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Executives

Michael Rispoli – SVP, IR

Richard Pehlke – CFO and EVP

Jack Van Berkel – COO, EVP, and President of Estate Services

Jeff Hanson – President of Grubb & Ellis Realty Investors

Analysts

Will Marks – JMP Securities

Brandon Dobell – William Blair

Grubb & Ellis Company (GBE) Q3 2009 Earnings Call November 11, 2009 10:30 AM ET

Operator

Welcome to the third quarter 2009 Grubb & Ellis earnings conference call. (Operator instructions) I would now like to turn the conference over to your host for today, Mr. Michael Rispoli, Senior Vice President of Investor Relations. Please proceed.

Michael Rispoli

Thank you, operator. Good morning everyone and thank you for joining us this morning. Before I turn the call over to Richard Pehlke, our Chief Financial Officer, I would like to remind you this call is being webcast live and will be archived and available for replay. The replay may be accessed from the Investor Relations section of the Grubb & Ellis website.

Comments made during this call may include certain forward-looking statements. Actual results and the timing of certain events could materially differ from forward-looking information discussed on this call. Factors that may cause such results to differ set forth in the Company’s third quarter earnings release issued today and the Company's filings with the Securities and Exchange Commission.

In an effort to present a more complete financial and narrative description of the results of operations, the Company has provided non-GAAP financial measures. These financial measures exclude the impact of non-cash items such as charges related to sponsor programs, real estate related impairment and stock-based compensation as well as the impact of merger related costs incurred in the prior year. As required by SEC regulations, the company has provided reconciliations of these non-GAAP measures in both its earnings releases and related SEC filings.

Now I will turn the call over to Richard Pehlke.

Richard Pehlke

Thank you Mike, and good morning, everyone and thank you for joining us today. Before providing a review of our third quarter results I would like to review two very significant announcements we made in the last week because we will refer to them later in the call.

We will refer to them later in the call. First, we are pleased to report that Grubb & Ellis closed a $90 million preferred equity transaction on November 6th.

On Monday we announced that Tom D’Arcy, an experienced industry leader, would join the company as its President, Chief Executive Officer and as a member of the company’s board of directors. Tom officially starts his role next Monday, November 16th. For those of you who know Tom you know he brings considerable experience and has held senior leadership positions at successful public and private real estate companies. He has been non-executive Chairman of Inland Real Estate Corporation since 2008. Earlier he spent 11 years as Chairman and Chief Executive Officer of Bradley Real Estate, an NYSE-listed real estate investment trust. We are very much looking forward to Tom being on board and we look forward to working with him.

Now I will make some brief remarks regarding the general operating environment we have experienced over the past quarter that will help put our financial results into context. A little later in the call Jack Van Berkel who is joining me today, our Chief Operating Officer and President of Real Estate Services will outline some of the progress Grubb & Ellis has made within our services business.

The third quarter brought another increase in vacancy rates across all four key sectors of the commercial real estate industry. The good news is the increase in vacancy rates across each sector was less than in the first and second quarters. This is consistent amongst the general consensus among economists that the economy improved gradually through the spring and summer and now appears to be in the very early stages of a recovery. It is also due to the fact the construction pipeline is emptying so less new vacant space is being added to the market.

Despite the slower rate of deterioration in leasing market fundamentals during the third quarter, the market is likely to report several more quarters of softening before bottoming out in the second half of 2010 and embarking on a sustained recovery in 2011. The capital markets remain on hold. Although there is a growing pool of investors with equity capital waiting to invest in distressed assets, sellers don’t want to get into the biggest buyers market since 1990 and are being enabled by banks which are granting short-term loan extensions even though collateral values have fallen sharply.

Therefore, distressed assets continue to pile up totaling $138 billion at the end of August according to Real Capital Analytics. As a result, we expect to see an increase in transaction volume next year in a range of 20-30% above the very depressed 2009 levels. Based on our expectations, we think the operating environment in the commercial real estate services industry will be challenging for some time.

Year-to-date leasing activity is down nearly a third from a year ago. Effective rental rates are down 5-15% from the past year depending upon the property type. The dollar volume of sales is down 66% for all property types year-to-date. As we noted in the morning’s earnings release, despite the difficult market conditions Grubb & Ellis did see some encouraging signs in our third quarter performance. Most notably sequential improvement in adjusted EBITDA, transaction volume and revenue over the second quarter. This is a favorable trend and compared with the 2008 second quarter the third quarter revenue growth. We believe this trend is consistent with the slightly better tone of the leasing market data in the third quarter as well as the company’s recruiting successes over the past 15 months.

Today we reported revenue of $136.1 million for the third quarter which was down 11% from last year due primarily to weak sales and anemic leasing activity. For the first nine months of 2009 the company reported total revenue of $385.1 million down from $468.8 million in 2008. The net loss for the quarter was $21.4 million or $0.34 per share. For the first nine months of 2009 the company reported a net loss of $95.7 million or $1.51 per share.

Please keep in mind also the per share numbers I am quoting do not reflect the accounting impact of the preferred equity offering since that closed in the fourth quarter.

Turning to adjusted EBITDA, for the third quarter it was $674,000 positive, compared with adjusted EBITDA of $7.4 million in the third quarter of 2008. The decrease was due to lower transaction revenue in both transaction services and investment management businesses largely due to industry conditions. The adjusted EBITDA excluded the following charges that were reported in our GAAP numbers; $7.2 million in charges related to the company’s investment management program; $7.4 million in real estate related impairments and $4.4 million in stock based compensation and the amortization of signing bonus.

For the nine months of 2009 adjusted EBITDA was negative $25.1 million compared with positive adjusted EBITDA of $27.4 million in the same period a year ago. The nine month 2009 adjusted EBITDA results exclude the following charges that were reported in the company’s GAAP numbers; $21.6 million in charges related to the company’s investment management program; $16.6 million in year-to-date real estate related impairments and $14.4 million in stock based compensation and amortization of signing bonus. None of these charges had any cash impact on our results.

Our third quarter results are in line with our expectations we shared with investors and disclosed in our recent 8-K filing disclosing the preferred financing. Revenue for the third quarter slightly exceeded expectations while adjusted EBITDA is at the low end of the forecasted range due to slightly higher benefit accruals in the quarter. We continue to expect revenue for the fourth quarter to be in a range of $149-161 million for the total company and adjusted EBITDA to be in a range of $6-10 million. For 2010 we continue to expect revenue to be in a range of $640-695 million and adjusted EBITDA to be in a range of $22-30 million for the full year.

Revenue from our management services segment was $67.5 million in the third quarter, up 6.3% from the third quarter of 2008. This includes asset and property management fees as well as reimbursed salaries, wages and benefits from the company’s captive management and third-party property management and facilities outsourcing businesses which is largely an annuity business. Year-to-date revenue was up 7.4% for the segment. We are extremely encouraged by the progress our corporate facilities management business continues to make especially as more and more companies and clients look to outsource as a means to save in real estate operations costs.

Total square foot under management for our corporate clients has grown by 14 million square feet since the start of the year. Historically we have had an impressive track record of capturing new business from existing client base and that continues to be the case. Over the past nine months approximately 50% of our new engagements have come from existing client relationships.

Transaction services revenues decreased 19.4% in the quarter and 31.4% year-to-date over the prior year period. Through September 30 the company saw leasing activity decline 15% year-over-year and we saw a 61% decrease in revenue from investment sales which is just slightly better than the market and industry averages I quoted earlier. This compares with the 33% and 66% year-over-year declines industry-wide according to the specifics.

The positive take-away here is we are beginning to see market share gains which we believe can be directly attributed to two factors; Investments we have made to attract key talent and the expansion of our service offerings; points that Jack will expand on in a few moments.

Investment management revenue totaled $14.8 million for the quarter and $43.9 million for the first nine months of 2009. This compares to revenue of $24.1 million and $84.5 million in the prior year period. Through September 30 the company’s investment programs raised an aggregate of approximately $533 million of equity compared with $760.5 million in the first nine months of 2008. This decrease can be attributed to lower capital raises from the company’s tenant in common and private client wealth management programs.

Approximately 97% of the total equity raised came from sales of our non-traded REIT which raised $518 million through the first nine months in 2009. At September 30 the company’s assets under management as measured by original purchase price totaled $5.8 billion down from $6.9 billion at June 30th. The decrease can primarily be attributed to the fact that on September 20th the company completed the transition of its advisory services for its first sponsored non-traded healthcare REIT which is now self-advised.

The company has launched its second public non-traded healthcare REIT, Grubb & Ellis Healthcare REIT II, at September 21st. The REIT, which is targeted to retail investors, presently intends to offer over the next few years up to $3 billion of common stock. The REIT reached its minimum threshold of sale of $2 million of equity on October 15th, just 24 days after the sales effort for the REIT was initiated. To put this accomplishment into perspective it took 110 days to raise the same minimum for the company’s first healthcare REIT offering. We attribute the early success of healthcare REIT II to Grubb & Ellis’ strong reputation in the public non-traded REIT Sector. Now that the REIT has reached the minimum threshold and funds raised from the sale of equity can be used for the acquisition of assets, we expect to see more selling agreements which in turn should help to spur our equity raise volume.

The performance of both our real estate services and investment management businesses are closely tied to transaction velocity. Deal volume has slowed to a trickle and it has become critical that we aggressively manage our costs as well as balance sheet and liquidity. We continue to manage our expenses very closely. Compensation expense for the quarter decreased 3.7% from the same period a year ago. G&A costs exclusive of charges decreased by 27.6% year-over-year.

The majority of our expenses are related to compensation and reimbursable costs directly attributable to revenue production. Third quarter G&A excluding the $7.2 million charge related to the company’s investment management program was $17.3 million. At September 30th cash and cash equivalents stood at $9.4 million compared with $14.8 million at June 30th. The $90 million preferred equity transaction will allow us to significantly bolster the company’s cash position.

From the $85 million in net proceeds from the transaction we have repaid in full the $63 million outstanding on the company’s credit facility at the reduced principle amount we negotiated with the bank at the beginning of October. This is equal to 65% of the principle amount or approximately $41 million. This left approximately $44 million which will be used for general and working capital purposes and transaction costs.

We believe that as an essentially debt-free company with one of the stronger balance sheets in the industry, an experienced management team and 6,000 of the best employees in the industry, Grubb & Ellis is well positioned for future growth. Of course we recognize that our new balance sheet doesn’t come without a price. There will be increased pressure to perform, grow our business and return the company to strong cash flow and profitability. With our strengthened capital position and new leadership we are invigorated and eager to take advantage of the market opportunities that will emerge in the coming years in the market as it slowly begins to recover.

Now I would like to turn the call over to Jack Van Berkel who will speak to some of our major accomplishments in recent months. Jack?

Jack Van Berkel

Thank you Rich. Good morning everyone. Throughout the downturn our strategy has been to focus on what we can control which is to serve the needs of our clients and to strengthen these relationships by providing exceptional client service and innovative solutions to the real estate challenges they are facing during these very turbulent times.

I am pleased to say we are seeing positive results from this strategy. We continue to leverage current market conditions to make key strategic hires that add depth and breadth to our services platform. Our outsourcing business continues to perform well. We have retained all of our key relationships throughout 2009 and during the quarter we won five new and renewed three corporate services portfolio assignments. We also won 30 new property and facilities management assignments totaling nearly 8.1 million square feet.

Some highlights include our relationship with General Motors which has doubled in size since the start of the year and in a highly competitive bid Grubb & Ellis was awarded the facility management of the NYSE’s new Euro Next 400,000 square foot data center in New Jersey. Rich mentioned that nearly half of the new engagements we have won over the past nine months have come from existing clients. We place significant value on establishing strong, lasting relationships with our clients so this is the kind of trend we like to see.

For instance, last month Grubb & Ellis marked its 10-year service anniversary with Aetna, a relationship that has continually expanded over the years and continues to grow. Most recently, Aetna added several international sites to the portfolio we manage including facilities in Shanghai, Hong Kong, Dubai and London.

In addition, Microsoft once again named Grubb & Ellis a finalist in its Microsoft Vendor Program Excellence Awards. This year we are finalists for value award for generating cost reductions to Microsoft in excess of $30 million as well as the diversity award. Since taking over the account in 2002 Grubb & Ellis has been a finalist for a Microsoft Vendor Award six times and we have won top honors in a number of categories including Diversity Excellence, Environment and of course Vendor of the Year, the highest recognition a Microsoft vendor can attain. This is something we are extremely proud of considering the fact we are up against 17,000 other Microsoft vendors.

We also continue to solidify our relationship with [Kraft]. Since taking over 4 million square foot facility as management assignment last year, exceeding our target metrics on performance, timeliness, customer satisfaction and growing our scope. During the most recent quarter we expanded our project management services which will result in additional fourth quarter revenue.

During the past 15 months we have added 86 senior level brokers. 17 joined in the third quarter at the VP level or above. These 86 individuals have a combined average three-year production of more than $65 million. Our strategy to broaden Grubb & Ellis’ service offerings during the down market has been well received internally as well as by our clients.

During the third quarter we hired Sam Winterbottom who is arguably one of the best names in the hospitality industry to lead our Hotel, Golf and Leisure Practice Group. Also, last month Branson Edwards joined the firm as head of the company’s new retail occupier practice which will focus on serving the very specific needs of large, multi-market retail clients. With 19 years of retail real estate experience both as head of JLL’s retail outsourcing services division and as Founder of the Standard Group, a successful retail outsourcing company, Branson will help us greatly expand our retail capabilities.

We believe there will be considerable activity in both of these sectors as hospital companies and retailers continue to strategically reposition themselves against the backdrop of the current downturn.

Grubb & Ellis also continues to build a formidable distressed asset business. With the formation a year ago, our financial services asset management practice has established relationships with more than 200 bank and servicing clients throughout the U.S. The group is currently working on approximately 250 pre and post-foreclosure assignments including property management, leasing and dispositions. As more loans come due over the next several quarters we expect demand for expertise like ours to continue to increase and this should drive revenues in all aspects of our real estate services business.

These are just a few examples of how we are positioning the company to capitalize on the current economic environment as well as to take advantage of new opportunities that are sure to present themselves as the market recovers. I don’t think there has ever been a more exciting time for Grubb & Ellis.

Back to you, Rich.

Richard Pehlke

Thanks Jack. The hints of recovery we witnessed in the third quarter are certainly welcome news. We along with everyone else hope this is a trend that will continue. Regardless of what the economy delivers, we feel extremely optimistic about our company. Over the past 18 months Grubb & Ellis has significantly strengthened its competitive position. We have retained our top tenants and have aggressively recruited experienced professionals into the organization.

We have added to our service capabilities and worked hard to strengthen our client relationships. We have cut costs and kept our expenses in line with revenue and we have a strong balance sheet with no funded debt and an experienced, committed management team. In summary, Grubb & Ellis is extremely well positioned to deliver the sustained, long-term results our shareholders expect.

At this point I would like to open up the call to questions. Operator would you please explain the process?

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Will Marks – JMP Securities.

Will Marks – JMP Securities

First, can you talk about and give us some numbers for the pro forma balance sheet for the transaction and what it looks like after the quarter is complete?

Richard Pehlke

Our cash position is probably going to increase probably between $40-45 million in terms of net proceeds from the transaction.

Will Marks – JMP Securities

Increase by that amount?

Richard Pehlke

Increase by that amount, right. The more important element of that is that we will also obviously our debt position improved dramatically. The only debt we will have remaining on the balance sheet are the senior notes that have been there for some time that we have explained often we have the option to extend that to 2013. That is a little over $16 million and we will have the notes payable related to the real estate that we still hold. It is still our intention to have two of the assets off our balance sheet by the end of the year and two of the assets on hold for a short period of time as we divest them when they are more stabilized and fully cover the debt obligation.

So we continue to believe the liability side of the balance sheet is in very good shape. The preferred stock will be classified as mandatorily redeemable preferred stock which will sit right between debt and equity on our balance sheet. We will also improve our shareholder equity because we will report the gain from the retirement of the debt and that will be a direct addition to equity which will turn our total equity from a negative to a positive. So it has pretty dramatic impact of our balance sheet and that will all be reflected in the fourth quarter.

Will Marks – JMP Securities

What was the cash generation during the quarter? If any? It looks like it is a slight negative cash flow.

Richard Pehlke

Probably slight negative of about $5 million.

Will Marks – JMP Securities

What would the guidance imply for fourth quarter cash flow?

Richard Pehlke

It will be a positive cash flow quarter. For an exact number of cash flow, again with all the new variances coming in with the funding I am guessing if we are looking at $6-10 million of EBITDA I think cash generation from operations probably should be in that neighborhood if not a little bit better.

Will Marks – JMP Securities

On the quarter I wanted to ask, you gave guidance after the quarter was done and you did hit the high end of the revenue but you were slightly below the low end on EBITDA. You mentioned the reason why which kind of to me is less important than why even after the quarter was over you still didn’t hit the range. Maybe you could explain that?

Richard Pehlke

As we go through our quarter close process obviously it is a very detailed process. We have a number of things from a standpoint of closing entries that are true-ups from everything from our paid time off accruals, benefit accruals that reflect the real experience we have to report relative to our medical benefits. These are all internal control processes that we have to true-up.

The difficulty here is that when we are talking about a range of basically guidance that was very close to very even of $1-2 million of adjusted EBITDA, a small amount of an accrual change of a couple hundred thousand dollars here and there which frankly for a company of our size and employee base is nothing. When you think about medical claims predicting medical claims expense for a quarter on a base of over 3,000 employees, a slight change in actual experience of a couple of hundred thousand dollars is almost immaterial. It is impossible to calculate.

These things come out over the course of the closing of the books and we have to report them. That is really what drove the difference. All the signs that led us to believe where we thought we would be from an operating standpoint. As I said our revenue was spot on if not a little bit better, the flow through of EBITDA from the operations was right where we expected it to be but because if we were back up at normal operating levels these types of adjustments would be immaterial to the business.

Will Marks – JMP Securities

So it is purely or mostly a few hundred thousand dollars?

Richard Pehlke

It was the scale of the numbers we were dealing with at the time.

Will Marks – JMP Securities

The employee benefit accruals were a few hundred thousand dollars than you thought?

Richard Pehlke

Than we expected at the time. Absolutely. We won’t know that until we get the true-ups to come in from our actuaries and our insurance company. The level we are talking about could be one major medical claim. It is really that small.

Will Marks – JMP Securities

Within the healthcare REIT II you mentioned the numbers through October 15th. How has it been going since then? I don’t know if you can tell us how much has been raised because that is actually an important part of your business?

Richard Pehlke

It has incrementally been picking up over the course of the week. Again, the more encouraging thing is that we have continued to see the selling agreements come in because the number of the major broker dealers we had relationships with were waiting for the recapitalization process and the stabilization process to finalize before they finish their final due diligence. We have had a number of broker dealers sign up since we announced the transaction and now have funded and closed the transaction.

We expect that to continue over the coming weeks. We think we are going to be in very strong shape by the year-end with our pool of broker dealers and starting to see significant ramp up in the equity raise.

Operator

The next question comes from the line of Brandon Dobell – William Blair.

Brandon Dobell – William Blair

I just want to follow-up on your broker comment to make sure I got the numbers right for the number of guys added in the third quarter. A larger picture question, do you think you still need to add brokers at the same pace going forward or do you think you now have the business right sized to where the market opportunity is as you look out the next couple of quarters?

Richard Pehlke

Our objective still is to drive broker productivity. Obviously we haven’t seen as much of that as we wanted in this current environment but the objective is to raise the water level in terms of overall productivity. We are not finished recruiting. We still have certain holes in the platform. I can’t tell you yet what the total brokerage population is going to look like in a year but I will tell you we will continue to expand and fill specific holes that we have in the platform and in certain geographies. We will still continue to be aggressive in the marketplace.

Brandon Dobell – William Blair

Shifting gears a bit over to property management business as well as the asset management business, any change either way or any color you can provide to us on what the fee structures are looking like on the deals you are signing up now? Are you able to go back to some of the deals signed in previous years and change those up to be better for you? I guess focused on the property management side first. But I also I want to get a sense of the new capital you are raising on the non-traded REIT side. Are you still seeing the same kinds of fee structures you saw in the last couple of years?

Richard Pehlke

That’s a couple of questions and we will try and bifurcate them a little bit and try and give clarity. So if we miss something feel free to come back. From an overall perspective I don’t think this is the right environment to go back to clients and try and retrade pricing. The more important thing and we mentioned it in our comments is that we have been very successful in managing our relationships with clients and they have been giving us a lot more business. So we have been able to add on to the existing contracts and increase volume. We have actually done a much better job of not only pricing and achieving the margin and in some cases performance incentives within our contracts but managing to those contracts very well and managing the cost structures well so the client is happy and getting the results they want and at the same time you have seen it in our results that we have grown the top line and the bottom line.

That is what we are focused on and will remain focused on. We think we can sustain that. That all comes back to delivering excellent service. Jack can speak to that.

Jack Van Berkel

Square footage continues to go up for us. Obviously that is not the case with some of our competitors so we are continuing to try and grow that business and then we are trying to be obviously much more efficient and execute more cleanly in the operational areas. I mean that work is never done. So we are continuing to drive additional cost efficiencies there.

Richard Pehlke

Relative to your question about the investment management side and how that relates to our new REIT, we are in the early stages obviously of Healthcare REIT II, we are just in the early stages of raising equity and so transactions will be coming and we hope they start here in the fourth quarter. I think there is no fundamental major changes in the overall fee structure relative to the REIT. It is going to be an area of constant monitoring and it is all going to come down to performance and execution. This is one of the strengths that Tom brings to our organization. He has a tremendous amount of background in this area. I’m sure he is going to have insight into that process as well. We are very excited about the prospects of that REIT and we think we have it positioned very well.

Brandon Dobell – William Blair

There has been some decent amount of debate in the space from a transaction perspective especially on buying and selling properties. Some people would say that as the banks just continue to keep the [inaudible] down the road but it is difficult to see the amount of distress selling really pick up because there are a lot of willingness to avoid that.

Others would say that the opposite is going to happen. There is just too much pressure. Too many people that need to sell and too much money waiting on the side lines to pick up properties. What are your guys on the ground saying? Do they see that pent up demand story happening or is it more just kind of a slow trickle and it is difficult to try and gauge the inflection point?

Jack Van Berkel

Probably the best criterion we are looking at right now is just a level of activity with our investment brokers. We are seeing our brokers busier than they have been in over 18 month period of time. The level of activity certainly is picking up. Is that translating into dollars yet? Not yet but there is an expectation certainly it will soon.

Brandon Dobell – William Blair

On the leasing side, more of a core structural turn in the business but are you seeing clients start to take a second look at locking up space just given that things can’t get an awful lot worse in the leasing market or are people just still sitting on their hands saying I can wait another year before I think about either taking sub-lease space off the market or perhaps lock it in for a five-year term or something like that?

Richard Pehlke

As you well know we entered the dead zone there for a period of time where there was no activity at the peak of the downturn. We are now starting to see much more activity and we have seen an ever-increasing level of activity since probably the late summer months here. We are looking at better activity. In September and October that volume has continued to increase here in November. Certainly nowhere near where we want it to be but we are at least starting to see cracks in opportunities.

Operator

The next question comes from the line of Will Marks – JMP Securities.

Will Marks – JMP Securities

Are you specifically, you mentioned the 250 pre and post-foreclosure assignment. Do you have any specific assignments for the government for the FDIC? Maybe you said something and I missed it.

Richard Pehlke

Not as of yet but obviously everyone knows the FDIC will award their contracts here shortly. We are anticipating. If you can do anything to speed them up that would be great.

Will Marks – JMP Securities

How large is the competitive field?

Richard Pehlke

The normal players. My assumption is there will be more than two, maybe as many as four or five selected.

Will Marks – JMP Securities

A big picture question on the 86 brokers you hired. You have talked about how this does come at a cost. Maybe you can give us a little bit of qualitatively or quantitatively describe how this works, if the brokers that you got rid of, that left were generating their splits if they were 50% and these new brokers can make up to 70? I don’t know. Maybe you can help us there.

Richard Pehlke

I think your question is what is the cost to bring these guys in the door. We are seeing obviously the retail price for brokers has come down significantly. There are very few companies that are out there trying to hire. Everyone is in kind of a freeze mode right now. I can tell you that leads to a large inventory and backlog of folks that would like to come and work for us. We are looking at all that. We are also structuring deals as you well know we haven’t had a lot of cash to play with and so we have been structuring deals around short-term split differentials, performance based bonuses, etc.

We have been able to be very selective in terms of who we are bringing in the door because the competition isn’t as fierce as it certainly was a year or two ago. So we have been doing everything possible to upgrade our talent and at the same time manage away the problems of the past with the sign-on bonuses, etc.

Jack Van Berkel

I think we are trying to manage the cost of acquisition of talent into the run rate of the revenue that they will produce. So there is a better offset. If it is worth giving up a couple of points on commission rates in a year’s worth of revenue it is a far better trade off than a lot of cash up front, especially in a market where, as you well know, there is still so much volatility and still there is so much in the air relative to what the industry will produce over the next 12-18 months.

Will Marks – JMP Securities

On the sales and leasing you mentioned the combined transaction revenue. You gave us in the press release the $46.3 million. Can you break that down between sales and leasing? I believe you have done that in previous quarters. Maybe it is in the Q? I can’t recall.

Jack Van Berkel

It has been running about 65/35 leasing versus sales. In this particular quarter I think the business mix was even a little higher on the leasing side.

Richard Pehlke

More 70/30.

Will Marks – JMP Securities

We can do the calculation but you gave the year-to-date numbers but what were leasing and sales during the quarter if you have those in front of you?

Jack Van Berkel

In the quarter it was more like 80/20.

Will Marks – JMP Securities

I’m sorry. Oh okay, so 80/20 is the breakdown?

Jack Van Berkel

The breakdown of the mix probably in the quarter.

Will Marks – JMP Securities

So what were leasing revenues down during the quarter versus a year ago?

Jack Van Berkel

From year-ago they were probably down about…

Will Marks – JMP Securities

You gave the 15% year-to-date for leasing and 61% for sales year-to-date. I’m just wondering if you have the quarterly numbers in front of you. If not, we can talk later. That’s fine.

Jack Van Berkel

Leasing year-ago was probably in the quarter roughly about $40 million. So we are probably down about $2-3 million year-over-year.

Will Marks – JMP Securities

In leasing?

Jack Van Berkel

The significant decline in investment sales and I think I said it was down about 60% for the quarter.

Will Marks – JMP Securities

I feel like I am hearing differing views from US commercial brokers on what is going to recover first; sales or leasing. On one hand the leasing environment came to a standstill at the beginning of 2009 and so we have pretty easy comps. On the other hand sales have been bad for two years so you would think that would pick up first perhaps. Any thoughts there?

Richard Pehlke

We will see incremental increases in leasing. Obviously we are looking for more of a big bang in sales. Any kind of activity in sales is going to be a huge percentage increase off such a low base so obviously we are hopeful we are going to see increased sales activity here as we move through Q4 and into the first half of 2010. It is all going to break loose at some point. We are going off such a low base right now that obviously as a percentage we are going to see a significantly larger increase on the sales side.

Operator

At this time there are no further questions. I would now like to turn the call back over to Richard Pehlke for any closing remarks.

Richard Pehlke

Thank you operator. Again we would like to thank everybody who participated on today’s call. Thanks for joining us. We appreciate your interest in Grubb & Ellis and we look forward to speaking to you at the end of Q4. Have a great day.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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Source: Grubb & Ellis Company Q3 2009 Earnings Call Transcript
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