Tom Acitelli Nov. 9, 2009, 7:49 p.m.
The Commercial Observer: How did Grubb & Ellis brace for the recession when it first came on the horizon?
Mr. Arena: What I’m most proud of is that during this whole period, from last September to today, we have not lost one person here in New York. We didn’t lay a person off. We shared the sacrifice amongst the people in the office. And, to me, that’s our biggest accomplishment. And that’s what differentiates one culture from another: The way you honor your stakeholders, whether it be your clients, your shareholders or employees of the firm, differentiates one firm from another.
Were there sacrifices elsewhere?
We may be the only firm that has grown its transaction business on a net basis, year over year. We’ve added people; we’ve been actively recruiting. So if your question is what have we done this year, we’ve done a couple of things. The first thing is we slimmed down our infrastructure, and we prepared for what we knew was going to be a period where we were going to have to watch costs scrupulously, and we did that. Two, we positioned the firm for growth, one by focusing on clients even more intensely. So, for instance, we’ve created practice areas around what we think clients are looking for and what we’re hearing clients are looking for today.
Now seems like a good time to pay off debt. Has that been part of the strategy?
This has been a hard year for real estate service firms. We’ve certainly had our share of issues. Most of the issues have been around the capital structures. How are they financing their firms and how do those firms move forward in the future? Two weeks ago, we recapitalized our firm. We raised $90 million of equity. We are essentially debt-free. We have plenty of operating capital for investment in people and we have solid operating revenues, so we’re essentially debt-free.
How does that make it easier going forward?
You want to be dealing with firms you know are going to be around for a while. Two, you want to be dealing with firms that aren’t distracted by their own internal issues. Particularly, if you’re a client, you want someone 100 percent focused on your objectives and not on internal corporate concerns. Third, you want a firm that can spend the resources necessary to treat their people well, hire and retain the best people and invest in clients and new technology and new processes and new ways of thinking.
What’s the future hold for Grubb & Ellis?
We have a pretty big investment management business, which operates outside of Santa Ana, Calif., which has never had a place here in New York City. We’re going to launch our investment management business here in New York City. We have $6.5 billion under investment management today. In the first six months of the year, we raised $495 million. We’re going to expand it and launch it out of this office in New York City.
Tell me about some of your most recent deals.
We’ve done a lot of subleasing. We’ve probably been as or more active than anybody else in the subleasing market. We’ve done around 500,000 square feet of subleasing up to this point, a lot of it downtown. Certainly, a lot of it was at 7 World Trade.
Why so many subleases?
Year over year, the amount of space on the market subleased increased by 125 percent. It’s been a violent year. If you think about the metrics from one year to another, the amount of sublet space on the market has increased by 125 percent—it’s from roughly, say, 7 million to roughly 14 million; that’s why so many subleases. A lot of people are trying to get out of obligations they can no longer pay for. The other metric that I think is a violent metric is the sales metric. It’s 82 percent down, the amount of sales from one year to another. That’s a violent swing in business.
Any other downtown deals worth mentioning?
We’re doing one deal out of bankruptcy: the sale of the Cabrini Hospital, which I think is pretty interesting. Cabrini Hospital is a 400,000-square-foot hospital in Gramercy Park. The sisters in charge tried to keep it afloat, but the building and the entity filed for bankruptcy, and we’ve been marketing the building for the sisters and the trustees. That’s been going terrifically. They’re in a very popular zone for hospital systems, so there are at least three hospital systems competing for the site as well as private developers and other health care operators. So there’s a huge demand for the site right now.
What’s happening uptown?
We’ve done a number of deals in midtown that I think were interesting this year. I would say the ticket size is a little smaller, generally, whereas maybe the average size last year might have been 25,000 square feet. People are taking a little less space than they were last year. We’ve done just about as many deals as we’ve done year over year—it’s just been a smaller square foot size.
The firms have been interesting. We’ve done a couple of deals where they are refugees from either Lehman Brothers or Morgan Stanley, where they’ve left and kind of created their own financial service company or their own hedge fund. So we’ve seen a lot of that. We just completed a very interesting transaction with Pine Brook Partners at the Lincoln Building, which is a great transaction for the landlord and for the tenant.
By the way, how was leasing activity as a whole this year?
Since January, it’s been a roller coaster. Toward January, and up until the stock market picked up in March, April and May, the mood was dour, and I think people were less inclined to make decisions long term. People who had leasing decisions sort of hung around on the sidelines, either because they weren’t certain about their firm’s future or they weren’t certain about where the market was heading and whether there was a better opportunity to buy at a period later in the market cycle. I think that those people who didn’t act in the first six months of the year began to act in June, and in June we saw a flurry of activity, even through today.
With all the doom and gloom, how do you make it to work every day?
Listen, every day is a new day. Every day you walk down a new street. In New York City, every street is paved with gold. Every time you deal with a new tenant, you’re dealing in a new industry, or new to you, with a new culture, a new set of goals and objectives. So every day is different than the day before and that’s what makes it interesting. And that’s what keeps you coming back.