April 9, 1999

'Where art thou, Grubb & Ellis?'

By MARC STILES
Journal Real Estate editor

Say you run a national commercial real estate firm and you're deciding which markets to concentrate on. Survey upon survey identifies the Puget Sound region as one of the most profitable.

So, it's a no-brainer. Your company needs a Seattle presence, right? For Grubb & Ellis, one of the nation's largest publicly traded commercial real estate service providers, the answer hasn't come so easily.

Grubb & Ellis is struggling to maintain its position in Seattle. In the last couple of years, the office has shrunk from about 20 brokers to six. The problems have been exacerbated because the office has no leader, according to one former Grubb & Ellis vice president.

"Without management, they've drifted off," said Craig E. Hill, who earlier this year left the Seattle office to join Norris, Beggs & Simpson as vice president of the Capital Asset Group. "Grubb & Ellis is a good, strong national firm but here they're having horrendous problems."

Grubb & Ellis officials at company headquarters in Northbrook, Ill., say they are not giving up on Seattle. "The erosion of the broker base in that market is reflective of intense competition and not our lack of commitment to it," said Edgar McDougal, director of corporate communications.

As commercial real estate in the region becomes more profitable, it becomes more competitive. Brokers are jumping from firm to firm in red-hot markets across the nation, McDougal noted. Some are leaving national firms to go with local companies, where the commission splits often are higher. The Grubb & Ellis split ranges from 50 to 70 percent depending on the productivity of brokers.

Grubb & Ellis invests significant resources to bolster its research capabilities, McDougal said. "We think there is sufficient value in the Grubb & Ellis name that it wouldn't make sense to match the commission split of smaller firms."

Hill is especially surprised that Grubb & Ellis allowed its slide in Seattle to continue in light of the Boeing-McDonnell Douglas merger two years ago. He noted that Grubb & Ellis brokers in Southern California have strong ties to Boeing through McDonnell Douglas. That didn't translate into work in the Puget Sound office, however, "because the Southern California people know the weakness of the office in Seattle," Hill said.

The root of the problem is the lack of leadership, he added. One former manager, Peter Truex, wasn't given enough time to turn the Seattle office around, said Hill. "If he had been given another six months he would have had the office in the black."

Truex, who Grubb & Ellis officials say resigned, now is executive vice president for real estate sales of Be There Now, which provides Internet-based, interactive, three-dimensional views of properties for sale. He declined to comment as did a broker who remains with Grubb & Ellis in Seattle.

After Truex, Grubb & Ellis hired a management consultant. Grubb & Ellis officials could not recall the consultant's name. "We use consultants all the time," McDougal said. "I think (in Seattle) that ran its course from what I can gather. It wasn't a permanent setup so we parted company."

Grubb & Ellis officials in Illinois note that the remaining Seattle brokers are not struggling. Two of them, Gregory A. Laycock and James Keating, are winners of the company's Circle of Excellence award that goes to brokers in the top 10 percent of sales nationally.

Now Grubb & Ellis must decide what to do in the Puget Sound region. In the meantime, John Orrico is overseeing the Seattle office. He is the national president of Transaction Services.

Corporate officials say they have several options for Seattle. The company could carve out a niche in the Puget Sound region and concentrate on that, or it could grow the office, according to McDougal.

"Although the (Seattle) office is small we feel like the downtown area is well covered," added Monica Sparreo, a corporate spokeswoman at Northbrook. "If we expanded into other areas we would have to figure out how many brokers to add then."

Another possibility is acquiring a local firm or forming an alliance with one, McDougal said.

In Seattle, it has been rumored that Grubb & Ellis has tried to buy or team up with some local firms. One rumor had the national firm eyeing Leibsohn & Co. in Bellevue for an Eastside presence.

"We have not heard a thing," said Ron Leibsohn. He added that eight years ago Grubb & Ellis tried to buy the firm but Leibsohn elected to remain independent. Grubb & Ellis subsequently opened an Eastside office but later closed it.

Real estate professionals are wondering what the national firm is thinking about Seattle. "Where art thou, Grubb & Ellis?" Leibsohn asked.

The answer from Northbrook is that corporate officials are deciding what to do. "It's something we will address," McDougal said.