UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-8122

GRUBB & ELLIS COMPANY

(Exact name of registrant as specified in its charter

Delaware		94-1424307
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the registrant’s common stock as of May 10, 2011 was 69,911,581 shares.

 

 

GRUBB & ELLIS COMPANY

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010			3
Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010			4
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010			5
Notes to Consolidated Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			43
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3. Defaults Upon Senior Securities			44
Item 4. [Removed and Reserved]			45
Item 5. Other Information			45
Item 6. Exhibits			45
Signatures			46
Exhibit 31.1
Exhibit 31.2
Exhibit 32

Part I — FINANCIAL INFORMATION

Item 1.		Financial Statements.

GRUBB & ELLIS COMPANY

		March 31,				December 31,
		2011				2010
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (including $320 and $307 from VIEs, respectively)		$	9,338			$	30,919
Restricted cash (including $405 and $237 from VIEs, respectively)			8,739				8,488
Investment in marketable equity securities (including $1,663 and $1,703 from VIEs, respectively)			2,855				2,849
Accounts receivable from related parties — net			3,504				3,834
Notes receivable — net			—				6,126
Notes and advances to related parties — net (including $3,382 and $3,610 from VIEs, respectively)			3,755				4,004
Service fees receivable — net (including $560 and $915 from VIEs, respectively)			30,950				31,048
Professional service contracts — net			3,455				3,468
Prepaid expenses and other assets (including $118 and $111 from VIEs, respectively)			14,350				12,524
Total current assets			76,946				103,260
Accounts receivable from related parties — net			11,438				12,344
Notes and advances to related parties — net (including $4,463 and $4,482 from VIEs, respectively)			7,500				8,271
Professional service contracts — net			5,259				5,750
Investments in unconsolidated entities (including $4,827 and $4,814 from VIEs, respectively)			5,166				5,178
Property held for investment — net			44,871				45,572
Property, equipment and leasehold improvements — net (including $8 and $0 from VIEs, respectively)			11,379				11,493
Identified intangible assets — net (including $14 and $20 from VIEs, respectively)			86,032				88,096
Other assets — net (including $0 and $7 from VIEs, respectively)			6,419				5,461
Goodwill			1,521				1,521
Total assets		$	256,531			$	286,946
LIABILITIES AND SHAREOWNERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses (including $806 and $1,055 from VIEs, respectively)		$	72,348			$	77,388
Due to related parties (including $681 and $681 from VIEs, respectively)			1,775				2,178
Notes payable and capital lease obligations			809				1,041
Other liabilities			16,651				25,885
Total current liabilities			91,583				106,492
Long-term liabilities:
NNN senior notes			16,277				16,277
Convertible notes			30,212				30,133
Mortgage notes			70,000				70,000
Notes payable and capital lease obligations			534				589
Other long-term liabilities			8,902				7,065
Deferred tax liabilities			25,269				25,269
Total liabilities			242,777				255,825
Commitment and contingencies (Note 15)
Preferred stock: 12% cumulative participating perpetual convertible; $0.01 par value; 1,000,000 authorized as of March 31, 2011 and December 31, 2010; 965,700 shares issued and outstanding as of March 31, 2011 and December 31, 2010			92,977				90,080
Shareowners’ deficit:
Preferred stock: $0.01 par value; 19,000,000 shares authorized as of March 31, 2011 and December 31, 2010; no shares issued and outstanding as of March 31, 2011 and December 31, 2010			—				—
Common stock: $0.01 par value; 200,000,000 shares authorized as of March 31, 2011 and December 31, 2010; 69,921,581 and 70,076,451 shares issued and outstanding as of March 31, 2011 and December 31, 2010, respectively			699				701
Additional paid-in capital			408,579				409,943
Accumulated deficit			(497,170	)			(478,881	)
Other comprehensive income			184				148
Total Grubb & Ellis Company shareowners’ deficit			(87,708	)			(68,089	)
Noncontrolling interests (including $8,485 and $9,130 from VIEs, respectively)			8,485				9,130
Total deficit			(79,223	)			(58,959	)
Total liabilities and shareowners’ deficit		$	256,531			$	286,946

The abbreviation VIEs above means Variable Interest Entities.

See accompanying notes to consolidated financial statements.

GRUBB & ELLIS COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended
		March 31,
		2011				2010
REVENUE
Management services		$	59,045			$	72,448
Transaction services			50,452				42,233
Investment management			2,696				5,277
Investment management — Daymark			4,035				4,790
Rental related			3,860				5,914
Total revenue			120,088				130,662
OPERATING EXPENSE
Compensation costs			114,309				124,745
General and administrative			22,846				17,975
Provision for doubtful accounts			2,326				1,667
Depreciation and amortization			3,469				2,807
Rental related			2,344				4,618
Interest			2,317				1,655
Real estate related (recoveries) impairments			(9,024	)			270
Intangible asset impairment			480				614
Total operating expense			139,067				154,351
OPERATING LOSS			(18,979	)			(23,689	)
OTHER (EXPENSE) INCOME
Equity in losses of unconsolidated entities			(71	)			(214	)
Interest income			79				46
Other income			287				45
Total other income (expense)			295				(123	)
Loss from continuing operations before income tax provision			(18,684	)			(23,812	)
Income tax provision			—				(183	)
Loss from continuing operations			(18,684	)			(23,995	)
Discontinued operations
Loss from discontinued operations — net of taxes			—				(57	)
Total loss from discontinued operations			—				(57	)
NET LOSS			(18,684	)			(24,052	)
Net loss attributable to noncontrolling interests			(395	)			(271	)
NET LOSS ATTRIBUTABLE TO GRUBB & ELLIS COMPANY			(18,289	)			(23,781	)
Preferred stock dividends			(2,897	)			(2,897	)
NET LOSS ATTRIBUTABLE TO GRUBB & ELLIS COMPANY COMMON SHAREOWNERS		$	(21,186	)		$	(26,678	)
Basic loss per share
Loss from continuing operations attributable to Grubb & Ellis Company common shareowners		$	(0.32	)		$	(0.41	)
Loss from discontinued operations attributable to Grubb & Ellis Company common shareowners			—				—
Net loss per share attributable to Grubb & Ellis Company common shareowners		$	(0.32	)		$	(0.41	)
Diluted loss per share
Loss from continuing operations attributable to Grubb & Ellis Company common shareowners		$	(0.32	)		$	(0.41	)
Loss from discontinued operations attributable to Grubb & Ellis Company common shareowners			—				—
Net loss per share attributable to Grubb & Ellis Company common shareowners		$	(0.32	)		$	(0.41	)
Basic weighted average shares outstanding			65,664				64,350
Diluted weighted average shares outstanding			65,664				64,350

See accompanying notes to consolidated financial statements.

GRUBB & ELLIS COMPANY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended
		March 31,
		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(18,684	)		$	(24,052	)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in losses of unconsolidated entities			71				214
Depreciation and amortization (including amortization of signing bonuses)			5,310				4,797
(Recovery) impairment of real estate			(9,024	)			270
Impairment of intangible assets			480				614
Share-based compensation			1,692				3,019
Allowance for uncollectible accounts			2,326				1,667
Other			230				304
Changes in operating assets and liabilities:
Accounts receivable from related parties			223				227
Prepaid expenses and other assets			(5,135	)			1,580
Accounts payable and accrued expenses			(4,890	)			(2,328	)
Other liabilities			1,466				(437	)
Net cash used in operating activities			(25,935	)			(14,125	)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash effect from deconsolidation of VIE			—				(184	)
Purchases of property and equipment			(1,129	)			(510	)
Tenant improvements and capital expenditures			(33	)			(441	)
Purchases of marketable equity securities, net			18				(996	)
Notes and advances to related parties			(120	)			(324	)
Proceeds from repayment of notes and advances to related parties			490				2,983
Proceeds from sale of note receivable			6,126				—
Investments in unconsolidated entities, net			(60	)			(42	)
Sale of tenant-in-common interest in unconsolidated entities			—				391
Proceeds from collection of real estate deposits and pre-acquisition costs, net			—				249
Acquisition of business			(150	)			—
Change in restricted cash			(251	)			258
Net cash provided by investing activities			4,891				1,384
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of mortgage notes and capital lease obligations, net			(287	)			(252	)
Dividends paid to preferred stockholders			—				(2,897	)
Contributions from noncontrolling interests			14				261
Distributions to noncontrolling interests			(264	)			(930	)
Net cash used in financing activities			(537	)			(3,818	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(21,581	)			(16,559	)
Cash and cash equivalents — Beginning of period			30,919				39,101
Cash and cash equivalents — End of period		$	9,338			$	22,542
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Accrued preferred stock dividends		$	2,897			$	—
Consolidation of assets held by VIEs		$	—			$	15,269
Consolidation of liabilities held by VIEs		$	—			$	478
Consolidation of noncontrolling interests held by VIEs		$	—			$	14,792
Deconsolidation of assets held by VIEs		$	—			$	339
Deconsolidation of liabilities held by VIEs		$	—			$	412
Deconsolidation of noncontrolling interests held by VIEs		$	—			$	73
Consolidation of assets related to sponsored mutual fund		$	—			$	823
Consolidation of noncontrolling interests related to sponsored mutual fund		$	—			$	823
Acquisition of business		$	—			$	1,009

The abbreviation VIEs above means Variable Interest Entities.

See accompanying notes to consolidated financial statements.

GRUBB & ELLIS COMPANY

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

Grubb & Ellis Company and its consolidated subsidiaries are referred to herein as “the Company,” “Grubb & Ellis,” “we,” “us,” and “our.” Grubb & Ellis, a Delaware corporation founded over 50 years ago, is a commercial real estate services and investment company. With over 5,200 professionals in more than 100 company-owned and affiliate offices throughout the United States (“U.S.”), our professionals draw from a platform of real estate services, practice groups and investment products to deliver comprehensive, integrated solutions to real estate owners, tenants, investors, lenders and corporate occupiers. Our range of services includes tenant representation, property and agency leasing, commercial property and corporate facilities management, property sales, appraisal and valuation and commercial mortgage brokerage and investment management. Our transaction, management, consulting and investment services are supported by proprietary market research and extensive local expertise. Through our investment management business, we are a sponsor of real estate investment programs, including public non-traded real estate investment trusts (“REITs”).

Recent Strategic and Financing Initiatives

On March 21, 2011, we announced that we had retained JMP Securities LLC as an advisor to explore strategic alternatives for the Company, including a potential merger or sale transaction. On March 30, 2011, we entered into a commitment letter and exclusivity agreement with Colony Capital Acquisitions, LLC, pursuant to which, as discussed more fully below, (i) Colony Capital Acquisitions, LLC and one or more of its affiliates (collectively, “Colony”) agreed to provide an $18.0 million senior secured multiple draw term loan credit facility, and (ii) Colony obtained the exclusive right for 60 days, commencing on March 30, 2011, to evaluate the possibility of making a larger strategic transaction with the Company.

In the event we and Colony enter into a definitive agreement for a strategic transaction, we then have 25 business days to solicit a competing transaction, subject to a 24 hour matching right by Colony, as well as a 1% termination fee based on the equity value of the Company. Following this 25 business day period, any such strategic transaction entered into with Colony will be subject to a customary no shop and fiduciary out with a 3% termination fee based on the equity value of the Company.

Pursuant to the terms and conditions of the credit agreement (the “Credit Agreement”) which was dated as of April 15, 2011, by and among us, Grubb & Ellis Management Services, Inc. (“GEMS”) and Colony, we entered into an $18.0 million secured credit facility (the “Credit Facility”). The terms of the Credit Facility included a payment to Colony of (i) a closing fee equal to 1.00% of the Credit Facility amount and (ii) warrants (the “Warrants”) exercisable to purchase 6,712,000 shares of our common stock, valued at $1.6 million. The Credit Facility has been fully drawn upon as of May 16, 2011.

The Credit Facility matures on March 1, 2012 and has an initial interest rate of 11.00% per annum, increasing by an additional 0.50% at the end of each three-month period subsequent to the closing date of the Credit Facility for so long as any loans are outstanding. In lieu of making a cash interest payment, we have the option to accrue any due and payable interest under the Credit Facility and issue additional warrants (the “Additional Warrants”) based on a formula calculation. The loan is not subject to any required principal amortization payments during the term.

The Warrants have an exercise price equal to $0.01 per share and a maturity date of three years from the date of issuance (the “Expiration Date”), but are exercisable prior to the Expiration Date upon the satisfaction of certain events as set forth in the Warrants, including, but not limited to, if the volume weighted average price of our common stock equals or exceeds $1.10 for any consecutive 30 calendar day period prior to the date of exercise or upon the occurrence of a fundamental change in which the consideration received for each share of our common stock equals or exceeds $1.10. The Warrants are exercisable, at the option of the holder of such Warrant, (a) by paying the exercise price in cash, (b) pursuant to a “cashless exercise” of the Warrant or (iii) by reduction of the principal amount of loans under the Credit Facility payable to the holder of such Warrant, or by a combination of the foregoing methods. The number of shares of our common stock issuable upon exercise of the Warrants or Additional Warrants is subject to adjustment in certain cases. All Additional Warrants issued pursuant to the Credit Agreement shall contain the same terms as the Warrants.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

On February 10, 2011, we announced the creation of Daymark Realty Advisors, Inc. (“Daymark”), a wholly owned and separately managed subsidiary that is responsible for the management of our tenant-in-common portfolio. Subsequent thereto we announced that we had retained FBR Capital Markets & Co. to explore strategic alternatives with respect to Daymark and its portfolio, which includes over 8,700 multi-family units and approximately 30.0 million square feet of real estate. Daymark provides specialized services to our tenant-in-common (“TIC”) portfolio, which we believe requires unique expertise and client focus, especially as the commercial real estate industry begins to recover from the significant downturn of the past few years. Daymark will provide strategic asset management, property management, structured finance, accounting and loan advisory services to our existing portfolio.

Basis of Presentation

The consolidated financial statements include our accounts and those of our wholly owned and majority-owned controlled subsidiaries, variable interest entities (“VIEs”) in which we are the primary beneficiary, and partnerships/limited liability companies (“LLCs”) in which we are the managing member or general partner and the other partners/members lack substantive rights. All significant intercompany accounts and transactions are eliminated in consolidation.

Pursuant to the requirements of Accounting Standards Codification (“ASC”) Topic 810, Consolidation, (“Consolidation Topic”), we consolidate entities that are VIEs when we are deemed to be the primary beneficiary of the VIE. We are deemed to be the primary beneficiary of the VIE if we have a significant variable interest in the VIE that provides us with a controlling financial interest in the VIE. Our variable interest provides us with a controlling financial interest if we have both (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. There is subjectivity around the determination of power and which activities of the VIE most significantly impact the entity’s economic performance. As reconsideration events occur, we will reconsider our determination of whether an entity is a VIE and who the primary beneficiary is to determine if there is a change in the original determinations and will report such changes on a quarterly basis. In addition, we will continuously evaluate our VIE’s primary beneficiary as facts and circumstances change to determine if such changes warrant a change in an enterprise’s status as primary beneficiary of the VIEs. For entities in which (i) we are not deemed to be the primary beneficiary, (ii) our ownership is 50.0% or less and (iii) we have the ability to exercise significant influence, we use the equity method of accounting (i.e. at cost, increased or decreased by our share of earnings or losses, plus contributions less distributions). We also use the equity method of accounting for jointly controlled tenant-in-common interests.

Interim Unaudited Financial Data

Our accompanying consolidated financial statements have been prepared by us in accordance with generally accepted accounting principles (“GAAP”) in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying consolidated financial statements reflect all adjustments, which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable.

In preparing our accompanying consolidated financial statements, management has evaluated subsequent events through the financial statement issuance date. We believe that although the disclosures contained herein are adequate to prevent the information presented from being misleading, our accompanying consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2010 Annual Report on Form 10-K, as filed with the SEC on March 31, 2011.

Use of Estimates

The financial statements have been prepared in conformity with GAAP, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities (including disclosure of contingent assets and liabilities) as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Reclassifications

Certain reclassifications have been made to prior year and prior period amounts in order to conform to the current period presentation. These reclassifications have no effect on reported net loss.

Restricted Cash

Restricted cash is comprised primarily of cash and loan impound reserve accounts for property taxes, insurance, capital improvements, and tenant improvements related to consolidated properties as well as cash reserve accounts held for the benefit of various insurance providers. As of March 31, 2011 and December 31, 2010, the restricted cash balance was $8.7 million and $8.5 million, respectively.

Fair Value Measurements

ASC Topic 820, Fair Value Measurements and Disclosures, (“Fair Value Measurements and Disclosures Topic”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Fair Value Measurements and Disclosures Topic applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

The Fair Value Measurements and Disclosures Topic emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Fair Value Measurements and Disclosures Topic establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs are the highest priority and are quoted prices in active markets for identical assets or liabilities Level 2 inputs reflect other than quoted prices included in Level 1 that are observable directly or through corroboration with observable market data. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs, due to little or no market activity for the asset or liability, such as internally-developed valuation models. If quoted market prices or inputs are not available, fair value measurements are based upon valuation models that utilize current market or independently sourced market inputs, such as interest rates, option volatilities, credit spreads and market capitalization rates. Items valued using such internally-generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified in either Level 2 or 3 even though there may be some significant inputs that are readily observable. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

We generally use a discounted cash flow model to estimate the fair value of our consolidated real estate investments, unless better market comparable data is available. Management uses its best estimate in determining the key assumptions, including the expected holding period, future occupancy levels, capitalization rates, discount rates, rental rates, lease-up periods and capital expenditure requirements. The estimated fair value is further adjusted for anticipated selling expenses. Generally, if a property is under contract, the contract price adjusted for selling expenses is used to estimate the fair value of the property.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

The following table presents financial and nonfinancial assets and liabilities measured at fair value on either a recurring or nonrecurring basis for the three months ended March 31, 2011:

																		Total
																		Impairment
																		Recoveries
																		(Losses)
																		Incurred
																		During the
																		Three Months
(In thousands)		March 31,																Ended March 31,
Assets		2011				Level 1				Level 2				Level 3				2011
Investments in marketable equity securities		$	2,855			$	2,855			$	—			$	—			$	—
Property held for investment		$	44,871			$	—			$	—			$	44,871			$	—
Investments in unconsolidated entities		$	5,166			$	—			$	—			$	5,166			$	—
Life insurance contracts		$	417			$	—			$	417			$	—			$	—
Contingent liability — TIC program exchange		$	(10,861	)		$	—			$	—			$	(10,861	)		$	9,024

The following table presents financial and nonfinancial assets measured at fair value on either a recurring or nonrecurring basis for the year ended December 31, 2010:

																		Total
																		Impairment
																		Losses
																		Incurred
																		During the
																		Year Ended
(In thousands)		December 31,																December 31,
Assets		2010				Level 1				Level 2				Level 3				2010
Investments in marketable equity securities		$	2,849			$	2,849			$	—			$	—			$	—
Property held for investment		$	45,572			$	—			$	—			$	45,572			$	—
Investments in unconsolidated entities		$	5,178			$	—			$	—			$	5,178			$	(646	)
Life insurance contracts		$	1,062			$	—			$	1,062			$	—			$	—

Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, (“Financial Instruments Topic”) requires disclosure of fair value of financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value. The Financial Instruments Topic defines fair value as the quoted market prices for those instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques. The fair value estimates are made at the end of reporting period based on unobservable assumptions categorized in Level 3 of the hierarchy, including available market information and judgments about the financial instrument, such as estimates of timing and amount of expected future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.

The fair value of our mortgage notes, notes payable, senior notes, convertible notes and preferred stock is estimated using borrowing rates available to us for debt instruments with similar terms and maturities. The amounts recorded for accounts receivable, notes receivable, advances, accounts payable and accrued liabilities and capital lease obligations approximate fair value due to their short-term nature.

The following table presents the fair value and carrying value of our mortgage notes, notes payable, senior notes, convertible notes and preferred stock as of March 31, 2011 and December 31, 2010:

		March 31, 2011								December 31, 2010
(In thousands)		Fair Value				Carrying Value				Fair Value				Carrying Value
Mortgage notes		$	59,687			$	70,000			$	59,624			$	70,000
Notes payable		$	688			$	802			$	747			$	884
NNN senior notes		$	16,188			$	16,277			$	16,054			$	16,277
Convertible notes(1)		$	27,563			$	30,212			$	28,832			$	30,133
Preferred stock(2)		$	55,528			$	92,977			$	91,828			$	90,080

(1)		Carrying value includes an unamortized debt discount of $1.3 million and $1.4 million as of March 31, 2011 and December 31, 2010, respectively.
(2)		Carrying value includes cumulative unpaid dividends of $2.9 million as of March 31, 2011.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Litigation

We routinely assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after analysis of each known issue and an analysis of historical experience. Therefore, we have recorded reserves related to certain legal matters for which we believe it is probable that a loss will be incurred and the range of such loss can be estimated. With respect to other matters, we have concluded that a loss is only reasonably possible or remote, or is not estimable and, therefore, no liability is recorded. Assessing the likely outcome of pending litigation, including the amount of potential loss, if any, is highly subjective. Our judgments regarding likelihood of loss and our estimates of probable loss amounts may differ from actual results due to difficulties in predicting the outcome of jury trials, arbitration hearings, settlement discussions and related activity, and various other uncertainties. Due to the number of claims which are periodically asserted against us, and the magnitude of damages sought in those claims, actual losses in the future could significantly exceed our current estimates.

2. MARKETABLE SECURITIES

We apply the provisions of the Fair Value Measurements and Disclosures Topic to our financial assets recorded at fair value, which consists of available-for-sale marketable securities. Level 1 inputs, the highest priority, are quoted prices in active markets for identical assets are used by us to estimate the fair value of our available-for-sale marketable securities.

The historical cost and estimated fair value of the available-for-sale marketable securities held by us are as follows:

		As of March 31, 2011																As of December 31, 2010
														Fair																Fair
		Historical				Gross Unrealized								Market				Historical				Gross Unrealized								Market
(In thousands)		Cost				Gains				Losses				Value				Cost				Gains				Losses				Value
						(Unaudited)
Equity securities		$	1,008			$	184			$	—			$	1,192			$	998			$	148			$	—			$	1,146

There were no sales of marketable equity securities, or other than temporary impairments recorded, during the three month periods ended March 31, 2011 or 2010.

Investments in Limited Partnerships

We served as general partner and investment advisor, through our 51.0% ownership interest in Grubb & Ellis Alesco Global Advisors, LLC (“Alesco”), to one limited partnership and as investment advisor to three mutual funds as of March 31, 2011 and December 31, 2010. As of March 31, 2011 and December 31, 2010, the limited partnership, Grubb & Ellis AGA Real Estate Investment Fund LP, is required to be consolidated in accordance with the Consolidation Topic. In addition, as of March 31, 2011, one mutual fund, Grubb & Ellis AGA International Realty Fund, is required to be consolidated in accordance with the requirements of the Consolidation Topic.

For the three months ended March 31, 2011 and 2010, Alesco had investment (loss) income of approximately ($13,000) and $31,000, respectively. The investment (loss) income is related to the limited partnership and mutual funds and is reflected in other (expense) income and offset in non-controlling interest in loss of consolidated entities on the statements of operations. As of March 31, 2011 and December 31, 2010, the consolidated limited partnership and mutual fund had assets of approximately $1.7 million, primarily consisting of exchange traded marketable securities, including equity securities and foreign currencies.

The following table reflects trading securities owned by the limited partnership and the mutual fund which we consolidate. The original cost, estimated market value and gross unrealized gains and losses of equity securities are presented in the tables below:

		As of March 31, 2011																As of December 31, 2010
														Fair																Fair
		Historical				Gross Unrealized								Market				Historical				Gross Unrealized								Market
(In thousands)		Cost				Gains				Losses				Value				Cost				Gains				Losses				Value
						(Unaudited)
Equity securities		$	1,472			$	231			$	(40	)		$	1,663			$	1,507			$	218			$	(22	)		$	1,703

		Three Months Ended March 31, 2011																Three Months Ended March 31, 2010
		Investment				Realized Gains				Unrealized								Investment				Realized Gains				Unrealized Gains
(In thousands)		Income				(Losses)				Gains (Losses)				Total				Income				(Losses)				(Losses)				Total
						(Unaudited)																(Unaudited)
Equity securities		$	9			$	26			$	(40	)		$	(5	)		$	12			$	72			$	(46	)		$	38
Less investment expenses			(8	)			—				—				(8	)			(7	)			—				—				(7	)
		$	1			$	26			$	(40	)		$	(13	)		$	5			$	72			$	(46	)		$	31

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

3. RELATED PARTIES

Related party balances are summarized below:

Accounts Receivable

Accounts receivable from related parties consisted of the following:

		March 31,				December 31,
(In thousands)		2011				2010
Accrued property and asset management fees		$	16,706			$	18,623
Accrued lease commissions			4,726				4,850
Other accrued fees			2,572				2,392
Accounts receivable from sponsored REITs			2,752				2,741
Other receivables			427				432
Total			27,183				29,038
Allowance for uncollectible receivables			(12,241	)			(12,860	)
Accounts receivable from related parties — net			14,942				16,178
Less portion classified as current			(3,504	)			(3,834	)
Non-current portion		$	11,438			$	12,344

Notes and Advances to Related Parties

We have made advances to affiliated real estate entities under management. Such advances are uncollateralized, had initial payment terms of one year which have generally been extended by us, and generally bear interest at a range of 6.0% to 12.0% per annum. The advances consisted of the following:

		March 31,				December 31,
(In thousands)		2011				2010
Notes and advances to related parties		$	22,271			$	23,569
Allowance for uncollectible advances			(11,016	)			(11,294	)
Notes and advances to related parties — net			11,255				12,275
Less portion classified as current			(3,755	)			(4,004	)
Non-current portion		$	7,500			$	8,271

In 2009, we revised the offering terms related to certain investment programs which we sponsor, including the commitment to fund additional property reserves and the waiver or reduction of future management fees and disposition fees. Such future funding commitments have been made in the form of guaranteeing the collectability of advances that one of our consolidated VIEs has made to these investment programs. As of March 31, 2011, the future funding commitments under the guarantee totaled approximately $1.9 million.

Note Receivable

In February 2011, we sold the note receivable from Apartment Trust of America, Inc. (formerly, Grubb & Ellis Apartment REIT, Inc.) (“Apartment REIT”) with a remaining principal balance of $7.75 million to a third party for $6.1 million in net proceeds.

4. VARIABLE INTEREST ENTITIES

The determination of the appropriate accounting method with respect to our VIEs, including joint ventures, is based on the requirements of the Consolidation Topic. We consolidate any VIE for which we are the primary beneficiary. In accordance with the requirements of the Consolidation Topic, we analyze our variable interests, including equity investments, guarantees, management agreements and advances, to determine if an entity in which we have a variable interest, is a VIE. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the estimated future cash flows of the entity, and our qualitative analysis on the design of the entity, its organizational structure including decision-making ability and relevant financial agreements.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Our Daymark segment is a sponsor of TIC programs and related formation LLCs. As of March 31, 2011, we had investments in 12 LLCs that are VIEs in which we are the primary beneficiary. These LLCs hold interests in our TIC investments. The carrying value of the assets and liabilities for these consolidated VIEs was $5.0 million and $14,000, respectively, as of March 31, 2011 and December 31, 2010. The carrying value of the assets and liabilities for these consolidated VIEs as of December 31, 2010 was $5.0 million and $14,000, respectively. The assets of these LLCs are only used to settle the liabilities associated with these LLCs. In addition, these consolidated VIEs are joint and severally liable on the non-recourse mortgage debt related to the interest in our TIC investments totaling $405.3 million as of March 31, 2011 and December 31, 2010. This non-recourse mortgage debt is not consolidated as the LLCs account for the interests in our TIC investments under the equity method and the non-recourse mortgage debt does not meet the criteria under the requirements of ASC Topic 860, Transfers and Servicing, (“Transfers and Servicing Topic”) for recognizing the share of the debt assumed by the other TIC interest holders for consolidation. We consider the third party TIC holders’ ability and intent to repay their share of the joint and several liability in evaluating the recovery of our investments.

We are also a sponsor of an LLC that was formed for the primary purpose of providing mezzanine financing to entities acquiring, investing in, holding, developing, managing, operating, selling, selling undivided interests in, or owning direct and indirect interests in real estate. The LLC provides capital to TIC programs in the form of advances. We have guaranteed the collectability of certain advances this LLC has made to various TIC programs which we have determined represents a variable interest in the LLC. As of March 31, 2011, the future funding commitments totaled approximately $1.9 million. The carrying value of the assets and liabilities associated with this LLC as of March 31, 2011 were $8.1 million and $0, respectively. The carrying value of the assets and liabilities associated with this LLC as of December 31, 2010 were $8.2 million and $0, respectively. The assets of the LLC are only used to settle the liabilities associated with the LLC.

We have a 51.0% equity interest in an LLC that serves as an investment advisor to a limited partnership and mutual fund programs. This LLC is a VIE in which we are the primary beneficiary. The carrying value of the assets and liabilities associated with this VIE as of March 31, 2011 was $1.9 million and $0.8 million, respectively. The carrying value of the assets and liabilities associated with this VIE as of December 31, 2010 was $1.9 million and $0.8 million, respectively. The assets of the LLC are only used to settle the liabilities associated with the LLC.

We have a 67.0% equity interest in an LLC that invests in and manages foreign entities. Further, this LLC has a 49.0% equity interest in an LLC that provides property management and facilities management services. These LLCs are VIEs in which we are the primary beneficiary. The carrying value of the assets and liabilities associated with these VIEs as of March 31, 2011 was $0.7 million and $0.7 million, respectively. The carrying value of the assets and liabilities associated with these VIEs as of December 31, 2010 was $1.1 million and $0.9 million, respectively. The assets of these LLCs are only used to settle the liabilities associated with these LLCs.

We have a 60.0% equity interest in a joint venture that serves as an advisor to energy and infrastructure programs. This joint venture is a VIE for which we determined that our variable interest does not provide us with a controlling financial interest in the VIE. Pursuant to the organizational documents for this joint venture, all major decisions require the consent of both us and our joint venture partner. Therefore, the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance is shared. Accordingly, such VIE is unconsolidated and is included in Investments in Unconsolidated Entities in the consolidated balance sheet as of March 31, 2011 and December 31, 2010.

We advanced $0.9 million and $0.8 million during the three months ended March 31, 2011 and 2010, respectively, to one of our consolidated VIEs to fund operations. In addition, we invested an additional $0.2 million and $0.2 million in our unconsolidated VIE during the three months ended March 31, 2011 and 2010, respectively, to fund operations. We may provide additional financial support to our consolidated and unconsolidated VIEs in the future; however, we are not contractually required to do so.

If an entity is determined to not be a VIE under the requirements of the Consolidation Topic, then the entity is evaluated for consolidation under the requirements of ASC Topic 970, Real Estate — General, (“Real Estate — General Topic”), as amended by the requirements of the Consolidation Topic.

As of March 31, 2011 and December 31, 2010, we had a number of entities that were determined to be VIEs that did not meet the consolidation requirements of the Consolidation Topic. The unconsolidated VIEs are accounted for under the equity method. The aggregate investment carrying value of the unconsolidated VIEs was ($0.3) million as of March 31, 2011 and December 31, 2010 and was classified under Investments in Unconsolidated Entities in the consolidated balance sheet. Our maximum exposure to loss as a result of our investments in unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment or the outstanding deposits and advances to the unconsolidated VIE, future funding commitments and mortgage debt guarantees. There were no future funding commitments as of March 31, 2011 and December 31, 2010 related to these unconsolidated VIEs.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

5. INVESTMENTS IN UNCONSOLIDATED ENTITIES

As of March 31, 2011 and December 31, 2010, we held investments in five joint ventures totaling $0.3 million, which represents a range of 5.0% to 10.0% ownership interest in each property. In addition, we have a 60.0% investment in a joint venture totaling ($0.3) million as of March 31, 2011 and December 31, 2010. Pursuant to the requirements of the Consolidation Topic, we have twelve consolidated LLCs which have investments in unconsolidated entities totaling $4.8 million as of March 31, 2011 and December 31, 2010. The remaining amounts within investments in unconsolidated entities of $0.4 million as of March 31, 2011 and December 31, 2010, are related to various LLCs, which represent ownership interests in each property of less than 1.0% and are accounted for under the cost method of accounting.

6. PROPERTY HELD FOR INVESTMENT

Property held for investment consisted of the following:

						March 31,				December 31,
(In thousands)		Useful Life				2011				2010
Building and capital improvements		39 years				$	41,612			$	41,612
Tenant improvements		1–12 years					6,246				6,761
Accumulated depreciation							(7,969	)			(7,783	)
Total							39,889				40,590
Land							4,982				4,982
Property held for investment, net						$	44,871			$	45,572

We recognized $0.7 million and $0.5 million of depreciation expense related to the one property held for investment for the three months ended March 31, 2011 and 2010, respectively.

7. IDENTIFIED INTANGIBLE ASSETS

Identified intangible assets consisted of the following:

				March 31,				December 31,
(In thousands)		Useful Life		2011				2010
Non-amortizing intangible assets:
Trade name		Indefinite		$	64,100			$	64,100
Amortizing intangible assets:
Identified intangible assets
Contract rights, established for the legal right to future disposition fees of a portfolio of real estate properties under contract		Amortize per disposition transactions			8,148				8,628
Affiliate agreements		20 years			10,600				10,600
Customer relationships		5 to 7 years			8,725				8,725
Internally developed software		4 years			6,200				6,200
Customer backlog		1 year			746				746
Other contract rights		5 to 7 years			953				953
Non-compete and employment agreements		3 to 4 years			97				97
					35,469				35,949
Accumulated amortization					(16,320	)			(15,227	)
Identified intangible assets, net					19,149				20,722
Identified intangible assets of property held for investment
In place leases and tenant relationships		1 to 104 months			6,521				7,091
Above market leases		1 to 92 months			2,058				2,364
					8,579				9,455
Accumulated amortization					(5,796	)			(6,181	)
Identified intangible assets of property held for investment, net					2,783				3,274
Total identified intangible assets, net				$	86,032			$	88,096

Amortization expense for intangible contract rights is charged as a reduction to Investment Management — Daymark revenue in the applicable period. The amortization of the contract rights will be applied based on the net relative value of disposition fees realized when the properties are sold. There was no amortization expense recorded for contract rights for the three months ended March 31, 2011 and 2010. The intangible contract rights represent the legal right to future disposition fees of a portfolio of real estate properties under contract. As a result of the current economic environment, a portion of these disposition fees may not be recoverable. Based on our analysis for the current and projected property values, condition of the properties and status of mortgage loans payable associated with these contract rights, we determined that there are certain properties for which receipt of disposition fees was improbable. As a result, we recorded an impairment charge of approximately $0.5 million and $0.6 million related to the impaired intangible contract rights for the three months ended March 31, 2011 and 2010, respectively. Amortization expense recorded for the remaining identified intangible assets was approximately $1.1 million and $0.8 million for the three months ended March 31, 2011 and 2010, respectively. Amortization expense is included as part of operating expense in the accompanying consolidated statement of operations.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Amortization expense recorded for the in place leases and tenant relationships was approximately $0.4 million and $0.2 million for the three months ended March 31, 2011 and 2010, respectively. Amortization expense is included as part of operating expense in the accompanying consolidated statement of operations.

Amortization expense recorded for the above market leases was approximately $0.1 million and $0.1 million for the three months ended March 31, 2011 and 2010, respectively. Amortization expense for above market leases is charged as a reduction to rental related revenue in the accompanying consolidated statement of operations.

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

		March 31,				December 31,
(In thousands)		2011				2010
Accrued liabilities		$	14,482			$	12,313
Salaries and related costs			20,224				23,817
Accounts payable			17,428				18,437
Broker commissions			6,701				10,519
Bonuses			10,484				8,951
Property management fees and commissions due to third parties			3,029				3,351
Total		$	72,348			$	77,388

9. CONVERTIBLE NOTES

During the second quarter of 2010, we completed our offering (“Offering”) of $31.5 million of unsecured convertible notes (“Convertible Notes”) to qualified institutional buyers pursuant to Section 144A of the Securities Act of 1933, as amended. The Convertible Notes pay interest at a rate of 7.95% per year semi-annually in arrears on May 1 and November 1 of each year, beginning November 1, 2010. The Convertible Notes mature on May 1, 2015.

We received net proceeds from the Offering of approximately $29.4 million after deducting all estimated offering expenses. We used the net proceeds from the Offering to fund growth initiatives, short-term working capital and for general corporate purposes.

Holders of the Notes may convert notes into shares of our common stock at the initial conversion rate of 445.583 shares per $1,000 principal amount of the Notes (equal to a conversion price of approximately $2.24 per share of our common stock), subject to adjustment in certain events (but not for accrued interest) at any time prior to the close of business on the scheduled trading day before the stated maturity date. In addition, following certain corporate transactions, we will increase the conversion rate for a holder who elects to convert in connection with such corporate transaction by a number of additional shares of our common stock as set forth in the Indenture. As of March 31, 2011, the maximum number of shares of common stock that could be required to be issued upon conversion of the Convertible Notes was 14,035,865 shares of common stock.

No holder of the Notes will be entitled to acquire shares of common stock delivered upon conversion to the extent (but only to the extent) such receipt would cause such converting holder to become, directly or indirectly, a “beneficial owner” (within the meaning of Section 13(d) of the Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) of more than 14.99% of the shares of our common stock outstanding at such time.

We may not redeem the Convertible Notes prior to May 6, 2013. On or after May 6, 2013 and prior to the maturity date, we may redeem for cash all or part of the Convertible Notes at 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, including any additional interest, up to but excluding the redemption date.

Under certain circumstances following a fundamental change, which is substantially similar to a fundamental change with respect to our preferred stock, we will be required to make an offer to purchase all of the Convertible Notes at a purchase price of 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

The Convertible Notes are our unsecured senior obligations that:

•

rank equally with all of our other unsecured senior indebtedness;

•

effectively rank junior to any of our existing and future secured indebtedness to the extent of the assets securing such indebtedness; and

•

will be structurally subordinated to any indebtedness and other liabilities of our subsidiaries.

The Indenture provides for customary events of default, including our failure to pay any indebtedness for borrowed money, other than non-recourse mortgage debt, when due in excess of $1.0 million.

Registration Rights Agreement

In connection with the Offering, we entered into a registration rights agreement pursuant to which we agreed to file with the SEC a shelf registration statement registering the resale of the notes and the shares of common stock issuable upon conversion of the Convertible Notes no later than June 30, 2010, and to use commercially reasonable efforts to cause the shelf registration statement to become effective within 85 days of May 7, 2010, or within 115 days of the closing date of the Offering if the registration statement is reviewed by the SEC. The shelf registration statement was filed on June 25, 2010 and became effective on July 19, 2010.

We have an obligation to continue to keep the shelf registration statement effective for a certain period of time, subject to certain suspension periods under certain circumstances. In the event that we fail to keep the registration statement effective in excess of such permissible suspension periods, we will be obligated to pay additional interest to holders of the Convertible Notes in an amount equal to 0.25% of the principal amount of the outstanding Convertible Notes to and including the 90th day following any such registration default and 0.50% of the principal amount of the outstanding Convertible Notes from and after the 91st day following any such registration default. Such additional interest will accrue until the date prior to the day the default is cured, or until the Convertible Notes are converted.

10. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes payable and capital lease obligations consisted of the following:

		March 31,				December 31,
(In thousands)		2011				2010
Note payable in connection with business acquisition in November 2010. Fixed interest rate of 4.0% per annum as of March 31, 2011. The note requires monthly principal and interest payments and matures in November 2012.		$	402			$	459
Note payable in connection with business acquisition in December 2010. Fixed interest rate of 2.0% per annum as of December 31, 2010. The note requires monthly principal and interest payments and matures in December 2013.			400				425
Capital lease obligations			541				746
Total			1,343				1,630
Less portion classified as current			(809	)			(1,041	)
Non-current portion		$	534			$	589

11. MORTGAGE NOTE

As of March 31, 2011 and December 31, 2010, we had a $70.0 million mortgage loan payable to a financial institution collateralized by real estate held for investment. The note requires monthly interest-only payments, has a fixed interest rate of 6.29% per annum, matures in February 2017 and is non-recourse up to $60.0 million with a $10.0 million recourse guarantee.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

12. NNN SENIOR NOTES

From August 1, 2006 to January 2007, NNN Collateralized Senior Notes, LLC (the “NNN Senior Notes Program”), a wholly owned subsidiary of Daymark, issued $16.3 million of notes which mature on August 29, 2011 and bear interest at a rate of 8.75% per annum. Interest on the notes is payable monthly in arrears on the first day of each month, commencing on the first day of the month occurring after issuance. The notes mature five years from the date of first issuance of any of such notes, with two one-year options to extend the maturity date of the notes at the Senior Notes Program’s option. The interest rate will increase to 9.25% per annum during any extension. The Senior Notes Program has the right to redeem the notes, in whole or in part, at par value. The notes are the NNN Senior Notes Program’s senior obligations, ranking pari passu in right of payment with all other senior debt incurred and ranking senior to any subordinated debt it may incur. The notes are effectively subordinated to all present or future debt secured by real or personal property to the extent of the value of the collateral securing such debt. The notes are secured by a pledge of the NNN Senior Notes Program’s membership interest in NNN Series A Holdings, LLC, which is the Senior Notes Program’s wholly owned subsidiary for the sole purpose of making the investments. Each note is guaranteed by Grubb & Ellis Realty Investors, LLC (“GERI”). The guarantee is secured by a pledge of GERI membership interest in the NNN Senior Notes Program. The guarantee requires GERI to maintain at all times during the term the notes are outstanding a net worth of at least $0.5 million. As of March 31, 2011, GERI met the net worth requirement.

On May 13, 2011, pursuant to the terms of the indenture underlying the NNN Senior Notes, the NNN Senior Notes Program notified the trustee and holders of the NNN Senior Notes that the maturity date of the NNN Senior Notes shall be extended by one year, effective as of August 29, 2011 (the “Extension Effective Date”). Accordingly, the maturity date of the NNN Senior Notes is August 29, 2012. In accordance with the terms and provisions of the indenture, the NNN Senior Notes shall bear interest at 8.75% per annum until the Extension Effective Date, and thereafter at 9.25% per annum until the maturity date. The NNN Senior Notes Program may extend the maturity date for an additional year, through August 29, 2013, in accordance with the terms and provisions of the indenture and the NNN Senior Notes.

13. SEGMENT DISCLOSURE

Management has determined the reportable segments identified below according to the types of services offered and the manner in which operations and decisions are made. We operate in the following reportable segments:

Management Services — Management Services provides property management and related services for owners of investment properties and facilities management services for corporate owners and occupiers.

Transaction Services — Transaction Services advises buyers, sellers, landlords and tenants on the sale, leasing, financing and valuation of commercial property and includes our national accounts group and national affiliate program operations.

Investment Management — Investment Management includes services for acquisition, financing and disposition with respect to our REITs, asset management services related to our REITs, and dealer-manager services by our securities broker-dealer, which facilitates capital raising transactions for our REITs.

Daymark — Daymark includes services for financing, disposition and asset and property management services related to our TIC programs.

We also have certain corporate-level activities including interest income from notes and advances, property rental related operations, legal administration, accounting, finance and management information systems which are not considered separate operating segments.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

We evaluate the performance of our segments based upon operating (loss) income. Operating (loss) income is defined as operating revenue less compensation and general and administrative costs and excludes other rental related, rental expense, interest expense, depreciation and amortization and certain other operating and non-operating expenses. The accounting policies of the reportable segments are the same as those described in our summary of significant accounting policies (See Note 1).

		Three Months Ended
		March 31,
(In thousands)		2011				2010
Management Services
Revenue		$	59,045			$	72,448
Compensation costs			8,680				9,553
Transaction commissions and related costs			3,778				6,183
Reimbursable salaries, wages and benefits			39,553				50,358
General and administrative			3,191				2,247
Provision for doubtful accounts			471				341
Segment operating income			3,372				3,766
Transaction Services
Revenue			50,452				42,233
Compensation costs			15,468				10,965
Transaction commissions and related costs			33,238				26,999
General and administrative			9,896				8,848
Provision for doubtful accounts			759				804
Segment operating loss			(8,909	)			(5,383	)
Investment Management
Revenue			2,696				5,277
Compensation costs			2,374				2,885
Transaction commissions and related costs			863				503
Reimbursable salaries, wages and benefits			—				698
General and administrative			1,998				1,653
Provision for doubtful accounts			5				(16	)
Segment operating loss			(2,544	)			(446	)
Daymark
Revenue			4,035				4,790
Compensation costs			2,508				3,121
Reimbursable salaries, wages and benefits			1,906				1,594
General and administrative			4,319				973
Provision for doubtful accounts			907				475
Segment operating loss			(5,605	)			(1,373	)
Reconciliation to net loss attributable to Grubb & Ellis Company:
Total segment operating loss			(13,686	)			(3,436	)
Non-segment:
Rental and other operations, net of rental related and other expenses			1,293				1,157
Corporate overhead (compensation, general and administrative costs)			(6,834	)			(10,315	)
Stock based compensation			(1,692	)			(3,019	)
Severance and other charges			(818	)			(2,730	)
Depreciation and amortization			(3,469	)			(2,807	)
Interest			(2,317	)			(1,655	)
Real estate related recoveries (impairments)			9,024				(270	)
Intangible asset impairment			(480	)			(614	)
Other income (expense)			295				(123	)
Loss from continuing operations before income tax provision			(18,684	)			(23,812	)
Income tax provision			—				(183	)
Loss from continuing operations			(18,684	)			(23,995	)
Loss from discontinued operations			—				(57	)
Net loss			(18,684	)			(24,052	)
Net loss attributable to noncontrolling interests			(395	)			(271	)
Net loss attributable to Grubb & Ellis Company		$	(18,289	)		$	(23,781	)

14. DISCONTINUED OPERATIONS

On December 30, 2010, we completed the sale of NNN/SOF Avallon LLC (“Avallon”) for $37.0 million. We recognized a gain on sale of $1.3 million.

In instances when we expect to have significant ongoing cash flows or significant continuing involvement in the component beyond the date of sale, the income (loss) from certain properties held for sale continue to be fully recorded within continuing operations through the date of sale.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

The net results of discontinued operations and the net gain (loss) on dispositions of properties sold during the year ended December 31, 2010, in which we have no significant ongoing cash flows or significant continuing involvement, are reflected in the consolidated statements of operations as discontinued operations. We will receive certain fee income from these properties on an ongoing basis that is not considered significant when compared to the operating results of such properties.

The following table summarizes the income (loss) and expense components — net of taxes that comprised discontinued operations for the three months ended March 31, 2010 (there were no discontinued operations for the three months ended March 31, 2011):

		Three Months Ended
(In thousands)		March 31, 2010
Rental income		$	1,804
Rental expense			(783	)
Depreciation and amortization			(451	)
Interest expense (including amortization of deferred financing costs)			(664	)
Tax benefit			37
Loss from discontinued operations — net of taxes			(57	)
Loss on disposal of discontinued operations — net of taxes			—
Total loss from discontinued operations		$	(57	)

15. COMMITMENTS AND CONTINGENCIES

Operating Leases — We have non-cancelable operating lease obligations for office space and certain equipment ranging from one to ten years, and sublease agreements under which we act as a sublessor. The office space leases often times provide for annual rent increases, and typically require payment of property taxes, insurance and maintenance costs.

Rent expense under these operating leases was approximately $6.3 million and $6.6 million for the three months ended March 31, 2011 and 2010, respectively. Rent expense is included in general and administrative expense in the accompanying consolidated statements of operations.

Operating Leases — Other — We have served as a master lessee of seven multifamily properties in various locations under non-cancelable leases. The leases, which commenced in various months and expire from June 2015 through March 2016, require minimum monthly rent payments averaging $795,000 over the 10-year period. On September 29, 2010, we were terminated as the master lessee on four of these multifamily properties and on December 31, 2010, we were terminated as the master lessee on one additional multifamily property. The two remaining master lease agreements expire in July and October 2015 and require minimum monthly payments averaging $382,000 over the remaining lease term. Master lease rent expense under these operating leases was approximately $1.1 million and $2.4 million for the three months ended March 31, 2011 and 2010, respectively. In addition, we are required to pay operating costs related to the operation, maintenance, management and security of the property. Operating costs under these operating leases was approximately $0.7 million and $1.8 million for the three months ended March 31, 2011 and 2010, respectively.

We sublease these multifamily spaces to third parties for no more than one year. Rental income from these subleases was approximately $1.6 million and $3.9 million for the three months ended March 31, 2011 and 2010, respectively.

We were also a 50% joint venture partner of four multifamily residential properties in various locations under non-cancelable leases until December 31, 2010, when we sold our interest. The leases, which commenced in various months and expired from November 2014 through January 2015, required minimum monthly rent payments averaging $372,000 over the 10-year period. Master lease rent expense under these operating leases was approximately $1.1 million for the three months ended March 31, 2010. In addition, we were required to pay operating costs related to the operation, maintenance, management and security of the property. Operating costs under these operating leases was approximately $1.0 million for the three months ended March 31, 2010.

We subleased these multifamily spaces to third parties for no more than one year. Rental income from these subleases was approximately $2.2 million for the three months ended March 31, 2010.

As of March 31, 2011, we had recorded liabilities totaling $3.9 million related to such master lease arrangements, consisting of $2.1 million of cumulative deferred revenues relating to acquisition fees and loan fees received from 2004 through 2006 and $1.8 million of additional loss reserves which were recorded through March 31, 2011.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

TIC Program Exchange Provision — Prior to the merger, Triple Net Properties, LLC (now known as GERI) entered into agreements providing certain investors the right to exchange their investments in certain TIC programs for investments in a different TIC program or in substitute replacement properties. The agreements containing such rights of exchange and repurchase rights pertain to initial investments in TIC programs totaling $31.6 million. In the fourth quarter of 2010, GERI was released from certain obligations relating to $6.2 million in initial investments. In addition, we were released from certain obligations totaling $2.0 million as a result of the sale of a TIC program’s property during the year ended December 31, 2010. In July 2009, we received notice on behalf of certain investors stating their intent to exercise rights under one of those agreements with respect to an initial investment totaling $4.5 million. Subsequently, in February 2011, an action was filed in the Superior Court of Orange County, California on behalf of those same investors against GERI alleging breach of contract and breach of the implied covenant of good faith and fair dealing, and seeking damages of $26.5 million with respect to initial cash investments totaling $22.3 million, which is inclusive of the $4.5 million for which we received the notice in July 2009. While the outcome of that action is uncertain, GERI will vigorously defend those claims. See TIC Program Exchange Litigation disclosure under Claims and Lawsuits below for further information.

We deferred revenues relating to these agreements of $0 and $0.1 million for the three months ended March 31, 2011 and 2010, respectively. During the three months ended March 31, 2011, pursuant to the Real Estate — General Topic, we reduced an obligation by $9.0 million related to the re-measurement of our maximum exposure to loss related to certain obligations at the time the February 2011 action was filed. Additional potential losses of $0.2 million related to these agreements were incurred during the three months ended March 31, 2010, to record a liability underlying the agreements with investors. As of March 31, 2011, we had recorded liabilities totaling $10.9 million related to such agreements, which is included in other current liabilities, consisting of $3.6 million of cumulative deferred revenues and $7.3 million of additional potential losses related to these agreements as a result of estimated declines in the value of the properties. In addition, we are joint and severally liable on the non-recourse mortgage debt related to these TIC programs with exchange provisions totaling $276.0 million and $276.1 million as of March 31, 2011 and December 31, 2010, respectively. This mortgage debt is not consolidated as the LLCs account for the interests in our TIC investments under the equity method and the non-recourse mortgage debt does not meet the criteria under the Transfers and Servicing Topic for recognizing the share of the debt assumed by the other TIC interest holders for consolidation. We consider the third-party TIC holders’ ability and intent to repay their share of the joint and several liability in evaluating the recoverability of our investment in the TIC program.

Capital Lease Obligations — We lease computers, copiers and postage equipment that are accounted for as capital leases.

Claims and Lawsuits — We and our Daymark affiliate have been named as defendants in multiple lawsuits relating to certain of its investment management offerings, in particular its tenant-in-common programs. These lawsuits allege a variety of claims in connection with these offerings, including mismanagement, breach of contract, negligence, fraud, breach of fiduciary duty and violations of state and federal securities laws, among other claims. Plaintiffs in these suits seek a variety of remedies, including rescission, actual and punitive damages, injunctive relief, and attorneys’ fees and costs. In many instances, the damages being sought are unspecified and to be determined at trial. It is difficult to predict the ultimate disposition of these lawsuits and our ultimate liability with respect to such claims and lawsuits. It is also difficult to predict the cost of defending these matters and to what extent claims will be covered by our existing insurance policies. In the event of an unfavorable outcome, the amounts we may be required to pay in the discharge of liabilities or settlements could have a material adverse effect on our cash flows, financial position and results of operations.

Met Center 10 — One such matter relates to a tenant-in-common property known as Met Center 10, located in Austin, Texas. The Company and its subsidiaries have been involved in multiple legal proceedings relating to Met Center 10, including three actions pending in state court in Austin, Texas and an arbitration proceeding being conducted in California. The arbitration proceeding involves Grubb & Ellis Realty Investors, LLC (“GERI”), a subsidiary of Daymark, and is pending before the American Arbitration Association in Orange County, California captioned NNN Met Center 10 1, LLC, et al. v. Grubb & Ellis Realty Investors, LLC, No. 73 115 Y 00140 HLT (the “Met 10 Arbitration”). A state court action involving GERI is pending in the District Court of Travis County, Texas captioned NNN Met Center 10, LLC v. Met Center Partners-6, Ltd., et al., No. D-1-GN-08-002104 (the “Met 10 Texas Action”). Two additional state court actions involving the Company, GERI, and Grubb & Ellis Management Services, Inc. are pending in the District Court for Travis County, Texas captioned NNN Met Center 10-1, LLC v. Lexington Insurance Company, et al., No. D-1-GN-10-004495 and NNN Met Center 10, LLC v. Lexington Insurance Company, et al., No. D-1-GN-11-000848 (together, the “Met 10 Lexington Actions”).

In the Met 10 Arbitration, TIC investors are asserting, among other things, that GERI should bear responsibility for alleged diminution in the value of the property and their investments as a result of ground movement. The Met 10 Arbitration has been bifurcated into two phases. In the first phase, the arbitrator ruled in favor of the TIC investors, finding, among other things, that the TIC investors had properly terminated the property management agreement for cause. The second phase of the Met 10 Arbitration involves the TICs’ claims for damages. The hearing will be conducted in June 2011, and will result in the arbitrator’s determination of whether the TICs have proven any of their claims, and what damages, if any, should be awarded against GERI. GERI is vigorously defending those claims. GERI has tendered this matter to its insurance carriers for indemnity, and will vigorously pursue coverage. While the outcome of the second phase of the Met 10 Arbitration is uncertain, an adverse determination by the arbitrator could result in a material and adverse effect to us.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

In the Met 10 Texas Action, GERI and an affiliate are pursuing claims against the developers and sellers of the property and other defendants to recover damages arising from, among other things, undisclosed ground movement. The developers, sellers, and certain other defendants are asserting counterclaims against GERI and its affiliate. GERI and its affiliate are vigorously defending those counterclaims. The outcome of that proceeding, and the damages, if any, that GERI and its affiliate will recover are uncertain In the Met 10 Lexington Actions, the TIC investors are asserting claims against our former officers and employees in connection with the negotiation and documentation of an insurance settlement relating to the Met Center 10 property, and an alleged misallocation and/or misappropriation of the proceeds of that settlement. In addition, Lexington Insurance Company is asserting claims against NNN Met Center 10, LLC, the Company, GERI, and GEMS arising of the insurance settlement. We are vigorously defending those claims.

TIC Program Exchange Litigation — GERI is a defendant in an action filed on or about February 14, 2011 in the Superior Court of Orange County, California captioned S. Sidney Mandel, et al. v. Grubb & Ellis Realty Investors, LLC, et al, Case No. 00449598. The plaintiffs allege that, in order to induce the plaintiffs to purchase $22.3 million in TIC investments that GERI (formerly known as Triple Net Properties, LLC) was syndicating, GERI offered to subsequently “repurchase” those investments and provide certain “put” rights under certain terms and conditions pursuant to a letter agreement executed between GERI and the plaintiffs. The plaintiffs allege that GERI has failed to honor its purported obligations under the letter agreement and have initiated suit for breach of contract, breach of the implied covenant of good faith and fair dealing and declaratory relief as to the rights and obligations of the parties under the letter agreement. The plaintiffs are seeking damages totaling $26.5 million, attorneys’ fees and costs. We intend to vigorously defend these claims and to assert all applicable defenses. At this time we are unable to predict the likelihood of an unfavorable or adverse award or outcome.

Britannia II Office Park — We and various Daymark subsidiaries are defendants in an action filed on or about July 22, 2010 in Superior Court of Alameda County, California captioned NNN Britannia Business Center II — 17, LLC, et al. v. Grubb & Ellis Company, et al., Case No. RG10-527282. Plaintiffs invested more than $14 million for TIC interests in a commercial real estate project in Pleasanton, California, known as Britannia Business Center II, which ultimately was foreclosed upon. Plaintiffs claim that they were induced to invest with misrepresentations concerning the financial projections and risks for the project, and allege various mismanagement claims. Plaintiffs’ current claim is for breach of the implied covenant of good faith and fair dealing, and plaintiffs have been given permission to amend their complaint to attempt to plead claims of negligent misrepresentation, breach of contract, and breach of fiduciary duty. Plaintiffs seek compensatory and exemplary damages in an unspecified amount, along with costs and attorneys’ fees. We intend to vigorously defend these claims and to assert all applicable defenses. At this time we are unable to predict the likelihood of an unfavorable or adverse award or outcome.

Durham Office Park — We and various Daymark subsidiaries are defendants in an action filed on or about July 21, 2010 in North Carolina Business Court, Durham County Superior Court Division, captioned NNN Durham Office Portfolio I, LLC, et al. v. Grubb & Ellis Company, et al., Case No. 10 CVS 4392. Plaintiffs invested more than $11 million for TIC interests in a commercial real estate project in Durham, North Carolina. Plaintiffs claim, among other things, that information regarding the intentions of the property’s anchor tenant to remain in occupancy was withheld and misrepresented. Plaintiffs have asserted claims for breach of contract, negligence, negligent misrepresentation, breach of fiduciary duty, fraud, unfair and deceptive trade practices and conspiracy. We intend to vigorously defend these claims and to assert all applicable defenses. At this time we are unable to predict the likelihood of an unfavorable or adverse award or outcome.

We are involved in various claims and lawsuits arising out of the ordinary conduct of our business, many of which may not be covered by our insurance policies. In the opinion of management, in the event of an unfavorable outcome, the amounts we may be required to pay in the discharge of liabilities or settlements could have a material adverse effect on our cash flows, financial position and results of operations.

Guarantees — Historically our investment management subsidiaries provided non-recourse carve-out guarantees or indemnities with respect to loans for properties now owned or under the management of Daymark. As of March 31, 2011, there were 132 properties under management with non-recourse carve-out loan guarantees or indemnities of approximately $3.1 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.2 billion. As of December 31, 2010, there were 133 properties under management with non-recourse carve-out loan guarantees or indemnities of approximately $3.1 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.3 billion. In addition, the consolidated VIEs and unconsolidated VIEs are jointly and severally liable on the non-recourse mortgage debt related to the interests in our TIC investments as further described in Note 4.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Our guarantees consisted of the following as of March 31, 2011 and December 31, 2010:

		March 31,				December 31,
(In thousands)		2011				2010
Daymark non-recourse/carve-out guarantees of debt of properties under management(1)		$	2,862,036			$	2,944,311
Grubb & Ellis Company non-recourse/carve-out guarantees of debt of properties under management(1)		$	78,290			$	78,363
Daymark and Grubb & Ellis Company non-recourse/carve-out guarantees of debt of properties under management(2)		$	31,198			$	31,271
Daymark non-recourse/carve-out guarantees of debt of Company owned property(1)		$	60,000			$	60,000
Daymark recourse guarantees of debt of properties under management		$	12,900			$	12,900
Grubb & Ellis Company recourse guarantees of debt of properties under management		$	11,998			$	11,998
Daymark recourse guarantees of debt of Company owned property(3)		$	10,000			$	10,000

(1)

A “non-recourse/carve-out” guarantee or indemnity generally imposes liability on the guarantor or indemnitor in the event the borrower engages in certain acts prohibited by the loan documents. Each non-recourse carve-out guarantee or indemnity is an individual document entered into with the mortgage lender in connection with the purchase or refinance of an individual property. While there is not a standard document evidencing these guarantees or indemnities, liability under the non-recourse carve-out guarantees or indemnities generally may be triggered by, among other things, any or all of the following:

	•		a voluntary bankruptcy or similar insolvency proceeding of any borrower;
	•		a “transfer” of the property or any interest therein in violation of the loan documents;
	•		a violation by any borrower of the special purpose entity requirements set forth in the loan documents;
	•		any fraud or material misrepresentation by any borrower or any guarantor in connection with the loan;
	•		the gross negligence or willful misconduct by any borrower in connection with the property, the loan or any obligation under the loan documents;
	•		the misapplication, misappropriation or conversion of (i) any rents, security deposits, proceeds or other funds, (ii) any insurance proceeds paid by reason of any loss, damage or destruction to the property, and (iii) any awards or other amounts received in connection with the condemnation of all or a portion of the property;
	•		any waste of the property caused by acts or omissions of borrower of the removal or disposal of any portion of the property after an event of default under the loan documents; and
	•		the breach of any obligations set forth in an environmental or hazardous substances indemnity agreement from borrower.

Certain acts (typically the first three listed above) may render the entire debt balance recourse to the guarantor or indemnitor, while the liability for other acts is typically limited to the damages incurred by the lender. Notice and cure provisions vary between guarantees and indemnities. Generally the guarantor or indemnitor irrevocably and unconditionally guarantees or indemnifies the lender the payment and performance of the guaranteed or indemnified obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration or maturity or otherwise, and the guarantor or indemnitor covenants and agrees that it is liable for the guaranteed or indemnified obligations as a primary obligor. As of March 31, 2011, to the best of our knowledge, there was no debt owed by us as a result of the borrowers engaging in prohibited acts, despite the prohibited acts that occurred as more fully described below.

(2)

We and Daymark are each joint and severally liable on such non-recourse/carve-out guarantees.

(3)

In addition to the $10.0 million principal guarantee, Daymark has guaranteed any shortfall in the payment of interest on the unpaid principal amount of the mortgage debt on one owned property.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

If property values and performance decline, the risk of exposure under these guarantees increases. We initially evaluate these guarantees to determine if the guarantee meets the criteria required to record a liability in accordance with the requirements of ASC Topic 460, Guarantees, (“Guarantees Topic”). Any such liabilities were insignificant upon execution of the guarantees. In addition, on an ongoing basis, we evaluate the need to record an additional liability in accordance with the requirements of ASC Topic 450, Contingencies, (“Contingencies Topic”). As of March 31, 2011 and December 31, 2010, we had recourse guarantees of $24.9 million relating to debt of properties under management (of which $12.0 million is recourse back to Grubb & Ellis Company, the remainder of which is recourse to our Daymark subsidiary). As of March 31, 2011 and December 31, 2010, approximately $18.7 million and $9.5 million, respectively, of these recourse guarantees relate to debt that has matured, is in default, or is not currently in compliance with certain loan covenants (of which $10.0 million and $2.0 million, respectively, is recourse back to Grubb & Ellis Company, the remainder of which is recourse to our Daymark subsidiary). In addition, as of March 31, 2011, we had $12.0 million and $8.0 million, respectively, of recourse guarantees related to debt that will mature in the next twelve months (of which $8.0 million is recourse back to Grubb & Ellis Company). Our evaluation of the potential liability under these guarantees may prove to be inaccurate and liabilities may exceed estimates. In the event that actual losses materially exceed estimates, individual investment management subsidiaries may not be able to pay such obligations as they become due. Failure of any of our subsidiaries to pay its debts as they become due would likely have a materially negative impact on our ongoing business, and the investment management operations in particular. In evaluating the potential liability relating to such guarantees, we consider factors such as the value of the properties secured by the debt, the likelihood that the lender will call the guarantee in light of the current debt service and other factors. As of March 31, 2011 and December 31, 2010, we recorded a liability of $0.8 million which is included in other current liabilities, related to our estimate of probable loss related to recourse guarantees of debt of properties under management and previously under management.

Two unaffiliated, individual investor entities (the “TIC debtors”), who are minority owners in two TIC programs located in Texas, Met Center 10 and 2400 West Marshall, which were originally sponsored by GERI, filed chapter 11 bankruptcy petitions in January 2011. The principal balances of the mortgage debt for these two properties was approximately $29.4 million and $6.6 million, respectively, at the time of the bankruptcy filings. We are also aware that on February 1, 2011, the special servicer for each of these loans foreclosed on all of the undivided TIC ownership interests in these properties, except those owned by the unaffiliated investor entities which effected the bankruptcy filings. The automatic stay imposed following the bankruptcy filings by each of these investor entities prevented the special servicer from foreclosing on 100% of the TIC ownership interests. The special servicers for each of the TIC debtors’ loans have filed motions for relief from the automatic stay to foreclose upon the remaining TIC ownership interests. In the Met Center 10 case, by order dated May 2, 2011, the bankruptcy court continued the automatic stay, subject to certain conditions, to November 1, 2011. The May 2, 2011 order also established a procedure by which the special servicer would be required to reconvey the foreclosed upon interest to the Met Center 10 debtor and the other investor entities following payment of an “amount due” as that term is defined in the May 2, 2011 Order. The bankruptcy court in the 2400 West Marshall case has not ruled on the special servicer’s motion for stay relief.

GERI executed a non-recourse carve-out guarantee in connection with the mortgage loan for the Met 10 property, and a non-recourse indemnity for the 2400 West Marshall property. As discussed in the “Guarantees” disclosure above, such “non-recourse carve-out” guarantees and indemnities only impose liability on GERI if certain acts prohibited by the loan documents take place. Liability under these non- recourse carve-out guarantees and indemnities may be triggered by the voluntary bankruptcy filings made by the two unaffiliated, individual investor entities. As a consequence of these bankruptcy filings, the TIC debtors’ mortgage lenders may assert that GERI is liable under the guarantee and indemnity. While GERI’s ultimate liability under these agreements is uncertain as a result of numerous factors, including, without limitation, whether the bankruptcy filings of the TIC debtors triggered GERI’s obligations under the guaranty and the indemnification, the amount of the lender’s credit bids at the time of foreclosure, events in the individual bankruptcy proceedings and the ultimate disposition of those bankruptcy proceedings, and the defenses GERI may raise under the guarantee and indemnity, such liability may be in an amount in excess of the net worth of NNNRA and its subsidiaries, including GERI. NNNRA and GERI are investigating the facts and circumstances surrounding these events, and the potential liabilities related thereto, and intend to vigorously dispute any imposition of any liability under any such guarantee or indemnity obligation. In the event that GERI receives a demand for payment from the lenders pursuant to such guarantee and indemnity arrangements, in an amount that exceeds $1.0 million, and GERI fails to pay such amount when due, a cross-default under our Convertible Notes may result.

Investment Program Commitments — In 2009, we revised the offering terms related to certain investment programs which we sponsor, including the commitment to fund additional property reserves and the waiver or reduction of future management fees and disposition fees. Such future funding commitments have been made in the form of guaranteeing the collectability of advances that one of our consolidated VIEs has made to these investment programs. As of March 31, 2011 and December 31, 2010, the future funding commitments under the guarantee totaled approximately $1.9 million and $2.0 million, respectively.

Environmental Obligations — In our role as property manager, we could incur liabilities for the investigation or remediation of hazardous or toxic substances or wastes at properties we currently or formerly managed or at off-site locations where wastes were disposed of. Similarly, under debt financing arrangements on properties owned by sponsored programs, we have agreed to indemnify the lenders for environmental liabilities and to remediate any environmental problems that may arise. We are not aware of any environmental liability or unasserted claim or assessment relating to an environmental liability that we believe would require disclosure or the recording of a loss contingency.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Alesco Seed Capital — On November 16, 2007, we completed the acquisition of a 51.0% membership interest in Alesco from Jay P. Leupp (“Leupp”). Pursuant to the Intercompany Agreement between us and Alesco, dated as of November 16, 2007, we committed to invest up to $20.0 million in seed capital into certain real estate funds that Alesco planned to launch. Additionally, upon achievement of certain earn-out targets, we were required to purchase up to an additional 27% interest in Alesco for $15.0 million. To date those earn-out targets have not been achieved. We are allowed to use $15.0 million of seed capital to fund the earn-out payments. As of March 31, 2011, we have invested $1.5 million into the three funds that Alesco has launched to date (the “Existing Alesco Funds”) and our unfunded seed capital commitments with respect to the Existing Alesco Funds totaled $2.5 million. As of February 14, 2011, our obligation to make further seed capital investments under the Intercompany Agreement terminated, except for the remaining commitments under the Existing Alesco Funds.

Deferred Compensation Plan — During 2008, we implemented a deferred compensation plan that permits employees and independent contractors to defer portions of their compensation, subject to annual deferral limits, and have it credited to one or more investment options in the plan. As of March 31, 2011 and December 31, 2010, $2.9 million and $3.4 million, respectively, reflecting the non-stock liability under this plan were included in accounts payable and accrued expenses. We have purchased whole-life insurance contracts on certain employee participants to recover distributions made or to be made under this plan and as of March 31, 2011 and December 31, 2010 have recorded the cash surrender value of the policies of $0.4 million and $1.1 million, respectively, in prepaid expenses and other assets.

In addition, we award “phantom” shares of our stock to participants under the deferred compensation plan. These awards vest over three to five years. Vested phantom stock awards are also unfunded and paid according to distribution elections made by the participants at the time of vesting and will be settled by issuing shares of our common stock from our treasury share account or issuing unregistered shares of our common stock to the participant. As of March 31, 2011 and December 31, 2010, we had awarded an aggregate of approximately 6.0 million phantom shares to certain employees with an aggregate value on the various grant dates of $23.0 million. As of March 31, 2011 and December 31, 2010, an aggregate of 4.1 million and 4.1 million phantom share grants were outstanding, respectively. Generally, upon vesting, recipients of the grants are entitled to receive the number of phantom shares granted, regardless of the value of the shares upon the date of vesting; provided, however, as of March 31, 2011 grants with respect to 816,000 phantom shares had a guaranteed minimum share price ($2.8 million in the aggregate) that will result in us paying additional compensation to the participants should the value of the shares upon vesting be less than the grant date value of the shares. We account for additional compensation relating to the “guarantee” portion of the awards by measuring at each reporting date the additional payment that would be due to the participant based on the difference between the then current value of the shares awarded and the guaranteed value. This award is then amortized on a straight-line basis as compensation expense over the requisite service (vesting) period, with an offset to deferred compensation liability.

16. PREFERRED STOCK

During the fourth quarter of 2009, we completed a private placement of 965,700 shares of 12% cumulative participating perpetual convertible preferred stock, par value $0.01 per share (“Preferred Stock”), to qualified institutional buyers and other accredited investors, including our directors and management.

Each share of Preferred Stock is convertible, at the holder’s option, into our common stock, par value $.01 per share at a conversion rate of 60.606 shares of common stock for each share of Preferred Stock, which represents a conversion price of approximately $1.65 per share of common stock, a 10.0% premium to the closing price of the common stock on October 22, 2009. As of March 31, 2011, the maximum number of shares of common stock that could be required to be issued upon conversion of the Preferred Stock was 58,527,214 shares of common stock.

The terms of the Preferred Stock provide for cumulative dividends from and including the date of original issuance in the amount of $12.00 per share each year. Dividends on the Preferred Stock will be payable when, as and if declared, quarterly in arrears, on March 31, June 30, September 30 and December 31, beginning on December 31, 2009. In addition, in the event of any cash distribution to holders of the Common Stock, holders of Preferred Stock will be entitled to participate in such distribution as if such holders had converted their shares of Preferred Stock into Common Stock.

During the year ended December 31, 2010, the Board of Directors declared four quarterly dividends of $3.00 per share on our Preferred Stock, which were paid on March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010. On March 21, 2011, the Board of Directors determined, as permitted, not to declare a dividend on our 12% Preferred Stock, for the quarter ending March 31, 2011. However, since the terms of the Preferred Stock provide for cumulative dividends, we have accrued the unpaid first quarter 2011 dividend of $3.00 per share on our Preferred Stock, which is included in Preferred Stock on our consolidated balance sheet as of March 31, 2011. As of March 31, 2011, the amount of accrued and unpaid dividends totaled $2.9 million.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Holders of Preferred Stock may require us to repurchase all, or a specified whole number, of their Preferred Stock upon the occurrence of a “Fundamental Change” (as defined in the Certificate of Designations) with respect to any Fundamental Change that occurs (i) prior to November 15, 2014, at a repurchase price equal to 110% of the sum of the initial liquidation preference plus accumulated but unpaid dividends, and (ii) from November 15, 2014 until prior to November 15, 2019, at a repurchase price equal to 100% of the sum of the initial liquidation preference plus accumulated but unpaid dividends. On or after November 15, 2014 we may, at our option, redeem the Preferred Stock, in whole or in part, by paying an amount equal to 110% of the sum of the initial liquidation preference per share plus any accrued and unpaid dividends to and including the date of redemption.

In the event of certain events that constitute a “Change in Control” (as defined in the Certificate of Designations) prior to November 15, 2014, the conversion rate of the Preferred Stock will be subject to increase. The amount of the increase in the applicable conversion rate, if any, will be based on the date in which the Change in Control becomes effective, the price to be paid per share with respect to the Common Stock and the transaction constituting the Change in Control.

Except as otherwise provided by law, the holders of the Preferred Stock vote together with the holders of common stock as one class on all matters on which holders of common stock vote. Holders of the Preferred Stock when voting as a single class with holders of common stock are entitled to voting rights equal to the number of shares of common stock into which the Preferred Stock is convertible, on an “as if” converted basis. Holders of Preferred Stock vote as a separate class with respect to certain matters.

Upon any liquidation, dissolution or winding up of the Company, holders of the Preferred Stock will be entitled, prior to any distribution to holders of any securities ranking junior to the Preferred Stock, including but not limited to the common stock, and on a pro rata basis with other preferred stock of equal ranking, a cash liquidation preference equal to the greater of (i) 110% of the sum of the initial liquidation preference per share plus accrued and unpaid dividends thereon, if any, from November 6, 2009, the date of the closing of the Offering, and (ii) an amount equal to the distribution amount each holder of Preferred Stock would have received had all shares of Preferred Stock been converted to common stock.

We accounted for the Preferred Stock transaction in accordance with the requirements of ASC 815, Derivatives and Hedging, (“Derivatives and Hedging Topic”) and ASC Topic 480, Distinguishing Liabilities from Equity, (“Distinguishing Liabilities from Equity Topic”). Pursuant to those topics, we determined that the Preferred Stock should be accounted for as a single instrument as the terms of the Preferred Stock do not include any embedded derivatives that would require bifurcation from the host instrument. Pursuant to the Distinguishing Liabilities from Equity Topic, we determined that the Preferred Stock should not be classified as a liability as the characteristics of the Preferred Stock are more closely related to equity as there is no mandatory redemption date. According to the terms of the Preferred Stock, the Preferred Stock will only become redeemable at the option of the holder upon a Fundamental Change. In addition, we determined that there are various events and circumstances that would allow for redemption of the Preferred Stock at the option of the holders, however, several of these redemption events are not within our control and, therefore, the Preferred Stock should be classified outside of permanent equity in accordance with the Distinguishing Liabilities from Equity Topic as these events were assessed as not probable of becoming redeemable. We will continuously assess the probability of the Preferred Stock becoming redeemable as facts and circumstances change to determine if such changes warrant a reclassification from outside of permanent equity to a liability.

17. EARNINGS (LOSS) PER SHARE

We compute earnings (loss) per share in accordance with the requirements of the Earnings Per Share Topic. Under the Earnings Per Share Topic, basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed using the weighted-average number of common and common equivalent shares of stock outstanding during the periods utilizing the treasury stock method for stock options and unvested restricted stock.

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

The following is a reconciliation between weighted-average shares used in the basic and diluted earnings (loss) per share calculations:

		Three Months Ended
		March 31,
(In thousands, except per share amounts)		2011				2010
Numerator for loss per share — basic:
Loss from continuing operations		$	(18,684	)		$	(23,995	)
Less: Net loss attributable to noncontrolling interests			395				271
Less: Preferred dividends			(2,897	)			(2,897	)
Loss from continuing operations attributable to Grubb & Ellis Company common shareowners			(21,186	)			(26,621	)
Loss from discontinued operations attributable to Grubb & Ellis Company common shareowners			—				(57	)
Net loss attributable to Grubb & Ellis Company common shareowners		$	(21,186	)		$	(26,678	)
Denominator for loss per share — basic:
Weighted-average number of common shares outstanding			65,664				64,350
Loss per share — basic:
Loss from continuing operations attributable to Grubb & Ellis Company common shareowners		$	(0.32	)		$	(0.41	)
Loss from discontinued operations attributable to Grubb & Ellis Company common shareowners			—				—
Net loss per share attributable to Grubb & Ellis Company common shareowners		$	(0.32	)		$	(0.41	)
Loss per share — diluted(1):
Loss from continuing operations attributable to Grubb & Ellis Company common shareowners		$	(0.32	)		$	(0.41	)
Loss from discontinued operations attributable to Grubb & Ellis Company common shareowners			—				—
Net loss per share attributable to Grubb & Ellis Company common shareowners		$	(0.32	)		$	(0.41	)
Total participating shareowners:
(as of the end of the period used to allocate earnings)
Preferred shares (as if converted to common shares)			58,527				58,527
Unvested restricted stock			4,258				5,222
Unvested phantom stock			3,833				4,905
Total participating shares			66,618				68,654
Total vested common shares outstanding			65,889				64,600

(1)		Excluded from the calculation of diluted weighted-average common shares as of March 31, 2011 and 2010 were the following securities, the effect of which would be anti-dilutive, because an operating loss was reported or the option exercise price was greater than the average market price of the common shares for the respective periods:

		March 31,				March 31,
(In thousands)		2011				2010
Outstanding unvested restricted stock			4,258				5,222
Outstanding options to purchase shares of common stock			321				459
Outstanding unvested shares of phantom stock			3,833				4,905
Convertible preferred shares (as if converted to common shares)			58,527				58,527
Convertible notes (as if converted to common shares)			14,036				—
Total			80,975				69,113

18. COMPREHENSIVE LOSS

The components of comprehensive loss, net of tax, are as follows:

		Three Months Ended
		March 31,
(In thousands)		2011				2010
Net loss		$	(18,684	)		$	(24,052	)
Other comprehensive (loss) income:
Net unrealized (loss) gain on investments			36				126
Total comprehensive loss			(18,648	)			(23,926	)
Comprehensive loss attributable to noncontrolling interests			(395	)			(271	)
Comprehensive loss attributable to Grubb & Ellis Company		$	(18,253	)		$	(23,655	)

GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

19. CHANGES IN DEFICIT

The following is a reconciliation of total deficit, deficit attributable to Grubb & Ellis Company and equity attributable to noncontrolling interests from December 31, 2010 to March 31, 2011 (in thousands):

																						Total
														Accumulated								Grubb & Ellis
										Additional				Other								Company
		Common Stock								Paid-In				Comprehensive				Accumulated				Shareowners’				Noncontrolling				Total
		Shares				Amount				Capital				Income				Deficit				Deficit				Interests				Deficit
Balance as of December 31, 2010			70,076			$	701			$	409,943			$	148			$	(478,881	)		$	(68,089	)		$	9,130			$	(58,959	)
Vesting of share-based compensation			—				—				1,692				—				—				1,692				—				1,692
Preferred dividend accrued			—				—				(2,897	)			—				—				(2,897	)			—				(2,897	)
Forfeiture of non-vested restricted shares			(154	)			(2	)			(159	)			—				—				(161	)			—				(161	)
Contributions from noncontrolling interests			—				—				—				—				—				—				14				14
Distributions to noncontrolling interests			—				—				—				—				—				—				(264	)			(264	)
Change in unrealized gain on marketable securities			—				—				—				36				—				36				—				36
Net loss			—				—				—				—				(18,289	)			(18,289	)			(395	)			(18,684	)
Comprehensive loss			—				—				—				—				—				(18,253	)			(395	)			(18,648	)
Balance as of March 31, 2011			69,922			$	699			$	408,579			$	184			$	(497,170	)		$	(87,708	)		$	8,485			$	(79,223	)