Grubb & Ellis Co.'s merger with NNN Realty Advisors in late 2007 transformed the Santa Ana, Calif.-based commercial real estate services provider into a leading investment management firm tailored to serve high-net-worth investors.
NNN Realty, after all, was a leading sponsor of tenant-in-common (TIC) programs, which enable small investors to have a fractional ownership stake in institutional-quality assets that offer an attractive return. The structures frequently provide a solution to 1031 tax exchange investors, who must plow proceeds from a sale into a new asset within a set period to avoid capital gains taxes.
Yet Grubb & Ellis executives were aware that a select number of high-net-worth investors with tens of millions of dollars to invest were resisting TICs, which typically pool the financial resources of 15 to 30 investors. Recognizing that they could increasingly lose such clients, Grubb & Ellis officials launched a new private wealth management division early this year to cater to high-net-worth individuals as well as corporations that have a minimum of $15 million in equity.
“When you're dealing with folks who have built real wealth in real estate to the tune of $20 million, $50 million, $100 million or $200 million, they typically want 100% control of their investments,” says Jeffrey Hanson, president and chief investment officer of Grubb & Ellis Realty Investors, the Grubb & Ellis investment management subsidiary that oversees the private wealth management practice. “So we designed an institutional-caliber program to accommodate those investors.”
The program essentially provides a one-stop-shop for the entire real estate ownership cycle — from locating and performing due diligence on properties, to arranging financing, closing sales, managing assets and disposing of the real estate. While Grubb & Ellis' private wealth management group performs all of those duties in return for fees, investors remain actively involved in all decisions.
So far the wealth management division has placed $80 million for the American Automobile Association, which faced a $40 million tax liability, Hanson says. The company sought single-tenant properties, so Grubb & Ellis acquired 13 assets, including Walgreens drugstores, across nine states. The group also acquired two properties totalling $90 million for a private individual.
“The program is purely based upon the investor's objectives,” Hanson says. “Clients have passivity, but it's a single ownership structure so they have total control and decision-making authority.”
Hanson declined to discuss potential deals in the pipeline, but analysts such as Deutsche Bank's Christopher Mammone don't anticipate that the wealth management group will contribute much to revenues anytime soon.