New Player Enters for Grubb & Ellis

Bloomberg News
Howard Lutnick, chief executive of Cantor Fitzgerald

By Eliot Brown and Kris Hudson

In the race to control Grubb & Ellis Co., there’s a new big name circling over the commercial real estate services firm: Howard Lutnick.

BGC Partners LP, an affiliate of Mr. Lutnick’s Cantor Fitzgerald, on Monday signed a two-week exclusivity agreement with Grubb & Ellis to potentially purchase or recapitalize the struggling Los Angeles-based company, according to a Grubb & Ellis securities filing and a person familiar with the matter.

The agreement with the affiliate of Cantor, which has been growing its real estate investments and bought brokerage Newmark Knight Frank, comes as Grubb & Ellis saw a similar agreement with two other opportunistic investors fizzle.

An exclusivity agreement with C-III Investments LLC, which focuses on distressed real estate and is led by Andrew Farkas, and Colony Capital LLC, run by Tom Barrack, expired on Sunday without a deal.

No deal materialized, in part, because of the complexity of the deal and multiple layers of creditors, a person familiar with the deal said.

Of course, it couldn’t hurt Grubb to strike a deal sooner rather than later with any of its suitors. The company on Jan. 3 was de-listed from the New York Stock Exchange because its market capitalization had fallen below $15 million.

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Report: Bull Run in the Apartment Market

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The U.S. apartment sector powered through last summer’s economic doldrums to record strong occupancy rates and rental gains in 2011, and the market should remain upbeat this year, brokerage Marcus & Millichap writes in a report.

As we’ve written, the rental market is thriving as millions of Americans — many of them burned by the housing crash — opt to rent homes instead of buy them. This comes as little new supply has been added the market, creating a sweet spot for landlords who are raising rents.

That’s quite the turnaround from the days following the financial crisis, when desperate landlords had to slash rents and offer freebies like flat screen televisions to keep units filled. “The multifamily sector continued its marathon-like recovery in 2011, and has entered full expansion mode in virtually every market,” says Hessam Nadji, the firm’s managing director of research and advisory services.

Marcus & Millichap expects the vacancy rate to dip to 5% by the end of the year, a 40-basis-point decline since 2011. (Reis Inc. puts the current vacancy rate at 5.2%.) With so few apartments up for grabs, rents could grow by a 4.8%.

To be sure, plenty of things could slow the success. Europe remains a trouble spot, as does the U.S. economy. Should it weaken further, renters could double up with roommates or move in with mom and dad. And if landlords raise rents too much, they risk pushing the tenants to buy low-priced homes.

Still, Marcus & Millichap points out that there will still be plenty of potential renters: Household formations, which fell during the downturn, are forecast to spike 29% to an annual average of 1.4 million through 2015, boosted by 2.1 million “echo boomers” hitting prime renting age.

The firm’s National Apartment Index, which ranks 44 major apartment markets based on a series of 12-month, forward-looking economic and supply-and-demand variables, puts the Bay Area – San Jose and San Francisco – at the top as they continue benefiting from the technology sector. New York comes in at #3. The worst performer is expected to be Jacksonville, Fla.

Meanwhile, investment sales activity is expected to rebound. (That’s already happening – UDR and MetLife just purchased five Manhattan skyscrapers.) “Sales volume will rise as risk tolerance expands and capital becomes more fluid. Expect higher levels of workout activity from banks and lenders,” says John Sebree, national director the firm’s National Multi Housing Group. Also, “expect higher levels of workout activity from banks and lenders.”

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