knight Frank vs. anyone else we might have looked at. Europe is so much different than the United States. Inoperations, they are predominately - and have been predominately - partnerships that extend back 200-plus years with a strong culture and a strong approach to business. As U.S. companies acquired European real estate companies, they weren't building upon the culture in Europe. They were trying to instill the American culture. We saw that as not the way to do business there, and we were looking for someone whose culture we did not disturb and was a cultural fit with us and our vision. We looked at a number of companies.
We saw that Knight Frank had a similar vision of where this business is going - client services, a client-relationship business. They call themselves consultants. We call it an advisory approach, but it's very much the same, namely the interpretation of data in order to help position the clients for their long-term real estate decisions. We saw a great cultural fit with them. We saw that they had similar clients that they dealt with that we have here in the states.
What's the other part, and why have all these companies formed these relationships and alliances? The business has gone more and more to out-tasking real estate, where companies look for strategic real estate partners and providers to assist them not only here in the United States but also in Europe. You need to have that full spectrum of services to accommodate your clients here in the U.S. and then also to accommodate them in Europe, Asia, wherever it is overseas.
So that pushed us more and more toward a decision to move forward with Knight Frank, and it's been a great relationship so far. We now have 29 or 30 referrals into Europe, and they have about 12 in the United States. It really only started in May of this year and becomes formalized on a license basis (in December).
While we had a hand-shake (agreement) in concept, they had to finish what they were doing, and we had to get our licenses established throughout Europe and set up our co-branding, which only came into place about 30 days ago.
NREI: What are some of the opportunities Grubb & Ellis and Knight Frank can pursue mutually?
Orrico: As we continue to compare our client lists, certainly we want to further enhance relationships we have with clients on both sides of the (Atlantic) ocean. More importantly, we can learn from them, and they can learn from us in how we approach business. In Europe, it's been consultants. You're either a landlord advocate or a tenant advocate, and they develop processing systems around that. That's an area where we can learn from them. At the same time, they can learn about our processing systems, and we're going to start sharing those systems and overlapping our technology.
NREI: What is the Internet's role in commercial brokerage, and what is Grubb & Ellis doing in this area?
Orrico: We see the Internet as more of a process-enhancement tool, a speed-of-delivery tool, and a linking tool for clients and our professionals.
Is it going to disintermediate us? Is it going to take our business away? No. Many people have touted that. It hasn't come to be, and I don't think it will ever come to be because real estate transactions are becoming more and more complicated and sophisticated. You can't do it via the Internet.
What the Internet has done for us is take the information components of the business and turn that into a true commodity. Now everyone's on the same playing field. I never felt that was the real basis of doing a deal anyway, and our company has never looked at it as the basis of a deal. It's the interpretation of the data. It's the analysis of the trends in the marketplace. That's the value, and that's why research will continue to evolve in companies like ours. So it becomes a resource for our clients.
Long-term, will we reach a point where someone needing 2,000 sq. ft. can go online and find space? Yes. You can't do more sophisticated deals that way because you won't have someone doing a true interpretation of common-area costs and escalation, of fiber optic availability, of financial strength of a landlord. The list goes on and on. Then, the Internet isn't going to do the analysis of present value and position clients: "Does this space work better for you, as opposed to this space? Do you need 20,000 sq. ft. in this building and 30,000 sq. ft. in this building?" You're not going to see that.
It does cause our business to be much more sophisticated, and our approach to the business and our analysis has to step up. That's why we have evolved as a company over the past several years to change how we do business. From a technology standpoint, we've invested in ourselves over the years, and put a lot of money into technology. We didn't see someone who had the whole answer. We saw people who had pieces of the answer. We're the real estate experts. We've been doing it. We listen to our clients and our clients' needs, and through that we developed our own systems. That's why we went out and bought [process management software] Paradyme, so that we'd have similar processes from office to office.
That's why we turned to our Access Direct system, which is a Web-based process of tracking transactions. Multi-market clients can go online with their password and look at the process behind any deal, in any city, in any part of the country. There are companies out there trying to sell that as an e-commerce, web-based platform, and we have it. We've developed it ourselves, and our clients were part of the focus group that allowed us to do that. We built it for them.
We now have a Windows-based lease administration system. All of our offices are linked together. We can pull research from any one of our offices, and our clients, our multi-market clients can pull research from any one of our offices. We've advanced the technology component for our business much further along than any e-commerce company has, and frankly, we're further along than most of our competition.
NREI: How can technology help foster teamwork and cooperation within your company?
Orrico: Again, that's part of our technology initiative. We have our own proprietary system. We didn't do an off-the-shelf system. In every deal that's done throughout the country, the client information is gathered into a contacts-management database.
A broker in Atlanta is looking to do a deal with ABC Co.; the broker hears it's on the market. The broker goes into the contacts-management database and see where we've done business with this client before. [He or she] is able to call the individuals who put together the deal, understand the relationship, the point of contact, so that we're able to do more warm calls than cold calls. We're acting as one company when we deal with our clients. We've gathered all that information.
We also post case studies into our e-folders, which are accessible on our Intranet. Within the company we have our own Intranet where case studies and best practices are posted in folders. Any one of our professionals can access that information to see how we conduct business, our approach to business in other markets, and what's been successful in other markets. It's all been internally developed, which puts us far ahead of our competition.
NREI: How does too much information - information overload - work to your advantage?
Orrico: You can't get distracted by the noise. Focus on what services best meet your clients' needs, and you'll be able to cut through a lot of the minutiae out there and cut through all the little pieces of the puzzle. Our technology people have gathered that information and dissected it, and we've met with a lot of these e-commerce companies, whether it be on the property and facility management side or on the brokerage side, to see which one works best for us.
We don't discount anybody. We're looking to see who has the best system, who has the best tools. I believe there's going to be consolidation in the industry; people that have a bunch of little pieces will combine to make a bigger piece. That time hasn't come yet. I do believe it will come, though. And we'll keep looking to see if someone has passed us. If somebody does, I'll get into that system and we'll be one of the cheerleaders and pioneers for it.
NREI: Grubb & Ellis seems to have a perception problem. Though you've just come off a record fiscal year and have a wealth of opportunity ahead of you, the perception is that Neil Young left abruptly and you've been hammered in thepress. How do you fix how your company is perceived?
Orrico: Our success speaks for us. Individuals coming and going is just the course of business. I don't think you can point to any corporation in America that hasn't had a CEO leave, and I haven't seen too many of these corporations crumble. The key is, is the primary team that was behind that CEO still in place? In Grubb & Ellis' case, the answer is "yes."
The senior management team that's been the architect of much of what's taken place over the past four years is still leading this company today, and, as far as I'm concerned, will continue to lead this company. It has the support of our professionals. It has the support of management, and it has the support of the board of directors. We've had some of the best performance ever in the history of the company. That's really what it's about.
NREI: How do you improve your company's profitability in a market that's basically at equilibrium?
Orrico: Market share. Our focus has been to grow in our core, strategic markets and be the dominant player in those markets. Those markets are New York, metro D.C., Atlanta, Chicago,, San Francisco and L.A., where you have not only the combination of key financial institutions but also the highest concentration of corporate America. If you're a key player in those markets, you'll garner market share not only in those markets but in outlying markets as well and be a multi-market strategic provider to those corporations.
Even as the market begins to change, because you have a dominant share of the market, you continue to maintain that dominant market share as others fall out around you. What we haven't had since the 1990s is a shakeout of some of the smaller firms. It's going to happen. There will be further consolidation and changes in this industry. It's inevitable. It's evident in that we're getting more and more wins in multi-market assignments. Revenues are at the highest level they've ever been. And our professionals are the best that they've ever been and continue to get better. It's a people business, and we're going to develop our company now with the attitude of hiring and keeping the best and brightest.
NREI: Is there any time frame for naming a new CEO?
Orrico: You don't rush into these matters, and you make sure that you have the right process in place. It could be an internal candidate. It could be an external candidate. It's going to be who can move the company to the next level.
, just as we did with LoopNet. We believe LoopNet has a very good system, and we invested ($1.5 million) in it. What we do is go to (LoopNet CEO) Dennis DeAndre and say, "Dennis, here's how you can enhance your system so it provides better information for our professionals and better information for our clients."