It’s been a big week for commercial real estate firm , which on Tuesday participated in its first bankruptcy hearing in New York.

On Monday, the company filed for Chapter 11 bankruptcy and announced that it had signed an agreement to substantially sell its assets to . The global brokerage company is hoping to acquire Grubb & Ellis as an asset sale under Section 363 of the U.S. Bankruptcy Code, according to the U.S. Securities and Exchange Commission.

While Grubb & Ellis officials would not comment on the company’s financial situation, David Kotansky, managing director of Colliers International in Portland, said the filing was something of a sign of the times.

“If you look at the height of the market and the years leading up to the height of the market, there were a lot of properties that were trading,” Kotansky said. “They were trading at big numbers, and there were lots of fees generated. You take that whole part of the equation out of it and that’s a lot of lost revenue.”

According to Grubb & Ellis’ 2010 annual report to the SEC, the company generated $575.5 million in revenue two years ago – a 9 percent increase from 2009, but a 19 percent decrease from 2007.

Kotansky said that while he was not familiar with Grubb & Ellis’ specific financial situation, he expects to see more mergers between companies as they search for ways to stay competitive. Indeed, a merger worked out well for Colliers in 2005 when FirstService – a billion-dollar property services company – acquired a 70 percent stake in Colliers Macaulay Nicolls, the largest entity within Colliers International.

Beth DuPont, principal broker at Winkler and DuPont in Portland, said the acquisition of Grubb & Ellis might be a sign of a company positioning itself to take advantage of a rebounding economy.

“I just think it’s a realignment of two firms that are trying to be competitive and trying to stay viable in the market,” she said. “I think we probably will see more of these and I think it’s probably a healthy sign in the market that things are making a comeback and turning around.”

As part of initiating the Chapter 11 process, all of Grubb’s previous lender commitments are automatically terminated and the principal amount of loans, reimbursement obligations, associated interest and fees are due immediately.

BGC, acting as a “stalking horse” buyer, stands to acquire Grubb & Ellis’ assets for approximately $30.03 million. It is providing the troubled firm a senior-secured, debtor-in-possession loan of approximately $4.8 million so that operations can continue during the court proceedings and acquisition process.

“While there are still a few national firms that are ‘de-leveraging,’ there will not be a trend of other brokerages closing due to high debt loads,” Brian Owendoff, senior vice president of Capacity Commercial Group LLC, said via email. “Grubb & Ellis’ challenge was $10 million in debt from the sale of NNN Realty Advisors it sold in 2011.”

Owendoff, however, said Grubb & Ellis has a strong Portland office and that he expects the team to possibly rebrand itself under the Newmark Knight Frank banner.

Robert Hubbell of BGC Partners said he was not able to comment on the acquisition beyond what was released in press releases by Grubb & Ellis and BGC Partners. Andrea Rose of Joele Frank, Wilkinson Brimmer Katcher, the New York public relations firm hired by Grubb & Ellis, also said she was unable to comment about the deal or the potential length of the proceedings.

The announcement of the acquisition comes on the heels of a Feb. 10 notice by Grubb & Ellis executive C. Michael Kojaian that he was resigning from the company’s board of directors to avoid, “any actual or apparent conflicts of interest in connection with his fiduciary duties with respect to his affiliated companies in commercial transactions with the company,” according to a filing with the SEC.

Kojaian’s affiliated companies include Michigan-based Kojaian Holdings LLC, Kojaian Management Corp. and Kojaian Ventures LLC, which all are Grubb & Ellis clients, according to CoStar Group. It reported that Kojaian owned approximately 32.8 percent of the company’s common stock as of March 28, 2011.

On Jan. 6, the New York Stock Exchange delisted Grubb & Ellis from its exchange, which, according to the SEC, constitutes a “fundamental change” in the company’s preferred stock. That entitles stockholders to redeem 110 percent of the stock’s cash value plus dividends, which the SEC reported is worth a total of $111.4 million.

Grubb & Ellis’ common stock is now trading under the symbol “GRBE” on the OTCQB marketplace, which is operated by OTC Markets Group.

With BGC’s acquisition of commercial real estate firm Newmark Knight Frank last year, there has been speculation that BGC is attempting to challenge global real estate firms like Colliers, CBRE, Jones Lang LaSalle and Cushman & Wakefield.

“I know they have aspirations, but to get to a global platform takes a lot of time, a lot of energy and a lot of capital,” Kotansky said. “I don’t know where they are in that formula … I don’t think anybody knows what they’re doing quite yet.”

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There’s no place like home, especially when it delivers a quality return on investment.

While much of the housing market continued to depreciate in 2011 – Freddie Mac reported that American households lost nearly $400 billion in property value during the first nine months of the year – apartment buildings emerged as a strong arena for investment dollars.

“Multifamily has seen a very vibrant year in 2011,” said Beth DuPont, principal broker at Portland-based real estate investment advisory firm Winkler & DuPont. “We’re definitely seeing a healthy increase in transactions and sales volume.”

According to Portland State University’s Center for Real Estate, sales from multifamily transactions are on track this year to approach the pre-recessionary levels of approximately $800 million per year – a substantial uptick from the $525 million banked in 2010, and a huge increase from the $282 million recorded in 2009.

Leading the charge were large, institutional investors looking for centrally located, 100-plus unit, Class A apartments. Some deals were for: the Broadstone Enso at 14 N.W. Marshall St., which sold to Washington D.C.-based NewTower Trust Co. for $54 million; the Cyan apartments at 1720 S.W. Fourth Ave., which sold to Texas-based Behringer Harvard Multifamily REIT I Inc. for $65 million; and the Ladd Tower at 1300 S.W. Park Ave., which sold to Texas-based Invesco for $79.4 million.

“(Apartments are) clearly the most active market, primarily because investors are confident with the product type,” said Mark Paskill, vice president of Portland-based Intervest Mortgage Investment Co., an independent and mortgage banking subsidiary of Sterling Savings Bank. “The income stream is consistent – everyone needs a place to live.”

Paskill said as more potential single-family homebuyers have opted to rent instead of buy – whether because of foreclosure or a negative perception of the housing market – demand for apartments has increased.

That’s especially true in the urban Portland area, where the vacancy rate has dropped to 3.34 percent – slightly above a historic low of 2.94 percent in 2007 – and rents have increased 8 percent to an average of $0.97 per square foot, according to the Metro Multifamily Housing Association‘s fall apartment report.

But not all apartments are selling like hotcakes.

Paskill said that the window of opportunity so far has been confined to properties above $12 million in value – for institutional buyers with more than enough money to spend – and below $3 million – for small, private investors able to pool their resources.

David Hill, senior vice president for investment services at Grubb & Ellis, said that as the supply of multifamily investment properties tightens, some investors will expand their radar to include riskier buildings with midrange prices.

“They have money that’s getting no return in the banks,” Hill said. “You’ve got so much volatility in the stock market – people are more inclined to look and to take a little bit more risk today than they were a couple years ago.”

Adding fuel to that fire, he said, is the fact that the multifamily market has turned a corner and is trending in a positive direction. Whereas people two years ago expected properties to depreciate in value, investors today are buying with the expectation that values will increase, he said.

Indeed, PSU’s Center for Real Estate’s third-quarter multifamily market analysis said that many investors are projecting a 3 percent to 6 percent increase in income in 2012.

New apartment construction was also up from 2010, with 1,500 new units in 2011.

That is still significantly below the average of 4,000 units for each of the past 15 years, but according to the PSU multifamily market analysis, 77,600 more new apartment and condo units are expected to come online next year across the nation.

DuPont said that’s a positive sign.

“When you start seeing that institutional grade of building being bought by an institutional-level buyer at a really healthy price … then that tells you that the market is making a really good turn,” she said.

Paskill said loan demand for commercial projects was also much higher than in 2010 but that most executable loans were confined to multifamily projects because they were considered safer. As a result, banks shoved huge amounts of money at multifamily developers with relatively thin underwriting criteria, he said.

“LTD (loan to debt) 75 percent – no problem,” Paskill said.

And until unemployment drops – the rate in Oregon for November was 0.5 percent above the national rate of 9.1 percent – and the housing market recovers, Paskill expects the multifamily market to stay strong.

“I think you’re seeing the beginning of an apartment complex boom right now,” he said. “It is something to watch. (Loan demand) tells you that the apartment demand is going to be there for the next five-plus years.”

Questions abound about how long that boom will last.

DuPont said that low vacancy rates could lead to a supply shortage, which would cause rents to rise.

Hill said people also are questioning how much new apartment construction the market can handle.

“There’s a lot of talk right now about whether we’re on the front end of some overbuilding,” he said. “But we should be fine through next year. Whether a bubble surfaces a couple years out, who knows.”

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A group of local investors plans to breathe new life into the Commerce Building, a 1906-built office building located in downtown Portland.

A team including Steve Rosenbaum, CEO of the ad agency Pop Art, as well as brothers and property managers Brian and Brandon Anderson, purchased the building from the Chiu 1981 Revocable Trust for $4 million. Both Rosenbaum’s firm, and the company that the Andersons work for, Pivot Property Management, will both occupy spaces in the building

The group plans on putting the building through an extensive renovation that includes a full façade modernization, as well as new elevator cabs, new restrooms with showers, a new gym, a new common conference room and a 75-stall secured bike parking facility. The project is also pursuing a Leadership in Energy and Environmental Design rating for existing buildings.

In addition to a renovation, the six-story, 48,159-square-foot building will also undergo a name change. The building will now be referred to as Broadway Commons in reference to its location at 225 S.W. Broadway.

With Pop Art and Pivot moving in, the building will go from 25 percent leased to 60 percent leased. But the two top floors are still available for lease at about $22 per square foot.

David Hill, Eric Haskins and Jake Lancaster, all of the Portland offices of Grubb & Ellis, represented the buyers. Joe Beehler and Ryan Pennington of the Portland offices of Colliers International represented the seller.

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Subaru of America signed a lease for a 413,700-square-foot building in North Portland, Grubb & Ellis announced last week.

The 10-year lease is for a build-to-suit distribution center, and training and office space on a 19.3-acre parcel at 14510 N. Lombard St. Trammell Crow Co. will design and construct the facility, which is expected to be finished in October.

The building will be part of the Rivergate Corporate Center III, which will have nearly 2.4 million square feet of industrial space when it’s completed. The development is being constructed on 114 Port of Portland-owned acres adjacent to Terminal 6, the port’s marine container terminal. Trammell Crow and Multi-Employer Property Trust, the developers of the center, lease the property from the port and then sublease build-to-suit facilities to tenants.

Subaru will vacate its distribution space at the 158th Commerce Park in Portland to occupy the new space. The company says it needed more space in Portland because of strong auto sales in North America and significant growth projections. The new facility will be 175,000 square feet larger than its present space.

Brad Fletcher, executive vice president and managing director of the Portland office of Grubb & Ellis, represented Subaru. Dave Ellis and John Fettig, principals with Capacity Commercial Group, represented the developers.

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While proposed projects are still having trouble coming to realization, Portland’s commercial real estate investments market is starting the heat up.

In its annual forecast, the national commercial real estate firm cities in the U.S. for investment opportunities over the next five years in the office, retail and industrial real estate markets.

Portland, with one of the nation’s lowest central business district office vacancy rates at 10 percent, ranked third out of nearly 50 cities for office real estate investment opportunities over the next five years, according to Grubb & Ellis. Only New York and Washington, D.C., ranked higher than Portland.

Portland ranked fifth for retail real estate investment opportunities in the same forecast. Portland trailed Washington, D.C., Los Angeles, New York and San Francisco respectively in retail. Additionally, Portland ranked ninth for industrial real estate investment opportunity.

Potential for investment opportunity for each property class was determined by ranking 13 property, economic and demographic variables in each city on a scale of 0 to 100 and adding the totals.

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“This whole sustainability movement isn’t just a trend; it’s here to stay,” said Patricia Raicht, vice president of Grubb & Ellis in Portland. And for brokers to get the limited business available these days, they need to stay on top of what that movement means to the industry, she said.

Several brokers in Oregon have chosen to use downtime during the recession to educate themselves on the booming sustainable real estate market. This notion led one Seattle-based real estate professional to create the Certified Green Broker program. It started out at the regional level in the Northwest, but is picking up steam nationally and could become a requirement for brokers at several agencies in the near future.

The Certified Green Broker program is a 30-hour course and two-hour exam that covers sustainability from the position of a broker. The coursework covers 10 areas of sustainable real estate, from quantifying the return on sustainable investments to giving building tours focused around green features. The course is certified by the U.S. Green Building Council, the same group that designed LEED certification, as an approved education provider program, and qualifies for continued education credits in Oregon, Washington, Idaho and Alaska.

Six percent of all commercial buildings in the nation are LEED certified, and 50 percent of new developments in the Northwest are tracking the certification. Both of those percentages are expected to rise significantly over the next few years.

The program was created by Tricia Deering, president of the Commercial Brokers Association in Seattle, a property database management firm for the Northwest. She once was asked to find a qualified green broker for a client. After spending days on an unsuccessful search, she decided to start her own program.

“I could find people that went through the LEED Accredited Professional program, but every time I talked to them they expressed their concern that the program was intended for builders, not brokers,” she said. “I figured this was a growing issue, so I decided to call the U.S. Green Building Council and get one started.”

Raicht was the first Oregonian to complete the course upon its inception last year. Now, 11 brokers are certified in the Portland-metro area and 68 nationally. The program also is being adopted by several national commercial real estate firms, including Grubb & Ellis, CB Richard Ellis and Colliers International. The program could become policy for those companies in the near future.

Raicht said she was so gung ho after completing the course that she decided to invite Deering and her team to the Grubb & Ellis national conference to give a presentation. The course has since been adopted as part of the Grubb & Ellis University continued education program and been made a requirement for those in the company’s national sustainability practices group.

“I thought it was a good idea because more and more you are starting to see corporations put an emphasis on getting into LEED buildings,” Raicht said. “But they’re still businesses, so they are looking for someone to explain the economic benefits as well as the sustainable benefits. This program helped me relay that technical information in terms that were relevant to businesses.”

Much like the federal requirement that federal employees must be in LEED certified buildings, Raicht has noticed large corporations, and even some local businesses, heading in that direction. MaryKay West, a Certified Green Broker and vice president with NAI Norris, Beggs & Simpson, noted that the firm has been receiving requests for proposals from large corporate tenants looking for green spaces, and representatives with green experience.

West said businesses are realizing more and more that the overall cost difference between a LEED certified space and a regular office is not as significant as often thought. The course taught her to bring lower energy costs, fewer sick days and higher retention rates into the equation for net operating costs, she said.

Beyond tenant representation, West said new commercial construction projects are being done by teams instead of individual firms. These teams are made up of architects, development firms, construction companies, operating managers and real estate agents. LEED Accredited Professional programs exist for some team members, but not brokers.

One major concern has been staying up to date with a field that is new and always changing. Deering said the group reviews the curriculum once a quarter and updates it whenever necessary.

“The people in the sustainability industry are passionate, so lots of times they bring the new information to our attention,” she said.

While the program continues to grow, Deering is in the process of getting the course approved for real estate continuing education credits across the country. She hopes it will be accredited by the end of this year.

“It is evident that this is the way the industry is going,” she said. “I’m getting calls from people across the country telling me they want to be the first Certified Green Broker in their state.”

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One large lease has significantly helped net absorption within Portland’s industrial space submarket.

United Stationers Supply Co., a subsidiary of United Stationers Inc., has leased 195,510 square feet at Building A of the Rivergate Corporate Center III, located in the Rivergate Industrial Park near the Port of Portland’s T-6 terminal.

The long-term lease marks the largest industrial lease of the past 24 months in Portland, said Evan Bernstein, associate broker with Capacity Commercial Group, the firm representing the property owner, Multi-Employer Property Trust. The lease brings the occupancy in the 573,420 square foot warehouse and distribution center to 60 percent, as well as 11 percent within the entire Rivergate Corporate Center, he said.

United Stationers Inc. is an international wholesale distributor of business products headquartered in Chicago. The company leased the space to consolidate three of its subsidiaries into a single warehouse. The new location will serve as the regional distribution hub for United Stationers Supply Co., Lagassee Inc. and ORS Nasco. While United Stationers Supply and Lagassee will be relocating within the region, the move will mark the Northwest expansion of ORS Nasco.

“Not only does this lease help 2010 net absorption market-wide, but it also solidifies Portland as a west coast regional distribution hub,” said Bernstein. “If you look at the fourth quarter of 2009, it was the first quarter in years that we have had positive net absorption. So, I don’t think this lease was a fluke, but rather an indicator that things are starting to pick up.”

The move will bring 65 employees to the space within the warehouse that is certified with a LEED Silver designation. The facility developer, Trammell Crow Company, is in the process of retrofitting the space for United Stationers.

United Stationers Supply Co. was represented by Brad Fletcher of Grubb & Ellis.

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KRUSE WAY STATISTICS

Fourth quarter of 2009
Direct vacancy: 19.7 percent
Total vacancy: 21.1 percent
Net absorption: 30,928 square feet
Year-to-date net absorption: 181,335 square feet
Asking rent for Class A space: $24.62 per square foot
Asking rent for Class B space: $18.61 per square foot

Information courtesy of Grubb & Ellis

For many years, the Kruse Way submarket was the prettiest girl at Portland’s real-estate dance. With 2.3 million square feet of Class A office space built from 1981 to 2009, quick access to Interstate 5 and proximity to executive housing in Lake Oswego, the office campus appealed to a number of companies.

But these days, many suitors are abandoning Kruse Way in favor of more attractive prospects.

According to Patricia Raicht, vice president at Grubb & Ellis, Kruse Way’s vacancy rate for the fourth quarter of 2009 was 21.1 percent, one of the highest in the Portland-metro area. And when numbers for the first quarter of 2010 are released later this month, she doesn’t expect them to be much different.

“Kruse Way had been our bulletproof submarket for many years,” Raicht said. “But the financial services, mortgage and other firms that clustered there were hit hard by this slowdown, and they closed, consolidated or reduced their space.”

Other firms are leaving, too. Northwest Evaluation Association, presently in Kruse Woods Tower, recently signed a lease to move into the former Port of Portland building at 121 N.W. Everett St. in Old Town. Last year, SAIF Corp. traded 21,000 square feet of space at Kruse Way for space in the Crown Plaza Building in downtown Portland.

Downtown Portland has become an appealing option for businesses that need less than 10,000 square feet because of low rates being offered for Class A space.

“There has been some flight from the suburbs to downtown,” said Bob Stutte, president of Norris & Stevens Inc. “In the past, we’ve seen the reverse.”

The city of Lake Oswego cited in a recent economic development strategy report that Kruse Way’s increasing office vacancy rates are a problem.

“The vacancies on Kruse Way have affected the city in terms of employment and spending in our retail areas,” said Jane Blackstone, economic development manager for the city of Lake Oswego. “We’re doing whatever we can by way of marketing and working with prospective tenants to fill that space.”

No new office construction has occurred along Kruse Way since developer Shorenstein Properties opened Kruse Oaks III in spring 2009. Mike Salsgiver, executive director of the Oregon-Columbia chapter of Associated General Contractors, said the amount of vacant space in areas like Kruse Way is a sign that the situation may worsen.

“We have another real-estate bubble coming because of the continued vacancies we’re seeing in new office space,” Salsgiver said. “Oregon may have overbuilt.”

Brian Owendoff, managing director at CB Richard Ellis, disagreed. The vacancies at Kruse Way and other office clusters are not because of excessive supply, he said, but rather inadequate demand because of high unemployment rates.

“The greater Portland area has lost 37,200 jobs,” Owendoff said. “Even though Kruse Way has historically high vacancies today, banks aren’t lending. That means no new construction. Eventually, the space will be absorbed.”

According to Gordon King, vice president at Colliers International, two waves of vacancy have already hit Kruse Way. The first came in 2006, when the mortgage meltdown led to the vacancy rate rising from 3.7 percent in the second quarter to 10 percent by the end of the year. Then, the overall economic collapse contributed to the vacancy rate rising from 15 percent to 23 percent in the fourth quarter of 2008. Now, King said, companies’ relocations to downtown Portland will likely trigger a third wave.

“Suddenly, businesses are looking at just the cost of a space,” King said. “Businesses today don’t consider location as highly and are willing to trade that for lower-priced space. These buildings are well designed and maintained, but price sensitivity is driving things.”

King said the area has recovered before. During the mid-1980s, the collapse of the lumber industry contributed to Kruse Way vacancy rates reaching 22 percent. Eventually, financial firms moved in.

“It took seven years after the decline in the ’80s to get back into a landlord-oriented market,” King said. “It might be four to seven years until Kruse Way is back at a 10-percent vacancy rate. Commercial real-estate cycles are very long.”

If Multnomah County, which charges a 1.45-percent business income tax, increases the tax to make up for major budget shortfalls, Owendoff said we could see companies in downtown Portland relocating to places like Kruse Way. Clackamas County, where Kruse Way is located, does not have a business tax.

“The window of opportunity to get Class A office space downtown at a Class B price is closing,” Owendoff said. “I’m hearing from businesses downtown that if taxes in Portland go up, they will leave. From where I sit, that vacancy rate will get whittled down to below 10 percent in five years.”

But until taxes increase, or the job market improves, Kruse Way landlords will continue to offer lower rental rates, tenant-improvement allowances and other perks, Raicht said. That may explain why real-estate professionals still believe Kruse Way can bounce back.

“If you have faith in Portland, you have to have faith in Kruse Way,” Stutte said.

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As 2009 drags on for investment real estate professionals, they finally have a reason to believe activity will increase. One Main Place, a 20-story office tower at 101 S.W. Main St. in downtown Portland, is on the market.

Russ Cooper, the building’s broker through Eastdil Realty Co., confirmed One Main Place was for sale, but could not comment further on the listing.

The 315,133-square-foot building, completed in 1980, is about 90 percent leased, said its leasing broker, Mark Friel of Pacific Real Estate Partners. Security systems company Tripwire, which last year signed a five-year lease agreement for 32,000 square feet, occupies the most space in the building.

There’s about 11,000 square feet of space available in the building, with the average lease rate hovering around $24 per square foot.

RREEF Realty Investments paid $69.3 million for the building in 2006, when it was 77 percent occupied. David Squire, a vice president at Grubb & Ellis, said the property is likely worth more now, due to Tripwire’s deal. Other tenants in the building include Banner Bank and Yellowpages.com.

In the Portland-metro area, RREEF also owns the Kelley Point Distribution Center, the Parkside Business Center, Lake Oswego Towne Square, Nimbus Oaks and the Streets of Tanasbourne.

Although the sale of One Main Place would not make up for a sluggish investment real estate market, brokers said, it would at least give them an idea of the value of the city’s Class-A office buildings. No large buildings have sold in 2009, making it difficult for brokers to gauge property values.

Even with a large transaction looming on the horizon, investment brokers are anxious about the listing. Squire said the sale of One Main Place will reset the value of investment properties in the city.

“Everybody is waiting to see what happens with the building,” Squire said. “It will be a very telling sign about where values are.”

Raymond Duchek, a vice president of investment properties at CB Richard Ellis, said he’s never seen more inactivity in his 13 years in the business. The volume of buildings sold in 2009 has been minor compared to years past, making even historical comparisons of value difficult.

“The buildings that have sold have all been small, and they’ve been few and far between,” Ducheck said. “It’s been hard to set a point of value.”

The possibility of One Main Place selling quickly is a confidence builder for investment brokers, Duchek said. But there are so many factors that come into play when underwriting an investment transaction, he said, it will be difficult to understand the relevance of the deal until it happens.

Squire is confident Eastdil Realty Co. will find an institutional buyer for One Main Place by the end of the year.

RREEF did not return phone calls by deadline.

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