It's been a rough year for Grubb & Ellis. In May, the company reported a 27% slide in revenue for its third quarter, ended March 31. Then it fended off an unsolicited takeover bid that fanned rumors of deepening troubles for the New York-based real estate services firm. As the summer wore on, the company saw its COO and dozens of brokers jump ship. Then, on Sept. 6, the stock hit a 52-week low of $1.20 — less than one-fourth of its value a year ago.
Maybe the next 12 months will be better. In September, Grubb & Ellis CEO Barry Barovick — also the acting COO — announced a strategic alliance with Canadian real estate services firm Avison Young to help stimulate new growth, especially beyond the battered U.S. office market. The alliance, along with Grubb & Ellis' (NYSE: GBE) existing partnership with international services provider Knight Frank — which has offices in Europe, Africa and Asia Pacific — extends the firm's reach to more than 8,000 professionals in 30 countries. New offices include Toronto, Calgary, Edmonton and Vancouver.
“It's very simple: Clients want global services,” Barovick says. “Our clients are demanding it and the brokers who are dealing in these relationships have a much stronger sell as a result of that.”
Barovick says the timing of the alliance has nothing to do with the immediate issues facing the firm and other service providers. “Our philosophy of management is that change is constant, so you want to stay ahead of the curve,” he explains. “So we took the opportunity three or four months ago to begin this strategic initiative.”
Although the unsolicited offer from CB Richard Ellis stirred up concerns about the company's viability, Barovick emphasizes that the alliance with Avison Young is proof that his company will be around for the long haul. And, he says, it shows that the company has put to rest those questions. “It could have been interpreted as a crisis — that the company was being sold, etc.,” Barovick says. “But we took the situation, addressed it and moved the company forward to a new integrative platform.”
Focus on Growth
And Grubb & Ellis doesn't plan to stop there. According to Ray O'Keefe, director of international operations for Grubb & Ellis, the company is discussing similar arrangements with service providers in South America and Latin America.
For Avison Young, the partnership provides access to real estate clients in the U.S. and around the globe, says Mark Fieder, president of Avison Young Ontario. “Our goal was to raise the bar in terms of the platform we can offer our clients here in Canada,” Fieder says.
Barovick acknowledges that Wall Street is concerned that professional service firms rely on employee performance, rather than a bricks-and-mortar product. And he freely admits that his firm — one of the few remaining public professional service companies — is considering alternative ownership structures.
“Wall Street has a very difficult time differentiating a professional services firm like ours from the REITs and the REOPs [Real Estate Operating Companies],” Barovick says. “They don't understand the nature of our business.”
The firm's numbers in the past year have been discouraging. Grubb & Ellis ranked No. 10 in National Real Estate Investor's Top 25 Brokerages survey published in July, with $10.7 billion in investment sales and leasing transactions posted in 2001 — down from No. 8 with a total of $14.8 billion in 2000. Insignia/ESG ranked first in 2001 with $48 billion, followed by Cushman & Wakefield ($37.7 billion) and CB Richard Ellis ($32.4 billion).
According to Barovick, being a public firm opens his company to more scrutiny than privately owned real estate service providers. He says the firm has gotten slammed for a high attrition rate among brokers at a time when every firm is having trouble holding onto talent. “You have Mary Ann Tighe, the No. 2 producer in all of Insignia leaving that firm,” he says. “We have two guys doing 1/200th of our business leave and we get more notoriety for it.”
Barovick says Grubb & Ellis' turnover rate is less than 7% over the past three years, which he argues is the lowest rate in the industry. Still, it's clear that some offices have been hard hit. The firm shuttered its five-person San Mateo, Calif., office this spring and downsized the Oakland, Calif. office as well. The firm also is closing its Twin Cities office.
But Barovick says that Grubb & Ellis' model of integrating services with brokerage will be emulated by its rivals. “We believe that consulting and management services are more of an annuity-type business,” he explains, “so it keeps your cash flow more consistent than waiting for transactions, which tend to get deferred in a bad marketplace.”
Grubb & Ellis Vital Signs
Current stock price:
$2.25 as of 9/25/02
52-week high: $4.50
52-week low: $1.20
Market cap: $33 million
No. of employees: 8,000
No. of offices: 200
C. Michael Kojaian, Chairman
Barry Barovick, President/CEO
Ian Bress, CFO