10-Q

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

For the quarter ended September 30, 2009

OR

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

For the transition period from                      to                     

Commission file number 1-8122

GRUBB & ELLIS COMPANY

(Exact name of registrant as specified in its charter)

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

1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705
(Address of principal executive offices) (Zip Code)

(714) 667-8252
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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 þ	Non-accelerated filer o	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 October 31, 2009 was 65,180,830 shares.

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GRUBB & ELLIS COMPANY

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

	September 30,			December 31,
	2009			2008
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	9,444		$	32,985
Restricted cash		12,476			36,047
Investment in marketable securities		631			1,510
Current portion of accounts receivable from related parties — net		7,756			22,630
Current portion of advances to related parties — net		26			2,982
Notes receivable from related party — net		9,100			9,100
Service fees receivable — net		22,208			26,987
Current portion of professional service contracts — net		3,372			4,326
Real estate deposits and pre-acquisition costs		4,127			5,961
Properties held for sale — net		22,468			78,708
Identified intangible assets and other assets held for sale — net		4,823			25,751
Prepaid expenses and other assets		14,115			23,620
Total current assets		110,546			270,607
Accounts receivable from related parties — net		13,819			11,072
Advances to related parties — net		6,897			11,499
Professional service contracts — net		8,613			10,320
Investments in unconsolidated entities		3,341			8,733
Property held for investment — net		82,808			88,699
Property, equipment and leasehold improvements — net		14,078			14,016
Identified intangible assets — net		96,455			100,631
Other assets — net		5,621			4,700
Total assets	$	342,178		$	520,277
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	61,179		$	70,222
Due to related parties		1,992			2,447
Current portion of line of credit		62,709			63,000
Current portion of capital lease obligations		984			333
Notes payable of properties held for sale		31,613			108,959
Liabilities of properties held for sale — net		2,376			9,257
Other liabilities		41,117			37,550
Deferred tax liability		4,822			2,080
Total current liabilities		206,792			293,848
Long-term liabilities:
Senior notes		16,277			16,277
Notes payable and capital lease obligations		107,953			107,203
Other long-term liabilities		11,262			11,875
Deferred tax liabilities		15,664			17,298
Total liabilities		357,948			446,501
Commitments and contingencies (See Note 14)		—			—
Stockholders’ (deficit) equity:
Preferred stock: $0.01 par value; 10,000,000 shares authorized as of September 30, 2009 and December 31, 2008; no shares issued and outstanding as of September 30, 2009 and December 31, 2008		—			—
Common stock: $0.01 par value; 100,000,000 shares authorized; 65,180,830 and 65,382,601 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively		651			654
Additional paid-in capital		411,913			402,780
Accumulated deficit		(428,931	)		(333,263	)
Other comprehensive loss		(43	)		—
Total Grubb & Ellis Company stockholders’ (deficit) equity		(16,410	)		70,171
Noncontrolling interests		640			3,605
Total (deficit) equity		(15,770	)		73,776
Total liabilities and stockholders’ (deficit) equity	$	342,178		$	520,277

See accompanying notes to consolidated financial statements.

2

GRUBB & ELLIS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2009			2008			2009			2008
REVENUE
Management services	$	67,456		$	63,479		$	199,636		$	185,855
Transaction services		46,321			57,502			118,793			173,191
Investment management		14,829			24,116			43,912			84,480
Rental related		7,498			8,119			22,754			25,302
Total revenue		136,104			153,216			385,095			468,828
OPERATING EXPENSE
Compensation costs		116,339			120,765			342,072			365,488
General and administrative		25,464			40,258			83,801			84,387
Depreciation and amortization		3,504			4,884			8,368			13,692
Rental related		4,961			4,337			16,159			15,384
Interest		3,741			2,947			12,490			9,928
Merger related costs		—			2,657			—			10,217
Real estate related impairments		2,393			34,778			16,615			34,778
Goodwill and intangible assets impairment		583			—			583			—
Total operating expense		156,985			210,626			480,088			533,874
OPERATING LOSS		(20,881	)		(57,410	)		(94,993	)		(65,046	)
OTHER INCOME (EXPENSE)
Equity in losses of unconsolidated entities		(224	)		(5,859	)		(1,635	)		(10,602	)
Interest income		188			234			472			757
Other income (loss)		272			(508	)		394			(3,801	)
Total other income (expense)		236			(6,133	)		(769	)		(13,646	)
Loss from continuing operations before income tax (provision) benefit		(20,645	)		(63,543	)		(95,762	)		(78,692	)
Income tax (provision) benefit		(277	)		15,943			(587	)		23,124
Loss from continuing operations		(20,922	)		(47,600	)		(96,349	)		(55,568	)
Discontinued operations
Loss from discontinued operations — net of taxes		(535	)		(14,941	)		(379	)		(18,871	)
Gain (loss) on disposal of discontinued operations — net of taxes		—			(185	)		(626	)		181
Total loss from discontinued operations		(535	)		(15,126	)		(1,005	)		(18,690	)
Net loss		(21,457	)		(62,726	)		(97,354	)		(74,258	)
Net loss attributable to noncontrolling interests		(98	)		(6,444	)		(1,686	)		(6,298	)
Net loss attributable to Grubb & Ellis Company	$	(21,359	)	$	(56,282	)	$	(95,668	)	$	(67,960	)
Basic loss per share:
Loss from continuing operations attributable to Grubb & Ellis Company	$	(0.33	)	$	(0.65	)	$	(1.49	)	$	(0.79	)
Loss from discontinued operations attributable to Grubb & Ellis Company		(0.01	)		(0.23	)		(0.02	)		(0.28	)
Net loss per share	$	(0.34	)	$	(0.88	)	$	(1.51	)	$	(1.07	)
Diluted loss per share:
Loss from continuing operations attributable to Grubb & Ellis Company	$	(0.33	)	$	(0.65	)	$	(1.49	)	$	(0.79	)
Loss from discontinued operations attributable to Grubb & Ellis Company		(0.01	)		(0.23	)		(0.02	)		(0.28	)
Net loss per share	$	(0.34	)	$	(0.88	)	$	(1.51	)	$	(1.07	)
Basic weighted average shares outstanding		63,628			63,601			63,618			63,574
Diluted weighted average shares outstanding		63,628			63,601			63,618			63,574
Dividends declared per share	$	—		$	—		$	—		$	0.2050

See accompanying notes to consolidated financial statements.

3

GRUBB & ELLIS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	For the Nine Months
	Ended September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(97,354	)	$	(74,258	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on sale of real estate		1,031			—
Equity in losses of unconsolidated entities		1,635			10,602
Depreciation and amortization (including amortization of signing bonuses)		12,770			28,017
Loss on disposal of property, equipment and leasehold improvements		449			312
Impairment of real estate		16,365			45,767
Impairment of goodwill and intangibles		583			—
Stock-based compensation		8,734			8,484
Compensation expense on profit sharing arrangements		102			1,716
Amortization/write-off of intangible contractual rights		776			1,179
Amortization of deferred financing costs		1,501			342
(Gain) loss on marketable equity securities		(449	)		3,344
Deferred income taxes		1,108			(28,849	)
Allowance for uncollectible accounts		12,824			10,861
Loss on write-off of real estate deposit and pre-acquisition costs		122			—
Other operating noncash gains		—			612
Changes in operating assets and liabilities:
Accounts receivable from related parties		9,750			4,635
Prepaid expenses and other assets		7,463			(24,395	)
Accounts payable and accrued expenses		(7,167	)		(31,103	)
Other liabilities		704			8,614
Net cash used in operating activities		(29,053	)		(34,120	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(2,332	)		(3,359	)
Tenant improvements and capital expenditures		(2,571	)		(2,958	)
Purchases of marketable equity securities		(4,231	)		(505	)
Proceeds from sale of marketable equity securities		—			2,653
Advances to related parties		(3,808	)		(10,169	)
Proceeds from repayment of advances to related parties		1,934			22,543
Payments to related parties		(455	)		(2,217	)
Origination of notes receivable to related parties		—			(15,100	)
Repayment of notes receivable from related parties		—			13,600
Investments in unconsolidated entities		(3,963	)		(673	)
Distributions of capital from unconsolidated entities		91			603
Acquisition of properties		—			(111,690	)
Proceeds from sale of properties		93,471			—
Real estate deposits and pre-acquisition costs		(2,565	)		(56,568	)
Proceeds from collection of real estate deposits and pre-acquisition costs		4,277			81,851
Restricted cash		1,337			15,270
Net cash provided by (used in) investing activities		81,185			(66,719	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on line of credit		11,389			55,000
Repayments on line of credit		(11,389	)		—
Borrowings on notes payable		936			94,149
Repayments of notes payable and capital lease obligations		(79,154	)		(56,219	)
Other financing costs		(137	)		52
Deferred financing costs		(1,456	)		(2,693	)
Net proceeds from the issuance of common stock		—			314
Repurchase of common stock		—			(1,840	)
Dividends paid to common stockholders		—			(15,129	)
Contributions from noncontrolling interests		5,827			15,323
Distributions to noncontrolling interests		(1,689	)		(3,020	)
Net cash (used in) provided by financing activities		(75,673	)		85,937
NET DECREASE IN CASH AND CASH EQUIVALENTS		(23,541	)		(14,902	)
Cash and cash equivalents — Beginning of period		32,985			49,328
Cash and cash equivalents — End of period	$	9,444		$	34,426
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Issuance of warrants	$	534		$	—
Capital lease obligations	$	2,274		$	—
Deconsolidation of assets held by variable interest entities	$	—		$	243,398
Deconsolidation of liabilities held by variable interest entities	$	—		$	198,409
Deconsolidation of sponsored mutual fund	$	5,517		$	—

See accompanying notes to consolidated financial statements.

4

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

Grubb & Ellis Company (“the Company” or “Grubb & Ellis”), a Delaware corporation founded over 50 years ago in Northern California, is a commercial real estate services and investment management firm. On December 7, 2007, the Company effected a stock merger (the “Merger”) with NNN Realty Advisors, Inc. (“NNN”), a real estate asset management company and sponsor of public non-traded real estate investment trusts (“REITs”), as well as a sponsor of tax deferred tenant-in-common (“TIC”) 1031 property exchanges and other investment programs. Upon the closing of the Merger, a change of control occurred. The former stockholders of NNN acquired approximately 60% of the Company’s issued and outstanding common stock.

The Company offers property owners, corporate occupants and program investors comprehensive integrated real estate solutions, including transactions, management, consulting and investment advisory services supported by market research and local market expertise.

In certain instances throughout these Financial Statements phrases such as “legacy Grubb & Ellis” or similar descriptions are used to reference, when appropriate, Grubb & Ellis prior to the Merger. Similarly, in certain instances throughout these Financial Statements the term NNN, “legacy NNN”, or similar phrases are used to reference, when appropriate, NNN Realty Advisors, Inc. prior to the Merger.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned controlled subsidiaries, variable interest entities (“VIEs”) in which the Company is the primary beneficiary, and partnerships/limited liability companies (“LLCs”) in which the Company is the managing member or general partner and the other partners/members lack substantive rights (hereinafter collectively referred to as the “Company”), and are prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2008. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods presented have been included in these financial statements and are of a normal and recurring nature.

The Company consolidates entities that are VIEs when the Company is deemed to be the primary beneficiary of the VIE. For entities in which (i) the Company is not deemed to be the primary beneficiary, (ii) the Company’s ownership is 50.0% or less and (iii) the Company has the ability to exercise significant influence, the Company uses the equity accounting method (i.e. at cost, increased or decreased by the Company’s share of earnings or losses, plus contributions less distributions). The Company also uses the equity method of accounting for jointly-controlled tenant-in-common interests. As reconsideration events occur, the Company will reconsider its 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.

As of September 30, 2009, the Company has classified two of its remaining four properties as properties held for sale in its consolidated balance sheets and has included the operations of such properties in discontinued operations in the consolidated statements of operations for all periods presented as required by the Property, Plant and Equipment Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”). All four remaining properties had been previously classified as held for sale in the Annual Report on Form 10-K/A for the year ended December 31, 2008 and the Quarterly Report on Form 10-Q for the period ended March 31, 2009. However, as of June 30, 2009, one of these properties, and as of September 30, 2009 a second of these properties, no longer met the held for sale criteria under the requirements of the Property, Plant and Equipment Topic of the FASB Codification and, accordingly, each was reclassified to properties held for investment in the consolidated balance sheets with the operations of such property included in continuing operations in the consolidated statements of operations for all periods presented.

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.

5

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 and are of a normal recurring nature.

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.

Fair Value Measurements

In September 2006, the FASB issued the requirements of the Fair Value Measurements and Disclosures Topic of the FASB Codification. The Topic defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value instruments. In February 2008, the FASB amended the Topic to delay the effective date of the Fair Value Measurements and Disclosures for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). There was no effect on the Company’s consolidated financial statements as a result of the adoption of the Topic as of January 1, 2008 as it relates to financial assets and financial liabilities. For items within its scope, the amended Fair Value Measurements and Disclosures Topic deferred the effective date of Fair Value Measurements and Disclosures to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted the requirements of the Topic as it relates to non-financial assets and non-financial liabilities in the first quarter of 2009, which did not have a material impact on the consolidated financial statements.

The Fair Value Measurements and Disclosures Topic establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. 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 either observable directly or through corroboration with observable market data. Level 3 inputs are unobservable inputs, due to little or no market activity for the asset or liability, such as internally-developed valuation models.

The following table presents changes in financial and nonfinancial assets measured at fair value on either a recurring or nonrecurring basis for the nine months ended September 30, 2009:

			Quoted Prices in
			Active Markets		Significant Other		Significant
			for Identical		Observable		Unobservable		Total
	September 30,		Assets		Inputs		Inputs		Impairment
Assets (in thousands)	2009		Level 1		Level 2		Level 3		Losses
Investments in marketable equity securities	$	631	$	631	$	—	$	—	$	—
Properties held for sale	$	22,468	$	—	$	—	$	22,468	$	250
Property held for investment	$	82,808	$	—	$	—	$	82,808	$	(7,050	)
Investments in unconsolidated entities	$	3,341	$	—	$	—	$	3,341	$	(9,565	)

Fair Value of Financial Instruments

The 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 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 each quarter based on 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 the Company’s entire holdings of a particular financial instrument, nor do they consider that 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.

6

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

As of September 30, 2009, the fair values of the Company’s notes payable, senior notes and line of credit were calculated to be approximately $120.3 million, $15.8 million and $42.6 million, respectively, compared to the carrying values of $138.6 million, $16.3 million and $63.0 million, respectively. The calculation was based on assumed discount rates ranging from 8.25% to 10.25%. In addition, the First Credit Facility Letter Amendment (as defined and discussed in Note 11) granted the Company a one-time right, exercisable by November 30, 2009, to prepay the Credit Facility (as defined in Note 11) in full for a reduced principal amount equal to 65% of the aggregate principal amount of the Credit Facility then outstanding. Calculation of the fair value of the line of credit assumed a high probability the Credit Facility would be prepaid at the reduced principal amount.

As of December 31, 2008, the fair values of the Company’s notes payable, senior notes and lines of credit, which were calculated based on assumed discount rates ranging from 8.4% to 10.4%, were approximately $195.4 million, $15.5 million and $60.0 million, respectively, compared to the carrying values of $216.0 million, $16.3 million and $63.0 million, respectively. The amounts recorded for accounts receivable, notes receivable, advances and accounts payable and accrued liabilities approximate fair value due to their short-term nature.

Noncontrolling Interests

In December 2007, the FASB issued an amendment to the requirements of the Consolidation Topic. The Consolidation Topic established new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The Topic requires that noncontrolling interests be presented as a component of consolidated stockholders’ equity, eliminates minority interest accounting such that the amount of net income attributable to the noncontrolling interests is presented as part of consolidated net income in the accompanying consolidated statements of operations and not as a separate component of income and expense, and requires that upon any changes in ownership that result in the loss of control of the subsidiary, the noncontrolling interest be re-measured at fair value with the resultant gain or loss recorded in net income. The requirements of the Topic became effective for fiscal years beginning on or after December 15, 2008. The Company adopted the requirements of the Topic on a retrospective basis on January 1, 2009. The adoption of the requirements of the Topic had an impact on the presentation and disclosure of noncontrolling (minority) interests in the consolidated financial statements. As a result of the retrospective presentation and disclosure requirements of the Topic, the Company is required to reflect the change in presentation and disclosure for all periods presented. Principal effect on the consolidated balance sheet as of December 31, 2008 related to the adoption of the requirements of the Topic was the change in presentation of minority interest from mezzanine to redeemable noncontrolling interest, as reported herein. Additionally, the adoption of the requirements of the Topic had the effect of reclassifying (income) loss attributable to noncontrolling interest in the consolidated statements of operations from minority interest to separate line items. The Topic also requires that net income (loss) be adjusted to include the net (income) loss attributable to the noncontrolling interest, and a new line item for net income (loss) attributable to controlling interest be presented in the consolidated statements of operations.

A noncontrolling interest relates to the interest in the consolidated entities that are not wholly owned by the Company. As a result of adopting the requirements of the Consolidation Topic on January 1, 2009, the Company has restated the December 31, 2008 consolidated balance sheet, as well as the statement of operations for the three and nine months ended September 30, 2008 as follows:

	As Previously
As of December 31, 2008	Reported		Adjustment			As Adjusted
Minority interests	$	3,605	$	(3,605	)	$	—
Noncontrolling interest equity	$	—	$	3,605		$	3,605
Total equity	$	70,171	$	3,605		$	73,776

7

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

	As Previously
Three Months Ended September 30, 2008	Reported			Adjustment			As Adjusted
Minority interest in loss	$	6,444		$	(6,444	)	$	—
Net loss	$	(56,282	)	$	(6,444	)	$	(62,726	)
Loss attributable to noncontrolling interests	$	—		$	(6,444	)	$	(6,444	)

	As Previously
Nine Months Ended September 30, 2008	Reported			Adjustment			As Adjusted
Minority interest in income	$	6,298		$	(6,298	)	$	—
Net loss	$	(67,960	)	$	(6,298	)	$	(74,258	)
Income attributable to noncontrolling interests	$	—		$	(6,298	)	$	(6,298	)

Recently Issued Accounting Pronouncements

The Company follows the requirements of the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification. The Topic defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value instruments. In February 2008, the FASB amended the Topic to delay the effective date of the Fair Value Measurements and Disclosures for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). There was no effect on the Company’s consolidated financial statements as a result of the adoption of the Topic as of January 1, 2008 as it relates to financial assets and financial liabilities. For items within its scope, the amended Fair Value Measurements and Disclosures Topic defered the effective date of Fair Value Measurements and Disclosures to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted the requirements of the Topic as it relates to non-financial assets and non-financial liabilities in the first quarter of 2009, which did not have a material impact on the consolidated financial statements.

In December 2007, the FASB issued an amendment to the requirements of the Business Combinations Topic. The amended Topic requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. The Topic changed the accounting treatment and disclosure for certain specific items in a business combination. The Topic applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted the requirements of the Topic on a prospective basis on January 1, 2009. The adoption of the requirements of the Topic will materially affect the accounting for any future business combinations.

In March 2008, the FASB issued an amendment to the requirements of the Derivatives and Hedging Topic. The requirements of the amended Topic are intended to improve financial reporting of derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The requirements of the amended Topic achieve these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. The requirements of the amended Topic became effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company adopted the requirements of the amended Topic in the first quarter of 2009. The adoption of the requirements of the amended Topic did not have a material impact on the consolidated financial statements.

In April 2008, the FASB issued an amendment to the requirements of Intangibles-Goodwill and Other Topic. The requirements of the amended Topic are intended to improve the consistency between the useful life of recognized intangible assets and the period of expected cash flows used to measure the fair value of the assets. The amendment changes the factors an entity should consider in developing renewal or extension assumptions in determining the useful life of recognized intangible assets. In addition the amended Topic requires disclosure of the entity’s accounting policy regarding costs incurred to renew or extend the term of recognized intangible assets, the weighted average period to the next renewal or extension, and the total amount of capitalized costs incurred to renew or extend the term of recognized intangible assets. The requirements of the amended Topic are effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The Company adopted the requirements of the amended Topic on January 1, 2009. The adoption of the requirements of the amended Topic did not have a material impact on the consolidated financial statements.

8

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

In June 2008, the FASB issued an amendment to the requirements of the Earnings Per Share Topic, which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the computation of earnings per share under the two-class method which apply to the Company because it grants instruments to employees in share-based payment transactions that meet the definition of participating securities, is effective retrospectively for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The Company adopted the requirements of the amended Topic in the first quarter of 2009. The adoption of the requirements of the amended Topic did not have a material impact on the consolidated financial statements.

In April 2009, the FASB issued an amendment to the requirements of the Financial Instruments Topic. The amended Topic relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value. Prior to issuing the requirements of the amended Topic, fair values for these assets and liabilities were only disclosed once a year. The amended Topic now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The adoption of the requirements of the amended Topic did not have a material impact on the consolidated financial statements.

The requirements of the Investments-Debt and Equity Securities Topic, is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The Topic also requires increased and more timely disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. The adoption of the requirements of the Topic did not have a material impact on the consolidated financial statements.

In April 2009, the FASB issued an amendment to the requirements of the Fair Value Measurements and Disclosures Topic. The Topic relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It states that the objective of fair value measurement is to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, the requirements of the Topic reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The adoption of the amended Topic did not have a material impact on the consolidated financial statements.

In April 2009, the FASB issued an amendment to the requirements of the Business Combinations Topic. The requirements of the Business Topic clarifies to address application issues on the accounting for contingencies in a business combination. The requirements of the amended Topic is effective for assets or liabilities arising from contingencies in business combinations acquired on or after January 1, 2009. The adoption of the requirements of the amended Topic did not have a material impact on the consolidated financial statements.

9

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

In June 2009, the FASB issued an amendment to the requirements of the Transfers and Servicing Topic, which addresses the effects of eliminating the qualifying SPE concept and redefines who the primary beneficiary is for purposes of determining which variable interest holder should consolidated the variable interest entity. The requirements of the amended Topic become effective for annual periods beginning after November 15, 2009. The Company is reviewing any impact this may have on the consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a Replacement of FASB Statement No. 162 (“SFAS No. 168”). SFAS No. 168 established that the FASB Accounting Standards Codification (“the Codification”) became the single official source of authoritative U.S. GAAP, other than guidance issued by the SEC. Following this statement, the FASB will not issue new standards in the form of Statements, Staff Positions or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates. All guidance contained in the Codification carries an equal level of authority. The GAAP hierarchy was modified to include only two levels of GAAP: authoritative and non-authoritative. All non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative. The Codification, which changes the referencing of financial standards, became effective for interim and annual periods ending on or after September 15, 2009. The adoption of SFAS No. 168 did have a material impact on the consolidated financial statements.

The Company has adopted the requirements of the Subsequent Events Topic effective beginning with the quarter ended September 30, 2009 and has evaluated for disclosure subsequent events that have occurred up through November 13, 2009, the date of issuance of these financial statements.

2. MARKETABLE SECURITIES

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

	As of September 30, 2009									As of December 31, 2008
								Fair								Fair
	Historical		Gross Unrealized					Market		Historical		Gross Unrealized				Market
(In thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses		Value
	(Unaudited)
Equity securities	$	532	$	—	$	(43	)	$	489	$	—	$	—	$	—	$	—

There were no sales of marketable equity securities during the three and nine month periods ended September 30, 2009. Sales of marketable equity securities resulted in realized losses of approximately $200,000 and $1.8 million during the three and nine months ended September 30, 2008, respectively. The Company recognized $1.6 million of these losses during the six months ended June 30, 2008, prior to the sale of the securities, as the Company believed that the decline in value of these securities was other than temporary.

Investments in Limited Partnerships

The Company acquired Grubb & Ellis Alesco Global Advisors, LLC (“Alesco”) in 2007 and through this subsidiary the Company serves as general partner and investment advisor to one hedge fund limited partnership and as investment advisor to three mutual funds as of September 30, 2009. The limited partnership is required to be consolidated in accordance with the requirements of the Consolidation Topic. As of December 31, 2008, Alesco served as general partner and investment advisor to five hedge fund limited partnerships and as investment advisor to one mutual fund. During the nine months ended September 30, 2009, four of the hedge fund limited partnerships were liquidated.

For the three and nine months ended September 30, 2009, Alesco had investment income of approximately $274,000 and $629,000, respectively, which is reflected in other income (expense) and offset in noncontrolling interest in loss of consolidated entities on the statements of operations. For the three and nine months ended September 30, 2008, Alesco had investment losses of approximately $325,000 and $1.6 million, respectively, which are reflected in other expense and offset in noncontrolling interest in loss of consolidated entities on the statements of operations. Alesco earned approximately $25,000 and $99,000 of management fees based on ownership interest under the agreements for the nine months ended September 30, 2009 and 2008, respectively. As of September 30, 2009 and December 31, 2008, these limited partnerships had assets of approximately $142,000 and $1.5 million, respectively, primarily consisting of exchange traded marketable securities, including equity securities and foreign currencies.

10

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

The following table reflects trading securities and their original cost, gross unrealized appreciation and depreciation, and estimated market value:

	As of September 30, 2009									As of December 31, 2008
								Fair									Fair
	Historical		Gross Unrealized					Market		Historical		Gross Unrealized					Market
(In thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(Unaudited)
Equity securities	$	170	$	—	$	(28	)	$	142	$	1,933	$	12	$	(435	)	$	1,510

	For the Three Months Ended September 30, 2009											For the Three Months Ended September 30, 2008
	Investment											Investment
(In thousands)	Income			Realized			Unrealized		Total			Income			Realized			Unrealized		Total
	(Unaudited)											(Unaudited)
Equity securities	$	15		$	45		$	220	$	280		$	108		$	(568	)	$	212	$	(248	)
Less investment expenses		(6	)		—			—		(6	)		(77	)		—			—		(77	)
	$	9		$	45		$	220	$	274		$	31		$	(568	)	$	212	$	(325	)
	For the Nine Months Ended September 30, 2009											For the Nine Months Ended September 30, 2008
	Investment											Investment
(In thousands)	Income			Realized			Unrealized		Total			Income			Realized			Unrealized		Total
	(Unaudited)											(Unaudited)
Equity securities	$	206		$	(191	)	$	640	$	655		$	237		$	(2,172	)	$	622	$	(1,313	)
Less investment expenses		(26	)		—			—		(26	)		(244	)		—			—		(244	)
	$	180		$	(191	)	$	640	$	629		$	(7	)	$	(2,172	)	$	622	$	(1,557	)

3. RELATED PARTIES

Related party balances are summarized below:

Accounts Receivable

Accounts receivable from related parties consisted of the following:

	September 30,			December 31,
(In thousands)	2009			2008
Accrued property management fees	$	16,492		$	23,298
Accrued lease commissions		8,755			7,720
Accounts receivable from sponsored REITs		4,545			4,768
Accrued asset management fees		2,048			1,725
Other accrued fees		1,997			3,372
Accrued real estate acquisition fees		698			1,834
Other receivables		178			647
Total		34,713			43,364
Allowance for uncollectible receivables		(13,138	)		(9,662	)
Accounts receivable from related parties — net		21,575			33,702
Less portion classified as current		(7,756	)		(22,630	)
Non-current portion	$	13,819		$	11,072

11

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

Advances to Related Parties

The Company makes advances to affiliated real estate entities under management in the normal course of business. Such advances are uncollateralized, have payment terms of one year or less unless extended by the Company, and generally bear interest at a range of 6.0% to 12.0% per annum. The advances consisted of the following:

	September 30,			December 31,
(In thousands)	2009			2008
Advances to properties of related parties	$	15,663		$	14,714
Advances to related parties		3,281			2,937
Total		18,944			17,651
Allowance for uncollectible advances		(12,021	)		(3,170	)
Advances to related parties — net		6,923			14,481
Less portion classified as current		(26	)		(2,982	)
Non-current portion	$	6,897		$	11,499

As of September 30, 2009, accounts receivable totaling $310,000 is due from a program 30.0% owned and managed by Anthony W. Thompson, the Company’s former Chairman who subsequently resigned in February 2008. The receivable of $310,000 has been fully reserved for and is included in the allowance for uncollectible advances. On November 4, 2008, the Company made a formal written demand to Mr. Thompson for these monies.

As of December 31, 2008, advances to a program 40.0% owned and, as of April 1, 2008, managed by Mr. Thompson, totaled $983,000, which includes $61,000 in accrued interest. As of September 30, 2009, the total outstanding balance of $983,000, inclusive of $61,000 in accrued interest, was past due. The total amount of $983,000 million has been reserved for and is included in the allowance for uncollectible advances. On November 4, 2008 and April 3, 2009, the Company made formal written demands to Mr. Thompson for these monies.

Notes Receivable From Related Party

In December 2007, the Company advanced funds to Grubb & Ellis Apartment REIT, Inc. (“Apartment REIT”) on an unsecured basis. The unsecured note required monthly interest-only payments which began on January 1, 2008. The balance owed to the Company as of December 31, 2007 which consisted of $7.6 million in principal was repaid in full in the first quarter of 2008.

In June 2008, the Company advanced $3.7 million to Apartment REIT on an unsecured basis. The unsecured note originally had a maturity date of December 27, 2008 and bore interest at a fixed rate of 4.95% per annum. On November 10, 2008, the Company extended the maturity date to May 10, 2009 and adjusted the interest rate to a fixed rate of 5.26% per annum. The note required monthly interest-only payments beginning on August 1, 2008 and provided for a default interest rate in an event of default equal to 2.00% per annum in excess of the stated interest rate. Effective May 10, 2009 the Company entered into a second extension agreement with Apartment REIT, extending the maturity date to November 10, 2009. The new terms of the extension continue to require monthly interest-only payments beginning May 1, 2009 and bears interest at a fixed rate of 8.43% with the original default rate.

In September 2008, the Company advanced an additional $5.4 million to Apartment REIT on an unsecured basis. The unsecured note originally had a maturity date of March 15, 2009 and bore interest at a fixed rate of 4.99% per annum. Effective March 9, 2009, the Company extended the maturity date to September 15, 2009 and adjusted the interest rate to a fixed rate of 5.00% per annum. The note requires monthly interest-only payments beginning on October 1, 2008 and provides for a default interest rate in an event of default equal to 2.00% per annum in excess of the stated interest rate.

There were no advances to or repayments made by Apartment REIT during the nine months ending September 30, 2009. As of September 30, 2009, the balance owed by Apartment REIT to the Company on the two unsecured notes totaled $9.1 million in principal with no interest outstanding.

On November 10, 2009, the Company consolidated the aforementioned $3.7 million and 5.4 million unsecured notes into the Consolidated Promissory Note with Apartment REIT whereby the two unsecured promissory notes receivable were cancelled and consolidated the outstanding principal amounts of the promissory notes into the Consolidated Promissory Note. The Consolidated Promissory Note has an outstanding principal amount of $9,100,000, an interest rate of 4.5% per annum, a default interest rate of 2.0% in excess of the interest rate then in effect, and a maturity date of January 1, 2011. The interest rate payable under the Consolidated Promissory Note is subject to a one-time adjustment to a maximum rate of 6.0% per annum, which will be evaluated and may be adjusted by the Company, in its sole discretion, on July 1, 2010.

12

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

4. VARIABLE INTEREST ENTITIES

The determination of the appropriate accounting method with respect to the Company’s variable interest entities (“VIEs”), including joint ventures, is based on the requirements of the Consolidation Topic. The Company consolidates any VIE for which it is the primary beneficiary.

The Company determines if an entity is a VIE under the requirements of the Consolidation Topic based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. The Company makes judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, then a quantitative analysis, if necessary. In a quantitative analysis, the Company incorporates various estimates, including estimated future cash flows, asset hold periods and discount rates, as well as estimates of the probabilities of various scenarios occurring. If the entity is a VIE, the Company then determines whether to consolidate the entity as the primary beneficiary. The Company is deemed to be the primary beneficiary of the VIE and consolidates the entity if the Company will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns or both. As reconsideration events occur, the Company will reconsider its 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.

The Company’s Investment Management segment is a sponsor of TIC Programs and related formation LLCs. As of September 30, 2009 and December 31, 2008, the Company had investments in seven LLCs that are VIEs in which the Company is the primary beneficiary. These seven LLCs hold interests in the Company’s TIC investments. The carrying value of the assets and liabilities for these consolidated VIEs as of September 30, 2009 was $2.3 million and $17,000, respectively. The carrying value of the assets and liabilities for these consolidated VIEs as of December 31, 2008 was $3.7 million and $309,000, respectively. In addition, each consolidated VIE is joint and severally liable, along with the other investors in each respective TIC, on the non-recourse mortgage debt related to the VIE’s interests in the respective TIC investment. This non-recourse mortgage debt totaled $277.2 million and $277.8 million as of September 30, 2009 and December 31, 2008, respectively. This non-recourse mortgage debt is not consolidated as the LLCs account for the interests in the Company’s TIC investments under the equity method and the non recourse mortgage debt does not meet the criteria under the requirements of the Transfers and Servicing Topic for recognizing the share of the debt assumed by the other TIC interest holders for consolidation. The Company does consider the third party TIC holders’ ability and intent to repay their share of the joint and several liability in evaluating the recovery.

If the interest in the 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 the Investments-Equity Method and Joint Ventures Topic, as amended by the requirements of the Consolidation Topic.

As of September 30, 2009 and December 31, 2008 the Company had certain 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 $1.0 million and $5.0 million as of September 30, 2009 and December 31, 2008, respectively, and was classified under Investments in Unconsolidated Entities in the consolidated balance sheet. The Company’s maximum exposure to loss as a result of its investments in unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment and future funding commitments. During the nine months ended September 30, 2009, the Company funded a total of $2.6 million related to TIC Program reserves. Future funding commitments as of September 30, 2009 for the unconsolidated VIEs totaled $1.5 million to fund TIC Program reserves. In addition, as of September 30, 2009 and December 31, 2008, these unconsolidated VIEs are joint and severally liable on non-recourse mortgage debt totaling $395.1 million and $385.3 million, respectively. Although the mortgage debt is non-recourse to the VIE that holds the TIC interest, the Company has full recourse guarantees on a portion of such mortgage debt totaling $3.5 million as of September 30, 2009 and December 31, 2008, respectively, for which the Company has recorded no liability as of September 30, 2009 and December 31, 2008, respectively. This mortgage debt is not consolidated as the LLCs account for the interests in the Company’s TIC investments under the equity method and the non recourse mortgage debt does not meet the requirements of Transfers and Servicing Topic for recognizing the share of the debt assumed by the other TIC interest holders for consolidation. The Company considers the third party TIC holders’ ability and intent to repay their share of the joint and several liability in evaluating the recovery. In evaluating the recovery of the TIC investment, the Company evaluated the likelihood that the lender would foreclose on the VIEs’ interest in the TIC to satisfy the obligation. See Note 5 — Investments in Unconsolidated Entities for additional information.

13

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

5. INVESTMENTS IN UNCONSOLIDATED ENTITIES

As of September 30, 2009 and December 31, 2008, the Company held investments in five joint ventures totaling $0.5 million and $3.8 million, which represent a range of 5.0% to 10.0% ownership interest in each property. In addition, pursuant to the requirements of the Consolidation Topic, the Company has consolidated seven LLCs which have investments in unconsolidated entities totaling $2.3 million and $3.7 million as of September 30, 2009 and December 31, 2008, respectively. The remaining amounts within investments in unconsolidated entities are related to various LLCs, which represent ownership interests of less than 1.0%.

At December 31, 2007, Legacy Grubb & Ellis owned approximately 5.9 million shares of common stock of Grubb & Ellis Realty Advisors, Inc. (“GERA”), which was a publicly traded special purpose acquisition company, which represented approximately 19% of the outstanding common stock. Legacy Grubb & Ellis also owned approximately 4.6 million GERA warrants which were exercisable into additional GERA common stock, subject to certain conditions. As part of the Merger, the Company recorded each of these investments at fair value on December 7, 2007, the date they were acquired, at a total investment of approximately $4.5 million.

All of the officers of GERA were also officers or directors of Legacy Grubb & Ellis, although such persons did not receive any compensation from GERA in their capacity as officers of GERA. Due to the Company’s ownership position and influence over the operating and financial decisions of GERA, the Company’s investment in GERA was accounted for within the Company’s consolidated financial statements under the equity method of accounting.

On February 28, 2008, a special meeting of the stockholders of GERA was held to vote on, among other things, a proposed transaction with the Company. GERA failed to obtain the requisite consents of its stockholders to approve the proposed business transaction and at a subsequent special meeting of the stockholders of GERA held on April 14, 2008, the stockholders of GERA approved the dissolution and plan of liquidation of GERA. The Company did not receive any funds or other assets as a result of GERA’s dissolution and liquidation.

As a consequence, the Company wrote off its investment in GERA and other advances to that entity in the first quarter of 2008 and recognized a loss of approximately $5.8 million which is recorded in equity in losses on the consolidated statement of operations and is comprised of $4.5 million related to stock and warrant purchases and $1.3 million related to operating advances and third party costs, which included an unrealized loss previously reflected in accumulated other comprehensive loss.

6. PROPERTY HELD FOR INVESTMENT

Property held for investment consisted of the following:

		September 30,			December 31,
(In thousands)	Useful Life	2009			2008
Building and capital improvement	39 years	$	73,712		$	79,315
Tenant improvement	1–12 years		6,653			5,612
Accumulated depreciation			(7,037	)		(6,519	)
Total			73,328			78,408
Land			9,480			10,291
Property held for investment — net		$	82,808		$	88,699

The Company recognized $576,000 of depreciation expense related to the properties held for investment for the three and nine months ended September 30, 2009. The Company holds two properties for investment. Both of these properties were previously held for sale and one was reclassified as held for investment as of June 30, 2009 and the other was reclassified as held for investment as of September 30, 2009. During the periods each property was held for sale, the Company did not record any depreciation expense related to the property. In accordance with the provisions of the Property, Plant, and Equipment Topic, management determined that, for properties held for investment, the carrying value of each property before the property was classified as held for sale adjusted for any depreciation and amortization expense and impairment losses that would have been recognized had the asset been continuously classified as held for investment was greater than the carrying value of the property at the date of the subsequent decision not to sell. As such, the Company made no additional adjustments to the carrying value of either asset as of September 30, 2009.

14

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

7. IDENTIFIED INTANGIBLE ASSETS

Identified intangible assets consisted of the following:

		September 30,			December 31,
(In thousands)	Useful Life	2009			2008
Contract rights
Contract rights, established for the legal right to future disposition fees of a portfolio of real estate properties under contract	Amortize per disposition transactions	$	11,342		$	11,924
Accumulated amortization			(4,700	)		(4,700	)
Contract rights, net			6,642			7,224
Other identified intangible assets
Trade name	Indefinite		64,100			64,100
Affiliate agreement	20 years		10,600			10,600
Customer relationships	5 to 7 years		5,400			5,436
Internally developed software	4 years		6,200			6,200
Other contract rights	5 to 7 years		1,163			1,418
Non-compete and employment agreements	3 to 4 years		97			97
			87,560			87,851
Accumulated amortization			(5,890	)		(3,548	)
Other identified intangible assets, net			81,670			84,303
Identified intangible assets — property
In place leases and tenant relationships	1 to 104 months		11,510			11,807
Above market leases	1 to 92 months		2,364			2,364
			13,874			14,171
Accumulated amortization			(5,731	)		(5,067	)
Identified intangible assets, net — property			8,143			9,104
Total identified intangible assets, net		$	96,455		$	100,631

Amortization expense recorded for contract rights was approximately $193,000 and $1.2 million for the three and nine months ended September 30, 2008. No amortization expense was recognized during the three and nine months ended September 30, 2009 related to the contract rights. Amortization expense is charged as a reduction to investment management revenue in the applicable period. During the period of future real property sales, the amortization of the contract rights for intangible assets will be applied based on the net relative value of disposition fees realized. 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, the Company determined that there are certain properties for which receipt of disposition fees was improbable. As a result, the Company recorded an impairment charge of approximately $583,000 related to the impaired intangible contract rights as of September 30, 2009.

Amortization expense recorded for the other identified intangible assets was approximately $796,000 and $869,000 for the three months ended September 30, 2009 and 2008, respectively, and approximately $2.4 million and $2.6 million for the nine months ended September 30, 2009 and 2008, respectively. Amortization expense is included as part of operating expense in the accompanying consolidated statement of operations.

Amortization expense recorded for the in place leases and tenant relationships was approximately $343,000 and $1.1 million for the three and nine months ended September 30, 2008, respectively. The Company recorded approximately $280,000 of amortization expense for the three and nine months ended September 30, 2009 related to in place leases and tenant relationships. Amortization expense is included as part of operating expense in the accompanying consolidated statement of operations.

15

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

Amortization expense recorded for the above market leases was approximately $119,000 and $136,000 for the three months ended September 30, 2009 and 2008, respectively, and approximately $384,000 and $416,000 for the nine months ended September 30, 2009 and 2008, respectively. Amortization expense 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:

	September 30,		December 31,
(In thousands)	2009		2008
Accounts payable	$	15,256	$	14,323
Salaries and related costs		13,977		13,643
Accrued liabilities		11,922		11,502
Bonuses		9,131		9,741
Broker commissions		7,489		14,002
Property management fees and commissions due to third parties		2,699		2,940
Severance		207		2,957
Interest		468		651
Other		30		463
Total	$	61,179	$	70,222

9. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes payable and capital lease obligations consisted of the following:

	September 30,			December 31,
(In thousands)	2009			2008
Mortgage debt payable to a financial institution collateralized by real estate held for investment. Fixed interest rate of 6.29% per annum as of September 30, 2009. The note is non-recourse up to $60 million with a $10 million recourse guarantee and matures in February 2017. As of September 30, 2009, note requires monthly interest-only payments	$	70,000		$	70,000
Mortgage debt payable to financial institution collateralized by real estate held for investment. Fixed interest rate of 6.32% per annum as of September 30, 2009. The non-recourse note matures in July 2014. As of September 30, 2009, note requires monthly interest-only payments		37,000			37,000
Capital lease obligations		1,937			536
Total		108,937			107,536
Less portion classified as current		(984	)		(333	)
Non-current portion	$	107,953		$	107,203

16

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

10. NOTES PAYABLE OF PROPERTIES HELD FOR SALE

Notes payable of properties held for sale consisted of the following:

	September 30,		December 31,
(In thousands)	2009		2008
Mortgage debt payable to a financial institution collateralized by real estate held for sale. The non-recourse mortgage note charges variable interest rate based on the higher of LIBOR plus 3.00% or 6.00%. The applicable interest rate was 6.00% per annum as of September 30, 2009. The notes require monthly interest-only payments and matured on July 9, 2009	$	31,613	$	30,677
Mortgage debt payable to a financial institution collateralized by real estate held for sale. The non-recourse mortgage note charges variable interest rate based on the London Interbank Offered Rate (“LIBOR”) plus 2.50%		—		78,000
Unsecured notes payable to third-party investors with fixed interest at 6.00% per annum and matures on December 2011. Principal and interest payments are due quarterly		—		282
Total	$	31,613	$	108,959

The mortgage note payable of $31.6 million related to properties held for sale at September 30, 2009 million matured on July 9, 2009. There is no assurance that the loan will be extended. However, the Company does not expect any significant impact to the financial condition or cash flows of the Company should the loan not be renewed due to the non-recourse nature of the loan.

11. LINE OF CREDIT

On December 7, 2007, the Company entered into a $75.0 million credit agreement by and among the Company, the guarantors named therein, and the financial institutions defined therein as lender parties, with Deutsche Bank Trust Company Americas, as lender and administrative agent (the “Credit Facility”). The Company was restricted to solely use the line of credit for investments, acquisitions, working capital, equity interest repurchase or exchange, and other general corporate purposes. The line bore interest at either the prime rate or LIBOR based rates, as the Company may choose on each of its borrowings, plus an applicable margin ranging from 1.50% to 2.50% based on the Company’s Debt/Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) ratio as defined in the credit agreement.

On August 5, 2008, the Company entered into the First Letter Amendment to its Credit Facility. The First Letter Amendment, among other things, provided the Company with an extension from September 30, 2008 to March 31, 2009 to dispose of the three real estate assets that the Company had previously acquired on behalf of GERA. Additionally, the First Letter Amendment also, among other things, modified select debt and financial covenants in order to provide greater flexibility to facilitate the Company’s TIC Programs.

On November 4, 2008, the Company amended its Credit Agreement (the “Second Letter Amendment”). The effective date of the Second Letter Amendment is September 30, 2008. (Certain capitalized terms set forth below that are not otherwise defined herein have the meaning ascribed to them in the Credit Facility, as amended.

The Second Letter Amendment, among other things, a) reduced the amount available under the Credit Facility from $75.0 million to $50.0 million by providing that no advances or letters of credit shall be made available to the Company after September 30, 2008 until such time as borrowings have been reduced to less than $50.0 million; b) provided that 100% of any net cash proceeds from the sale of certain real estate assets required to be sold by the Company shall permanently reduce the Revolving Credit Commitments, provided that the Revolving Credit Commitments shall not be reduced to less than $50.0 million by reason of the operation of such asset sales; and c) modified the interest rate incurred on borrowings by increasing the applicable margins by 100 basis points and by providing for an interest rate floor for any prime rate related borrowings.

Additionally, the Second Letter Amendment, among other things, modified restrictions on guarantees of primary obligations from $125.0 million to $50.0 million, modified select financial covenants to reflect the impact of the current economic environment on the Company’s financial performance, amended certain restrictions on payments by deleting any dividend/share repurchase limitations and modified the reporting requirements of the Company with respect to real property owned or held.

As of September 30, 2008, the Company was not in compliance with certain of its financial covenants related to EBITDA. As a result, part of the Second Letter Amendment included a provision to modify selected covenants. The Company was not in compliance with certain debt covenants as of March 31, 2009, all of which were effectively cured as of such date by the Third Amendment to the Credit Facility described below. As a consequence of the foregoing, and certain provisions of the Third Amendment, the $63.0 million outstanding under the Credit Facility has been classified as a current liability as of September 30, 2009.

17

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

On May 20, 2009, the Company further amended its Credit Facility by entering into the Third Amendment. The Third Amendment, among other things, bifurcated the existing credit facility into two revolving credit facilities, (i) a $38,000,000 Revolving Credit A Facility which was deemed fully funded as of the date of the Third Amendment, and (ii) a $29,289,245 Revolving Credit B Facility, comprised of revolving credit advances in the aggregate of $25,000,000 which were deemed fully funded as of the date of the Third Amendment and letters of credit advances in the aggregate amount of $4,289,245 which are issued and outstanding as of the date of the Third Amendment. The Third Amendment required the Company to draw down $4,289,245 under the Revolving Credit B Facility on the date of the Third Amendment and deposit such funds in a cash collateral account to cash collateralize outstanding letters of credit under the Credit Facility and eliminated the swingline features of the Credit Facility and the Company’s ability to cause the lenders to issue any additional letters of credit. In addition, the Third Amendment also changes the termination date of the Credit Facility from December 7, 2010 to March 31, 2010 and modified the interest rate incurred on borrowings by initially increasing the applicable margin by 450 basis points (or to 7.00% on prime rate loans and 8.00% on LIBOR based loans).

The Third Amendment also eliminated specific financial covenants, and in its place, the Company was required to comply with the approved budget, that has been agreed to by the Company and the lenders, subject to agreed upon variances. The approved budget related solely to the 2009 fiscal year (the “Budget”). The Budget was the Company’s operating cash flow budget, and encompassed all aspects of typical operating cash flows including revenues, fees and expenses, and such working capital components as receivables and accounts payables, taxes, debt service and any other identifiable cash flow items. Pursuant to the Budget, the Company was required to stay within certain variance parameters with respect to cumulative cash flow for the remainder of the 2009 year to remain in compliance with the Credit Facility. The Company was also required under the Third Amendment to effect the Recapitalization Plan, on or before September 30, 2009 and in connection therewith to effect the Partial Prepayment of the Revolving A Credit Facility. In the event the Company failed to effect the Recapitalization Plan and in connection therewith to reduce the Revolving Credit A Credit Facility by the Partial Prepayment amount, the (i) lenders would have had the right commencing on October 1, 2009, to exercise the Warrants, for nominal consideration, to purchase common stock of the Company equal to 15% of the common stock of the Company on a fully diluted basis as of such date, subject to adjustment, (ii) the applicable margin automatically increased to 11% on prime rate loans and increased to 12% on LIBOR based loans, (iii) the Company was required to amortize an aggregate of $10 million of the Revolving Credit A Facility in three (3) equal installments on the first business day of each of the last three (3) months of 2009, (iv) the Company was obligated to submit a revised budget by October 1, 2009, (v) the Credit Facility would have terminated on January 15, 2010, and (vi) no further advances were available to be drawn under the Credit Facility.

In the event the Company effected the Recapitalization Plan and the Partial Prepayment amount on or prior to September 30, 2009, the Warrants would have automatically expired and not become exercisable, the applicable margin would have automatically been reduced to 3% on prime rate loans and 4% on LIBOR based loans and the Company had the right, subject to the requisite approval of the lenders, to seek an extension to extend the term of the Credit Facility to January 5, 2011, provided the Company also paid a fee of .25% of the then outstanding commitments under the Credit Facility. The Company calculated the initial fair value of the Warrants to be $534,000 and has recorded such amount in stockholders’ equity with a corresponding debt discount to the line of credit balance. Such debt discount amount will be amortized into interest expense over the remaining term of the Credit Facility. As of September 30, 2009, the net debt discount balance was $291,000 and is included in the current portion of line of credit in the accompanying consolidated balance sheet.

As a result of the Third Amendment the Company was required to prepay Revolving Credit A Advances (and to the extent the Revolving Credit A Facility shall be reduced to zero, prepay outstanding Revolving Credit B Advances) in an amount equal to 100% (or, after the Revolving Credit A Advances are reduced by at least the Partial Prepayment amount, in an amount equal to 50%) of Net Cash Proceeds (as defined in the Credit Agreement) from:

• assets sales,

• conversions of Investments (as defined in the Credit Agreement),

• the refund of any taxes or the sale of equity interests by the Company or its subsidiaries,

• the issuance of debt securities, or

• any other transaction or event occurring outside the ordinary course of business of the Company or its subsidiaries;

provided, however, that (a) the Net Cash Proceeds received from the sale of the certain real property assets shall be used to prepay outstanding Revolving Credit B Advances and to the extent Revolving Credit B Advances shall be reduced to zero, to prepay outstanding Revolving Credit A Advances, (b) the Company shall prepay outstanding Revolving Credit B Advances in an amount equal to 100% of the Net Cash Proceeds from the sale of the Danbury Property unless the Company is then not in compliance with the Recapitalization Plan in which event Revolving Credit A Advances shall be prepaid first and (c) the Company’s 2008 tax refund was used to prepay outstanding Revolving Credit B Advances upon the closing of the Third Amendment.

18

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

The Third Amendment required the Company to use its commercially reasonable best efforts to sell four other commercial properties, including the two remaining GERA Properties, by September 30, 2009. The Company’s Line of Credit is secured by substantially all of the assets of the Company.

On September 30, 2009, the Company further amended its Credit Facility by entering into the First Credit Facility Letter Amendment. The First Credit Facility Letter Amendment, among other things, modified and provided the Company an extension from September 30, 2009 to November 30, 2009 (the “Extension”) to (i) effect its Recapitalization Plan and in connection therewith to effect a prepayment of at least seventy two (72%) percent of the Revolving Credit A Advances (as defined in the Credit Facility), and (ii) sell four commercial properties, including the two real estate assets the Company had previously acquired on behalf of Grubb & Ellis Realty Advisors, Inc.

The First Credit Facility Letter Amendment also granted the Company a one-time right, exercisable by November 30, 2009, to prepay the Credit Facility in full for a reduced principal amount equal to approximately 65% of the aggregate principal amount of the Credit Facility then outstanding (the “Discount Prepayment Option”).

In connection with the Extension, the warrant agreement was also amended to extend from October 1, 2009 to December 1, 2009, the time when the Warrants are first exercisable by its holders.

The First Credit Facility Letter Amendment also granted a one-time waiver from the covenant requiring all proceeds of sales of equity or debt securities to be applied to pay down the Credit Facility to facilitate the sale by the Company to an affiliate of the Company’s largest stockholder and Chairman of the Board of Directors of the Company, $5.0 million of subordinated debt or equity securities of the Company (the “Permitted Placement”) so long as (i) the Permitted Placement is junior, subject and subordinate to the Credit Facility, (ii) the net proceeds of the Permitted Placement are placed into an account with the lender, (iii) the disbursement of the funds in such account is in accordance with the approved budget that has been agreed to by the Company and the ledners, (iv) that the lenders be granted a security interest in the net proceeds of the Permitted Placement, and (v) the Permitted Placement is otherwise satisfactory to the Lenders. In addition, if the Permitted Placement is in the form of subordinated debt, the Company and the entity making the $5.0 million loan are required to enter into a subordination agreement with the lenders.

Finally, the First Credit Facility Letter Amendment also provided that $4.3 million that was deposited in a cash collateral account to cash collateralize outstanding letters of credit under the Credit Facility would instead be used to pay down the Credit Facility.

The Company’s Credit Facility is secured by substantially all of the Company’s assets. The outstanding balance on the Credit Facility was $63.0 million as of September 30, 2009 and December 31, 2008 and carried a weighted average interest rate of 8.37% and 4.51%, respectively.

On November 6, 2009, a portion of proceeds from the offering of preferred stock (see Note 20) were used to pay in full borrowings under the Credit Facility then outstanding of $66.8 million for a reduced amount equal to $43.4 million and the Credit Facility was terminated.

12. 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. The Company operates 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 and valuation of commercial property and includes the Company’s national accounts group and national affiliate program operations.

19

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

Investment Management — Investment Management includes services for acquisition, financing and disposition with respect to the Company’s investment programs, asset management services related to the Company’s programs, and dealer-manager services by its securities broker-dealer, which facilitates capital raising transactions for its investment programs.

The Company also has 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.

The Company evaluates the performance of its segments based upon operating income (loss). Operating income (loss) is defined as operating revenue less compensation and general and administrative costs and excludes other rental related, rental expense, interest expense, depreciation and amortization, allocation of overhead and other operating and non-operating expenses.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2009			2008			2009			2008
Management Services
Revenue	$	67,456		$	63,479		$	199,636		$	185,855
Compensation costs		9,315			8,118			27,702			28,550
Transaction commissions and related costs		2,192			2,062			7,346			6,625
Reimbursable salaries, wages, and benefits		48,333			44,391			142,601			131,084
General and administrative		2,357			2,033			8,043			6,356
Segment operating income (loss)		5,259			6,875			13,944			13,240
Transaction Services
Revenue		46,321			57,502			118,793			173,191
Compensation costs		11,216			11,743			32,986			36,423
Transaction commissions and related costs		29,376			37,103			77,981			111,337
Reimbursable salaries, wages, and benefits		1			—			1			—
General and administrative		7,705			8,466			25,459			26,975
Segment operating income (loss)		(1,977	)		190			(17,634	)		(1,544	)
Investment Management
Revenue		14,829			24,116			43,912			84,480
Compensation costs		6,229			7,289			20,888			22,944
Transaction commissions and related costs		6			18			31			18
Reimbursable salaries, wages, and benefits		2,376			1,946			7,077			4,372
General and administrative		10,250			22,103			32,593			31,524
Segment operating income (loss)		(4,032	)		(7,240	)		(16,677	)		25,622
Reconciliation to net loss attributable to Grubb & Ellis Company:
Total segment operating (loss) income		(750	)		(175	)		(20,367	)		37,318
Non-segment:
Rental operations, net of rental related expenses		2,537			3,782			6,595			9,918
Corporate overhead (compensation, general and administrative costs)		(12,447	)		(15,751	)		(43,165	)		(43,667	)
Other operating expenses		(10,221	)		(45,266	)		(38,056	)		(68,615	)
Other income (expense)		236			(6,133	)		(769	)		(13,646	)
Loss from continuing operations before income tax (provision) benefit		(20,645	)		(63,543	)		(95,762	)		(78,692	)
Income tax (provision) benefit		(277	)		15,943			(587	)		23,124
Loss from continuing operations		(20,922	)		(47,600	)		(96,349	)		(55,568	)
Loss from discontinued operations, net of taxes		(535	)		(15,126	)		(1,005	)		(18,690	)
Net loss	$	(21,457	)	$	(62,726	)	$	(97,354	)	$	(74,258	)
Less: Net (loss) income from noncontrolling interests		(98	)		(6,444	)		(1,686	)		(6,298	)
Net loss attributable to Grubb & Ellis Company	$	(21,359	)	$	(56,282	)	$	(95,668	)	$	(67,960	)

20

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

13. PROPERTIES HELD FOR SALE

A summary of the properties and related LLC’s held for sale balance sheet information is as follows:

	September 30,		December 31,
(In thousands)	2009		2008
Restricted cash		828		23,459
Properties held for sale — net		22,468		78,708
Identified intangible assets and other assets held for sale — net		4,823		25,751
Total assets	$	28,119	$	127,918
Notes payable of properties held for sale	$	31,613	$	108,959
Liabilities of properties held for sale — net		2,376		9,257
Total liabilities	$	33,989	$	118,216

During 2008, the Company initiated a plan to sell the properties it classified as real estate held for investment in its financial statements. As of September 30, 2009, the Company has a covenant within its Credit Facility which requires the Company to use its commercially reasonable best efforts to sell four commercial properties. The recent downturn in the global capital markets significantly lessened the probability that the Company would be able to achieve relief from this covenant through amendment or other financial resolutions. Pursuant to the requirements of the Property, Plant, and Equipment Topic, the Company assessed the value of the assets. In addition, the Company reviewed the valuation of its other owned properties and real estate investments. The Company generally uses a discounted cash flow model to estimate the fair value of its properties held for sale unless better market comparable data is available. Management uses its best estimate in determining the key assumptions, including the expected holding period (between 5 and 7 years), capitalization rates (between 9.0% and 9.2%), discount rates (between 10.1% and 10.5%), rental rates, future occupancy levels, 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. This valuation review resulted in the Company recognizing no impairment charges against the carrying value of the properties and real estate investments held for sale for the nine months ending September 30, 2009. Although the Company is using its commercially reasonable best efforts to sell the four remaining commercial properties, at the current time it appears that it is unlikely that two of the remaining properties will be sold. Accordingly, and in light of the foregoing, these properties no longer meet the held for sale criteria under the requirements of the Topic as of September 30, 2009 and the properties were reclassified to properties held for investment in the consolidated balance sheet with the operations of these properties included in continuing operations in the consolidated statements of operations for all periods presented.

On October 31, 2008, the Company entered into that certain Agreement for the Purchase and Sale of Real Property and Escrow Instructions to effect the sale of the Corporate Center located at 39 Old Ridgebury Road, Danbury, Connecticut, to an unaffiliated entity for a purchase price of $76.0 million. This agreement was amended and restated in its entirety by that certain Danbury Merger Agreement dated as of January 23, 2009, as amended by the First Amendment to Danbury Merger Agreement dated as of January 23, 2009 which reduced the purchase price to $73.5 million. On June 3, 2009, the Company completed the sale of the Danbury Property for $72.4 million.

21

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

The investments in unconsolidated entities held for sale represent the Company’s interest in certain real estate properties that it holds through various limited liability companies. In accordance with the requirements of the Real Estate-Retail Land Topic, and the requirements of the Property, Plant, and Equipment Topic, the Company treats the disposition of these interests similar to the disposition of real estate it holds directly. In addition, pursuant to the requirements of the Consolidation Topic, when the Company is no longer the primary beneficiary of the LLC, the Company deconsolidates the LLC.

In instances when the Company expects 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 the continuing operations of the Company through the date of sale.

The net results of discontinued operations and the net gain on dispositions of properties sold or classified as held for sale as of September 30, 2009, in which the Company has no significant ongoing cash flows or significant continuing involvement, are reflected in the consolidated statements of operations as discontinued operations. The Company 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 and expense components that comprised discontinued operations, net of taxes, for the three and nine months ended September 30, 2009 and 2008:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2009			2008			2009			2008
Rental income	$	1,299		$	5,101		$	8,983		$	15,844
Rental expense		(1,695	)		(3,511	)		(7,469	)		(11,489	)
Interest expense (including amortization of deferred financing costs)		(484	)		(1,463	)		(2,387	)		(4,606	)
Real estate related impairments		—			(22,703	)		250			(22,703	)
Depreciation and amortization		—			(2,134	)		—			(8,057	)
Tax (provision) benefit		345			9,769			244			12,140
(Loss) from discontinued operations-net of taxes		(535	)		(14,941	)		(379	)		(18,871	)
Gain (loss) on disposal of discontinued operations — net of taxes		—			(185	)		(626	)		181
Total income (loss) from discontinued operations	$	(535	)	$	(15,126	)	$	(1,005	)	$	(18,690	)

14. COMMITMENTS AND CONTINGENCIES

Operating Leases — The Company has non-cancelable operating lease obligations for office space and certain equipment ranging from one to ten years, and sublease agreements under which the Company acts 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 $6.0 million and $5.8 million for the three months ended September 30, 2009 and 2008, respectively, and approximately $18.5 million and $17.4 million for the nine months ended September 30, 2009 and 2008, respectively. Rent expense is included in general and administrative expense in the accompanying consolidated statements of operations.

Operating Leases — Other — The Company is 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 payments averaging $795,000 over the 10-year period. Rent expense under these operating leases was approximately $2.3 million and $2.4 million for three months ended September 30, 2009 and 2008, respectively, and approximately $6.9 million and $7.0 million for nine months ended September 30, 2009 and 2008, respectively.

The Company subleases these multifamily spaces to third parties. Rental income from these subleases was approximately $3.8 million and $4.2 million for the three months ended September 30, 2009 and 2008, respectively, and approximately $11.3 million and $12.4 million for the nine months ended September 30, 2009 and 2008, respectively. As multifamily leases are executed for no more than one year, the Company is unable to project the future minimum rental receipts related to these leases.

22

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

As of September 30, 2009, the Company had recorded liabilities totaling $8.4 million related to such master lease arrangements, consisting of $4.6 million of cumulative deferred revenues relating to acquisition fees and loan fees received from 2004 through 2006 and $3.8 million of additional loss reserves which were recorded in 2008.

The Company is also a 50% joint venture partner of four multifamily residential properties in various locations under non-cancelable leases. The leases, which commenced in various months and expire from November 2014 through January 2015, require minimum monthly payments averaging $372,000 over the 10-year period. Rent expense under these operating leases was approximately $1.1 million, for both the three months ended September 30, 2009 and 2008, and approximately $3.4 million, for both the nine months ended September 30, 2009 and 2008.

The Company subleases these multifamily spaces to third parties. Rental income from these subleases was approximately $2.2 million and $2.3 million for the three months ended September 30, 2009 and 2008, respectively, and approximately $6.7 million and $6.8 million for the nine months ended September 30, 2009 and 2008, respectively. As multifamily leases are executed for no more than one year, the Company is unable to project the future minimum rental receipts related to these leases.

TIC Program Exchange Provision — Prior to the Merger, NNN entered into agreements in which NNN agreed to provide certain investors with a right to exchange their investment in certain TIC Programs for an investment in a different TIC program. NNN also entered into an agreement with another investor that provided the investor with certain repurchase rights under certain circumstances with respect to their investment. The agreements containing such rights of exchange and repurchase rights pertain to initial investments in TIC programs totaling $31.6 million. In July 2009 the Company received notice from an investor of their intent to exercise such rights of exchange and repurchase with respect to an initial investment totaling $4.5 million. The Company is currently evaluating such notice to determine the nature and extent of the right of such exchange and repurchase, if any.

The Company deferred revenues relating to these agreements of $86,000 and $246,000 for the three months ended September 30, 2009 and 2008, respectively. The Company deferred revenues relating to these agreements of $281,000 and $492,000 for the nine months ended September 30, 2009 and 2008, respectively. Additional losses of $14.3 million and $4.5 million related to these agreements were recorded during the quarter ended December 31, 2008 and during the nine months ended September 30, 2009, respectively, to reflect the decline in value of properties underlying the agreements with investors. As of September 30, 2009, the Company had recorded liabilities totaling $22.6 million related to such agreements, consisting of $3.8 million of cumulative deferred revenues and $18.8 million of additional losses related to these agreements.

Capital Lease Obligations — The Company leases computers, copiers and postage equipment that are accounted for as capital leases (see Note 9 of the Notes to Consolidated Financial Statements for additional information).

General — The Company is involved in various claims and lawsuits arising out of the ordinary conduct of its business, as well as in connection with its participation in various joint ventures and partnerships, many of which may not be covered by the Company’s insurance policies. In the opinion of management, the eventual outcome of such claims and lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations.

Guarantees — From time to time the Company provides guarantees of loans for properties under management. As of September 30, 2009, there were 147 properties under management with loan guarantees of approximately $3.5 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.8 billion. As of December 31, 2008, there were 151 properties under management with loan guarantees of approximately $3.5 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.8 billion. In addition, each consolidated VIE is joint and severally liable, along with the other investors in each relative TIC, on the non-recourse mortgage debt related to the VIE’s interests in the relative TIC investment. This non-recourse mortgage debt totaled $277.2 million and $277.8 million as of September 30, 2009 and December 31, 2008, respectively.

The Company’s guarantees consisted of the following as of September 30, 2009 and December 31, 2008:

	September 30,		December 31,
(In thousands)	2009		2008
Non-recourse/carve-out guarantees of debt of properties under management(1)	$	3,438,375	$	3,414,433
Non-recourse/carve-out guarantees of the Company’s debt(1)	$	107,000	$	107,000
Recourse guarantees of debt of properties under management	$	39,717	$	42,426
Recourse guarantees of the Company’s debt	$	10,000	$	10,000

23

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

(1) A “non-recourse/carve-out” guarantee imposes liability on the guarantor in the event the borrower engages in certain acts prohibited by the loan documents. Each non-recourse carve-out guarantee 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, liability under the non-recourse carve-out guarantees 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 indemnification agreement from borrower.

Certain violations (typically the first three listed above) render the entire debt balance recourse to the guarantor regardless of the actual damage incurred by lender, while the liability for other violations is limited to the damages incurred by the lender. Notice and cure provisions vary between guarantees. Generally the guarantor irrevocably and unconditionally guarantees to the lender the payment and performance of the guaranteed 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 covenants and agrees that it is liable for the guaranteed obligations as a primary obligor. As of September 30, 2009, to the best of the Company’s knowledge, there is no amount of debt owed by the Company as a result of the borrowers engaging in prohibited acts.

Management initially evaluates these guarantees to determine if the guarantee meets the criteria required to record a liability in accordance with the requirements of the Guarantees Topic. Any such liabilities were insignificant as of September 30, 2009 and December 31, 2008. In addition, on an ongoing basis, the Company evaluates the need to record additional liability in accordance with the requirements of the Contingencies Topic. As of September 30, 2009 and December 31, 2008, the Company had recourse guarantees of $39.7 million and $42.4 million, respectively, relating to debt of properties under management. As of September 30, 2009, approximately $21.3 million of these recourse guarantees relate to debt that has matured or is not currently in compliance with certain loan covenants. In evaluating the potential liability relating to such guarantees, the Company considers 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 September 30, 2009 and December 31, 2008, the Company recorded a liability of $5.2 million and $9.1 million, respectively, related to its estimate of probable loss related to recourse guarantees of debt of properties under management which matured in January and April 2009.

Investment Program Commitments — During June and July 2009, the Company revised the offering terms related to certain investment programs which it sponsors, including the commitment to fund additional property reserves and the waiver or reduction of future management fees and disposition fees. The company recorded a liability for future funding commitments as of September 30, 2009 for these unconsolidated VIEs totaling $1.5 million to fund TIC Program reserves.

Environmental Obligations — In the Company’s role as property manager, it could incur liabilities for the investigation or remediation of hazardous or toxic substances or wastes at properties the Company 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, the Company has agreed to indemnify the lenders for environmental liabilities and to remediate any environmental problems that may arise. The Company is not aware of any environmental liability or unasserted claim or assessment relating to an environmental liability that the Company believes would require disclosure or the recording of a loss contingency.

24

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

Real Estate Licensing Issues — Although Triple Net Properties Realty, Inc. (“Realty”), which became a subsidiary of the Company as part of the merger with NNN, was required to have real estate licenses in all of the states in which it acted as a broker for NNN’s programs and received real estate commissions prior to 2007, Realty did not hold a license in certain of those states when it earned fees for those services. In addition, almost all of GERI’s revenue was based on an arrangement with Realty to share fees from NNN’s programs. GERI did not hold a real estate license in any state, although most states in which properties of the NNN’s programs were located may have required GERI to hold a license. As a result, Realty and the Company may be subject to penalties, such as fines (which could be a multiple of the amount received), restitution payments and termination of management agreements, and to the suspension or revocation of certain of Realty’s real estate broker licenses. To date there have been no claims, and the Company cannot assess or estimate whether it will incur any losses as a result of the foregoing.

To the extent that the Company incurs any liability arising from the failure to comply with real estate broker licensing requirements in certain states, Mr. Thompson, Louis J. Rogers, former President of GERI, and Jeffrey T. Hanson, the Company’s Chief Investment Officer, have agreed to forfeit to the Company up to an aggregate of 4,124,120 shares of the Company’s common stock, and each share will be deemed to have a value of $11.36 per share in satisfying this obligation. Mr. Thompson has agreed to indemnify the Company, to the extent the liability incurred by the Company for such matters exceeds the deemed $46,865,000 value of these shares, up to an additional $9,435,000 in cash. These obligations terminate on November 16, 2009.

Alesco Seed Capital — On November 16, 2007, the Company completed the acquisition of a 51% membership interest in Grubb & Ellis Alesco Global Advisors, LLC (“Alesco”). Pursuant to the Intercompany Agreement between the Company and Alesco, dated as of November 16, 2007, the Company committed to invest $20.0 million in seed capital into the open and closed end real estate funds that Alesco expects to launch. Additionally, upon achievement of certain earn-out targets, the Company is required to purchase up to an additional 27% interest in Alesco for $15.0 million. The Company is allowed to use $15.0 million of seed capital to fund the earn-out payments. As of September 30, 2009, the Company has invested $500,000 in seed capital into the open and closed end real estate funds that Alesco launched during 2008.

Deferred Compensation Plan — During 2008, the Company 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 September 30, 2009 and December 31, 2008, $2.6 million and $1.7 million, respectively, reflecting the non-stock liability under this plan were included in Accounts payable and accrued expenses. The Company has purchased whole-life insurance contracts on certain employee participants to recover distributions made or to be made under this plan and as of September 30, 2009 and December 31, 2008 have recorded the cash surrender value of the policies of $1.0 million and $1.1 million, respectively, in Prepaid expenses and other assets.

Grants of phantom shares are accounted for as equity awards in accordance with the requirements of the Equity Topic, with the award value of the shares on the grant date being amortized on a straight-line basis over the requisite service period. In addition, the Company awards “phantom” shares of Company stock to participants under the deferred compensation plan. As of September 30, 2009 and December 31, 2008, the Company awarded an aggregate of 6.0 million and 5.4 million phantom shares, respectively, to certain employees with an aggregate value on the various grant dates of $23.3 million and $22.5 million, respectively. As of September 30, 2009, an aggregate of 5.7 million phantom share grants were outstanding. 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, grants with respect to 900,000 phantom shares had a guaranteed minimum share price ($3.1 million in the aggregate) that will result in the Company paying additional compensation to the participants should the value of the shares upon vesting be less than the grant date value of the shares. The Company accounts 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.

15. EARNINGS (LOSS) PER SHARE

The Company computes earnings (loss) per share in accordance with the requirements of the Earnings Per Share Topic. Under the provisions of the Topic, basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period less unvested restricted shares. 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.

25

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

Basic earnings per share is computed using the weighted-average number of common shares outstanding. The dilutive effect of potential common shares outstanding is included in diluted earnings per share. The computations of basic and diluted earnings per share from continuing operations are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands, except per share amounts)	2009			2008			2009			2008
Numerator:
Loss from continuing operations attributable to Grubb & Ellis Company, net of tax	$	(20,824	)	$	(41,156	)	$	(94,663	)	$	(49,270	)
Loss from discontinued operations attributable to Grubb & Ellis Company, net of tax		(535	)		(15,126	)		(1,005	)		(18,690	)
Net loss attributable to Grubb & Ellis Company	$	(21,359	)	$	(56,282	)	$	(95,668	)	$	(67,960	)
Denominator:
Denominator for basic loss per share:
Weighted-average number of common shares outstanding		63,628	(1)		63,601	(1)		63,618	(1)		63,574	(1)
Effect of dilutive securities:
Non-vested restricted stock and stock options		—	(1)		—	(1)		—	(1)		—	(1)
Denominator for diluted loss per share:
Weighted-average number of common and common equivalent shares outstanding		63,628			63,601			63,618			63,574
Basic loss per share
Loss from continuing operations attributable to Grubb & Ellis Company, net of tax	$	(0.33	)	$	(0.65	)	$	(1.49	)	$	(0.79	)
Loss from discontinued operations attributable to Grubb & Ellis Company, net of tax		(0.01	)		(0.23	)		(0.02	)		(0.28	)
Basic loss per share	$	(0.34	)	$	(0.88	)	$	(1.51	)	$	(1.07	)
Diluted loss per share
Loss from continuing operations attributable to Grubb & Ellis Company, net of tax	$	(0.33	)	$	(0.65	)	$	(1.49	)	$	(0.79	)
Loss from discontinued operations attributable to Grubb & Ellis Company, net of tax		(0.01	)		(0.23	)		(0.02	)		(0.28	)
Diluted loss per share	$	(0.34	)	$	(0.88	)	$	(1.51	)	$	(1.07	)

(1) Outstanding non-vested restricted stock and options to purchase shares of common stock and restricted stock, the effect of which would be anti-dilutive, were approximately 2.6 million and 2.5 million shares as of September 30, 2009 and 2008, respectively. These shares were not included in the computation of diluted earnings per share 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. In addition, excluded from the calculation of diluted weighted-average common shares as of September 30, 2009 and 2008 were approximately 6.0 million and 4.8 million phantom shares, respectively, that may be awarded to employees related to the deferred compensation plan. As of September 30, 2009, 12.7 million shares that may be awarded to the lenders related to the potential exercise of the Warrants were also excluded from the calculation of diluted weighted-average common shares.

26

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

16. COMPREHENSIVE LOSS

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2009			2008			2009			2008
Net loss	$	(21,457	)	$	(62,726	)	$	(97,354	)	$	(74,258	)
Other comprehensive (loss):
Net unrealized (loss) gain on investments, net of taxes		92			66			(43	)		706
Elimination of net unrealized loss on investments, net of taxes		—			120			—			120
Elimination of net unrealized loss on investment in GERA warrants		—			—			—			223
Total comprehensive loss		(21,365	)		(62,540	)		(97,397	)		(73,209	)
Comprehensive income (loss) attributable to noncontrolling interests		(98	)		(6,444	)		(1,686	)		(6,298	)
Comprehensive loss attributable to Grubb & Ellis Company	$	(21,267	)	$	(56,096	)	$	(95,711	)	$	(66,911	)

17. CHANGES IN EQUITY

The following is a reconciliation of total equity, equity attributable to Grubb & Ellis Company and equity attributable to noncontrolling interests from December 31, 2008 to September 30, 2009.

																Total
										Accumulated			(Accumulated			Grubb & Ellis
							Additional			Other			Deficit)			Company
	Common Stock						Paid-In			Comprehensive			Retained			Stockholders’			Noncontrolling			Total
	Shares			Amount			Capital			Loss			Earnings			Equity			Interests			Equity
Balance as of December 31, 2008		65,383		$	654		$	402,780		$	—		$	(333,263	)	$	70,171		$	3,605		$	73,776
Vesting of share-based compensation		—			—			8,736			—			—			8,736			—			8,736
Issuance of warrants		—			—			534			—			—			534			—			534
Issuance of restricted shares to directors, officers and employees		486			4			(4	)		—			—			—			—			—
Forfeiture of non-vested restricted shares		(686	)		(7	)		(133	)		—			—			(140	)		—			(140	)
Contributions from noncontrolling interests		—			—			—			—			—			—			5,827			5,827
Distributions to noncontrolling interests		—			—			—			—			—			—			(1,689	)		(1,689	)
Deconsolidation of sponsored mutual fund		—			—			—			—			—			—			(5,519	)		(5,519	)
Compensation expense on profit sharing arrangements		—			—			—			—			—			—			102			102
Change in unrealized loss on marketable securities		—			—			—			(43	)		—			(43	)		—			(43	)
Net loss		—			—			—			—			(95,668	)		(95,668	)		(1,686	)		(97,354	)
Comprehensive loss		—			—			—			—			—			(95,711	)		(1,686	)		(97,397	)
Balance as of September 30, 2009		65,183		$	651		$	411,913		$	(43	)	$	(428,931	)	$	(16,410	)	$	640		$	(15,770	)

27

During the nine months ended September 30, 2009, the Company granted 486,000 restricted shares of common stock. During the year ended December 31, 2008, the Company granted 1.6 million restricted shares of common stock and 77,000 shares of common stock were issued as a result of the exercise of stock options.

18. OTHER RELATED PARTY TRANSACTIONS

Offering Costs and Other Expenses Related to Public Non-Traded REITs — The Company, through its consolidated subsidiaries Grubb & Ellis Apartment REIT Advisor, LLC, Grubb & Ellis Healthcare REIT Advisor, LLC, and Grubb & Ellis Healthcare REIT II Advisor, LLC, bears certain general and administrative expenses in its capacity as advisor of Apartment REIT, Healthcare REIT and Healthcare REIT II, respectively, and is reimbursed for these expenses. However, Apartment REIT, Healthcare REIT and Healthcare REIT II will not reimburse the Company for any operating expenses that, in any four consecutive fiscal quarters, exceed the greater of 2.0% of average invested assets (as defined in their respective advisory agreements) or 25.0% of the respective REIT’s net income for such year, unless the board of directors of the respective REITs approve such excess as justified based on unusual or nonrecurring factors. All unreimbursable amounts are expensed by the Company.

The Company also paid for the organizational, offering and related expenses on behalf of Apartment REIT for its initial offering that ended July 17, 2009 and Healthcare REIT for its initial offering through August 28, 2009. These organizational, offering and related expenses include all expenses (other than selling commissions and the marketing support fee which generally represent 7.0% and 2.5% of the gross offering proceeds, respectively) to be paid by Apartment REIT and Healthcare REIT in connection with their initial offerings. These expenses only become the liability of Apartment REIT and Healthcare REIT to the extent other organizational and offering expenses do not exceed 1.5% of the gross proceeds of the initial offerings. As of September 30, 2009 and December 31, 2008, the Company has incurred expenses of $4.3 million and $3.8 million, respectively, in excess of 1.5% of the gross proceeds of the Apartment REIT offering. As of September 30, 2009 and December 31, 2008, the Company has recorded an allowance for bad debt of approximately $4.3 million and $3.8 million, respectively, related to the Apartment REIT offering costs incurred as the Company believes that such amounts will not be reimbursed.

The Company also pays for the organizational, offering and related expenses on behalf of Apartment REIT’s follow-on offering and Healthcare REIT II’s initial offering. These organizational and offering expenses include all expenses (other than selling commissions and a dealer manager fee which represent 7.0% and 3.0% of the gross offering proceeds, respectively) to be paid by Apartment REIT and Healthcare REIT II in connection with these offerings. These expenses only become a liability of Apartment REIT and Healthcare REIT II to the extent other organizational and offering expenses do not exceed 1.0% of the gross proceeds of the offerings. As of September 30, 2009 and December 31, 2008, the Company has incurred expenses of $1.3 million and $0, respectively, in excess of 1.0% of the gross proceeds of the Apartment REIT follow-on offering. As of September 30, 2009 and December 31, 2008, the Company has incurred expenses of $1.8 million and $97,000, respectively, in excess of 1.0% of the gross proceeds of the Healthcare REIT II initial offering. The Company anticipates that such amount will be reimbursed in the future from the offering proceeds of Apartment REIT and Healthcare REIT II.

28

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

Management Fees — The Company provides both transaction and management services to parties which are related to an affiliate of a principal stockholder and director of the Company (collectively, “Kojaian Companies”). In addition, the Company also pays asset management fees to the Kojaian Companies related to properties the Company manages on their behalf. Revenue, including reimbursable expenses related to salaries, wages and benefits, earned by the Company for services rendered to Kojaian Companies, including joint ventures, officers and directors and their affiliates, was $2.0 million and $2.1 million for the three months ended September 30, 2009 and 2008, respectively, and $5.4 million and $5.6 million for the nine months ended September 30, 2009 and 2008, respectively. In August 2009, the Kojaian Management Corporation prepaid $600,000 of property management fees to the company which was repaid in September 2009 upon collection of management fees from parties related to the Kojaian Companies to which the company provides management services.

Other Related Party — GERI, which is wholly owned by the Company, owns a 50.0% managing member interest in Grubb & Ellis Apartment REIT Advisor, LLC and each of Grubb & Ellis Apartment Management, LLC and ROC REIT Advisors, LLC own a 25.0% equity interest in Grubb & Ellis Apartment REIT Advisor, LLC. As of September 30, 2009 and December 31, 2008, Andrea R. Biller, the Company’s General Counsel, Executive Vice President and Secretary, owned an equity interest of 18.0% of Grubb & Ellis Apartment Management, LLC. On August 8, 2008, in accordance with the terms of the operating agreement of Grubb & Ellis Apartment Management, LLC, Grubb & Ellis Apartment Management LLC tendered settlement for the purchase of the 18.0% equity interest in Grubb & Ellis Apartment Management LLC that was previously owned by Mr. Scott D. Peters, former chief executive officer of the Company. As a consequence, through a wholly owned subsidiary, the Company’s equity interest in Grubb & Ellis Apartment Management, LLC increased from 64.0% to 82.0% after giving effect to this purchase from Mr. Peters. As of September 30, 2009 and December 31, 2008, Stanley J. Olander, the Company’s Executive Vice President — Multifamily, owned an equity interest of 33.3% of ROC REIT Advisors, LLC.

GERI owns a 75.0% managing member interest in Grubb & Ellis Healthcare REIT Advisor, LLC and, therefore, consolidates Grubb & Ellis Healthcare REIT Advisor, LLC. Grubb & Ellis Healthcare Management, LLC owns a 25.0% equity interest in Grubb & Ellis Healthcare REIT Advisor, LLC. As of September 30, 2009 and December 31, 2008, each of Ms. Biller and Mr. Hanson, the Company’s Chief Investment Officer and GERI’s President, owned an equity interest of 18.0% of Grubb & Ellis Healthcare Management, LLC. On August 8, 2008, in accordance with the terms of the operating agreement of Grubb & Ellis Healthcare Management, LLC, Grubb & Ellis Healthcare Management, LLC tendered settlement for the purchase of 18.0% equity interest in Grubb & Ellis Healthcare Management, LLC that was previously owned by Mr. Peters. As a consequence, through a wholly owned subsidiary, the Company’s equity interest in Grubb & Ellis Healthcare Management, LLC increased from 46.0% to 64.0% after giving effect to this purchase from Mr. Peters.

The grants of membership interests in Grubb & Ellis Apartment Management, LLC and Grubb & Ellis Healthcare Management, LLC to certain executives are being accounted for by the Company as a profit sharing arrangement. Compensation expense is recorded by the Company when the likelihood of payment is probable and the amount of such payment is estimable, which generally coincides with Grubb & Ellis Apartment REIT Advisor, LLC and Grubb & Ellis Healthcare REIT Advisor, LLC recording its revenue. Compensation expense related to this profit sharing arrangement associated with Grubb & Ellis Apartment Management, LLC includes distributions of $131,000, $85,000 and $122,000, to Mr. Thompson, Mr. Peters and Ms. Biller for the nine months ended September 30, 2008, respectively. There was no compensation expense related to the profit sharing arrangement with Grubb & Ellis Apartment Management, LLC, and therefore no distributions to any members, for the nine months ended September 30, 2009. Compensation expense related to this profit sharing arrangement associated with Grubb & Ellis Healthcare Management, LLC includes distributions of $44,000 and $131,000, respectively, to Mr. Thompson, $0 and $387,000, respectively, to Mr. Peters, $203,000 and $491,000, respectively, to Ms. Biller, and $203,000 and $491,000, respectively, to Mr. Hanson for the nine months ended September 30, 2009 and 2008, respectively.

As of September 30, 2009 and December 31, 2008, respectively, the remaining 82.0% equity interest in Grubb & Ellis Apartment Management, LLC and the remaining 64.0% equity interest in Grubb & Ellis Healthcare Management, LLC were owned by GERI. Any allocable earnings attributable to GERI’s ownership interests are paid to GERI on a quarterly basis.

The Company’s directors and officers, as well as officers, managers and employees have purchased, and may continue to purchase, interests in offerings made by the Company’s programs at a discount. The purchase price for these interests reflects the fact that selling commissions and marketing allowances will not be paid in connection with these sales. The net proceeds to the Company from these sales made net of commissions will be substantially the same as the net proceeds received from other sales.

Mr. Thompson has routinely provided personal guarantees to various lending institutions that provided financing for the acquisition of many properties by our programs. These guarantees cover certain covenant payments, environmental and hazardous substance indemnification and any indemnification for any liability arising from the SEC investigation of Triple Net Properties. In connection with the formation transactions, the Company indemnified Mr. Thompson for amounts he may be required to pay under all of these guarantees to which Triple Net Properties, Realty or NNN Capital Corp. is an obligor to the extent such indemnification would not require the Company to book additional liabilities on the Company’s balance sheet. On June 2, 2008, the Company was notified by the SEC staff that the SEC closed the investigation without any enforcement action against the Company or its subsidiaries.

29

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

See issuance of a 5.0 million senior secured convertible note to, and purchase of 5.0 million of preferred stock by a related party in Subsequent Events (Note 20) below.

19. INCOME TAXES

The components of income tax (benefit) provision from continuing operations for the three and nine months ended September 30, 2009 and 2008 consisted of the following:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2009			2008			2009			2008
Current:
Federal	$	(69	)	$	1,496		$	(69	)	$	(4,224	)
State		1			(282	)		7			(958	)
		(68	)		1,214			(62	)		(5,182	)
Deferred:
Federal		289			(13,372	)		549			(13,628	)
State		56			(3,785	)		100			(4,314	)
		345			(17,157	)		649			(17,942	)
	$	277		$	(15,943	)	$	587		$	(23,124	)

The Company recorded net prepaid taxes totaling approximately $529,000 as of September 30, 2009, comprised primarily of state tax refund receivables and state prepaid tax estimates.

As of December 31, 2008, federal net operating loss carryforwards were available to the Company in the amount of approximately $2.2 million, translating to a deferred tax asset before valuation allowance of $797,000 which will begin to expire in 2027. The Company also had state net operating loss carryforwards from previous periods totaling $74.5 million, translating to a deferred tax asset of $6.1 million before valuation allowances.

In evaluating the need for a valuation allowance as of September 30, 2009, the Company evaluated both positive and negative evidence in accordance with the requirements of SFAS No. 109, Accounting for Income Taxes. Management determined that $36.4 million of deferred tax assets recorded during the nine months ended September 30, 2009 do not satisfy the recognition criteria set forth in SFAS No. 109. Accordingly, a valuation allowance has been recorded for this amount. If released, the entire amount would result in a benefit to continuing operations.

The differences between the total income tax (benefit) provision of the Company for financial statement purposes and the income taxes computed using the applicable federal income tax rate of 35% for the three and nine months ended September 30, 2009 and 2008 were as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2009			2008			2009			2008
Federal income taxes at the statutory rate	$	(7,126	)	$	(15,914	)	$	(32,862	)	$	(21,236	)
State income taxes net of federal benefit		(845	)		(2,199	)		(3,852	)		(2,989	)
Credits		53			(401	)		(143	)		(177	)
Non-deductible expenses		10			2,490			1,029			1,346
Change in valuation allowance		8,253			—			36,477			—
Other		(68	)		81			(62	)		(68	)
(Benefit) provision for income taxes	$	277		$	(15,943	)	$	587		$	(23,124	)

30

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

20. SUBSEQUENT EVENTS

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers

On November 9, 2009, the Company announced that Thomas P. D’Arcy will join the Company as president, chief executive officer and a member of the board of directors, effective November 16, 2009.

Sale of Unregistered Securities

On October 2, 2009, the Company effected the Permitted Placement (see Note 11) and issued a $5.0 million senior subordinated convertible note (the “Note”) to Kojaian Management Corporation. The Note (i) bears interest at twelve percent (12%) per annum, (ii) is co-terminus with the term of the Credit Facility (including if the Credit Facility is terminated pursuant to the Discount Prepayment Option), (iii) is unsecured and fully subordinate to the Credit Facility, and (iv) in the event the Company issues or sells equity securities in connection with or pursuant to a transaction with a non-affiliate of the Company while the Note is outstanding, at the option of the holder of the Note, the principal amount of the Note then outstanding is convertible into those equity securities of the Company issued or sold in such non-affiliate transaction. In connection with the issuance of the Note, Kojaian Management Corporation, the lenders to the Credit Facility and the Company entered into a subordination agreement (the “Subordination Agreement”). The Permitted Placement was a transaction by the Company not involving a public offering in accordance with Section 4(2) of the Securities Act of 1933, as amended (“the Securities Act”).

On November 6, 2009, the Company completed the private placement of 900,000 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. In conjunction with the offering, the entire $5.0 million principal balance of the Note was converted into the Preferred Stock at the offering price and the holder of the Note received accrued interest of approximately $57,000. In addition, the holder of the Note also purchased an additional $5.0 million of preferred stock at the offering price. The Company also granted the initial purchaser a 45-day option to purchase up to an additional 100,000 shares of Preferred Stock.

As previously disclosed, among other things with respect to the Preferred Stock offering, in the Current Report on Form 8-K filed by the company on October 26, 2009, the Preferred Stock was offered in reliance on exemptions from the registration requirements of the Securities Act that apply to offers and sales of securities that do not involve a public offering. As such, the Preferred Stock was offered and will be sold only to (i) “qualified institutional buyers” (as defined in Rule 144A under the Securities Act), (ii) to a limited number of institutional “accredited investors” (as defined in Rule 501(a)(1), (2), (3) or (7) of the Securities Act), and (iii) to a limited number of individual “accredited investors” (as defined in Rule 501(a)(4), (5) or (6) of the Securities Act).

As previously disclosed, among other things with respect to the Preferred Stock offering, in the Current Report on Form 8-K filed by the company on November 11, 2009, upon the closing of the sale of the $90 million of Preferred Stock, the Company received cash proceeds of approximately $85.0 million after giving effect to the conversion of the Note and after deducting the initial purchaser’s discounts and certain offering expenses and giving effect to the conversion of the subordinated note. A portion of proceeds were used to pay in full borrowings under the Credit Facility then outstanding of $66.8 million for a reduced amount equal to $43.4 million, with the balance of the proceeds to be used for working capital purposes.

The Certificate of Designations with respect to the Preferred Stock provides, among other things, that upon the closing of the Offering, each share of Preferred Stock is initially convertible, at the holder’s option, into the Company’s common stock, par value $.01 per share (the “Common Stock”) at a conversion rate of 31.322 shares of Common Stock for each share of Preferred Stock. If the Company’s Certificate of Incorporation is amended to increase the number of authorized shares (as more fully discussed in the immediately following paragraph), the Preferred Stock will be convertible, at the holder’s option, into Common Stock 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, and a 10.0% premium to the closing price of the Common Stock on October 22, 2009.

The Company has agreed to seek as soon as practicable the approval of the stockholders holding at least a majority of the shares of the Common Stock voting separately as a class, and a majority of all shares of the Company’s Common Stock entitled to vote as a single class, which includes the Common Stock issuable upon the conversion of the Preferred Stock, to amend the Company’s Certificate of Incorporation to increase the Company’s authorized capital stock to 220,000,000 shares of capital stock, 200,000,000 of which shall be Common Stock and 20,000,000 of which shall be preferred stock issuable in one or more series or classes, and to permit the election by the holders of the Preferred Stock of two (2) directors in the event that the Company is in arrears with respect to the Company’s Preferred Stock for six or more quarters. If such amendment is not effective prior to 120 days after the date the Company first issues the Preferred Stock, (i) holders of Preferred Stock may require the Company to repurchase all, or a specified whole number, of their Preferred Stock at a repurchase price equal to 110% of the sum of the initial liquidation preference plus accumulated but unpaid dividends, and (ii) the annual dividend rate with respect to the Preferred Stock will increase by two percent (2%); provided, however, holders of Preferred Stock who do not vote in favor of the amendment will not be able to exercise such repurchase right, or be entitled to such two percent (2%) dividend increase.

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GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

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.

If the Company fails to pay the quarterly Preferred Stock dividend in full for two consecutive quarters, the dividend rate will automatically be increased by .50% of the initial liquidation preference per share per quarter (up to a maximum amount of increase of 2% of the initial liquidation preference per share) until cumulative dividends have been paid in full. In addition, subject to certain limitations, in the event the dividends on the Preferred Stock are in arrears for six or more quarters, whether or not consecutive, subject to the passage of the amendment to the Company’s Certificate of Incorporation discussed above, holders representing a majority of the shares of Preferred Stock voting together as a class with holders of any other class or series of preferred stock upon which like voting rights have been conferred and are exercisable will be entitled to nominate and vote for the election of two additional directors to serve on the board of directors until all unpaid dividends with respect to the Preferred Stock and any other class or series of preferred stock upon which like voting rights have been conferred or are exercisable have been paid or declared and a sum sufficient for payment has been set aside therefore.

During the six month period following the closing of the Offering, if the Company issues any securities, other than certain permitted issuances, and the price per share of the Common Stock (or the equivalent for securities convertible into or exchangeable for Common Stock) is less than the then current conversion price of the Preferred Stock, the conversion price will be reduced pursuant to a weighted average anti-dilution formula.

Holders of Preferred Stock may require the Company 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, the Company may, at its 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.

The Company has entered into a registration rights agreement (the “Registration Rights Agreement”) with one of the lead investors (and its affiliates) with respect to the shares of Preferred Stock, and the Common Stock issuable upon the conversion of such Preferred Stock, that was acquired by such lead investor (and affiliates) in the Offering. No other purchasers of the Preferred Stock in the Offering will have the right to have their shares of Preferred Stock, or shares of Common Stock issuable upon conversion of such Preferred Stock, registered. In addition, subject to certain limitations, the lead investor who acquired the registration rights also has certain preemptive rights in the event the Company issues for cash consideration any Common Stock or any securities convertible into or exchangeable for Common Stock (or any rights, warrants or options to purchase any such Common Stock) during the six-month period subsequent to the closing of the Offering. Such preemptive right is intended to permit such lead investor to maintain its pro rata ownership of the Preferred Stock acquired in the Offering.

32

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

Holders of the Preferred 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, 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, and 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.

Pursuant to the overallotment option of up to 100,000 shares of Preferred Stock granted to the initial purchaser in the Company’s $90 million offering of Preferred Stock to various qualified institutional buyers and accredited investors, the Company effected the sale of a portion of the overallotment option on November 13, 2009 of an aggregate of 14,350 shares of Preferred Stock for net proceeds of approximately $1.4 million.

This Form 10-Q shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Preferred Stock in any state in which the offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Interim Report contains statements that are not historical facts and constitute projections, forecasts or forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements are not guarantees of performance. They involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company (as defined below) in future periods to be materially different from any future results, performance or achievements expressed or suggested by these statements. You can identify such statements by the fact that they do not relate strictly to historical or current facts. These statements use words such as “believe,” “expect,” “should,” “strive,” “plan,” “intend,” “estimate” and “anticipate” or similar expressions. When we discuss strategy or plans, we are making projections, forecasts or forward-looking statements. Actual results and stockholder’s value will be affected by a variety of risks and factors, including, without limitation, international, national and local economic conditions and real estate risks and financing risks and acts of terror or war. Many of the risks and factors that will determine these results and values are beyond the Company’s ability to control or predict. These statements are necessarily based upon various assumptions involving judgment with respect to the future. All such forward-looking statements speak only as of the date of this Report. The Company expressly disclaims any obligation or undertaking to release publicly any updates of revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Factors that could adversely affect the Company’s ability to obtain these results and value include, among other things: (i) the slowdown in the volume and the decline in the transaction values of sales and leasing transactions, (ii) the general economic downturn and recessionary pressures on business in general, (iii) a prolonged and pronounced recession in real estate markets and values, (iv) the unavailability of credit to finance real estate transactions in general, and the Company’s tenant-in-common programs in particular, (v) the reduction in borrowing capacity under the Company’s current credit facility, and the additional limitations with respect thereto, (vi) the continuing ability to make interest and principal payments with respect to the Company’s credit facility, (vii) an increase in expenses related to new initiatives, investments in people, technology, and service improvements, (viii) the success of current and new investment programs, (ix) the success of new initiatives and investments, (x) the inability to attain expected levels of revenue, performance, brand equity and expense synergies resulting from the merger of Grubb & Ellis Company and NNN Realty Advisors in general, and in the current macroeconomic and credit environment in particular, and (xi) other factors described in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2008, filed on June 1, 2009.

Overview and Background

The Company reports its revenue by three business segments in accordance with the provisions of the Segment Reporting Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”). Transaction Services, which comprises its real estate brokerage operations; Investment Management, which includes providing acquisition, financing and disposition services with respect to its investment programs, asset management services related to its programs, and dealer-manager services by its securities broker-dealer, which facilitates capital raising transactions for its TIC, REIT and other investment programs; and Management Services, which includes property management, corporate facilities management, project management, client accounting, business services and engineering services for unrelated third parties and the properties owned by the programs it sponsors. Additional information on these business segments can be found in Note 12 of Notes to Consolidated Financial Statements in Item 1 of this Report.

Critical Accounting Policies

A discussion of the Company’s critical accounting policies, which include principles of consolidation, revenue recognition, impairment of goodwill, deferred taxes, and insurance and claims reserves, can be found in its Annual Report on Form 10-K/A for the year ended December 31, 2008. There have been no material changes to these policies in 2009.

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Recently Issued Accounting Pronouncements

The Company follows the requirements of the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification. The Topic defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value instruments. In February 2008, the FASB amended the Topic to delay the effective date of the Fair Value Measurements and Disclosures for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). There was no effect on the Company’s consolidated financial statements as a result of the adoption of the Topic as of January 1, 2008 as it relates to financial assets and financial liabilities. For items within its scope, the amended Fair Value Measurements and Disclosures Topic deferred the effective date of Fair Value Measurements and Disclosures to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted the requirements of the Topic as it relates to non-financial assets and non-financial liabilities in the first quarter of 2009, which did not have a material impact on the consolidated financial statements.

In December 2007, the FASB issued an amendment to the requirements of the Business Combinations Topic. The amended Topic requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. The Topic changed the accounting treatment and disclosure for certain specific items in a business combination. The Topic applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted the requirements of the Topic on a prospective basis on January 1, 2009. The adoption of the requirements of the Topic will materially affect the accounting for any future business combinations.

In March 2008, the FASB issued an amendment to the requirements of the Derivatives and Hedging Topic. The requirements of the amended Topic are intended to improve financial reporting of derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The requirements of the amended Topic achieve these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. The requirements of the amended Topic became effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company adopted the requirements of the amended Topic in the first quarter of 2009. The adoption of the requirements of the amended Topic did not have a material impact on the consolidated financial statements.

In April 2008, the FASB issued an amendment to the requirements of Intangibles-Goodwill and Other Topic. The requirements of the amended Topic are intended to improve the consistency between the useful life of recognized intangible assets and the period of expected cash flows used to measure the fair value of the assets. The amendment changes the factors an entity should consider in developing renewal or extension assumptions in determining the useful life of recognized intangible assets. In addition the amended Topic requires disclosure of the entity’s accounting policy regarding costs incurred to renew or extend the term of recognized intangible assets, the weighted average period to the next renewal or extension, and the total amount of capitalized costs incurred to renew or extend the term of recognized intangible assets. The requirements of the amended Topic are effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The Company adopted the requirements of the amended Topic on January 1, 2009. The adoption of the requirements of the amended Topic did not have a material impact on the consolidated financial statements.

In June 2008, the FASB issued an amendment to the requirements of the Earnings Per Share Topic, which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the computation of earnings per share under the two-class method which apply to the Company because it grants instruments to employees in share-based payment transactions that meet the definition of participating securities, is effective retrospectively for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The Company adopted the requirements of the amended Topic in the first quarter of 2009. The adoption of the requirements of the amended Topic did not have a material impact on the consolidated financial statements.

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In April 2009, the FASB issued an amendment to the requirements of the Financial Instruments Topic. The amended Topic relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value. Prior to issuing the requirements of the amended Topic, fair values for these assets and liabilities were only disclosed once a year. The amended Topic now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The adoption of the requirements of the amended Topic did not have a material impact on the consolidated financial statements.

The requirements of the Investments-Debt and Equity Securities Topic, is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The Topic also requires increased and more timely disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. The adoption of the requirements of the Topic did not have a material impact on the consolidated financial statements.

In April 2009, the FASB issued an amendment to the requirements of the Fair Value Measurements and Disclosures Topic. The Topic relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It states that the objective of fair value measurement is to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, the requirements of the Topic reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The adoption of the amended Topic did not have a material impact on the consolidated financial statements.

In April 2009, the FASB issued an amendment to the requirements of the Business Combinations Topic. The requirements of the Business Topic clarifies to address application issues on the accounting for contingencies in a business combination. The requirements of the amended Topic is effective for assets or liabilities arising from contingencies in business combinations acquired on or after January 1, 2009. The adoption of the requirements of the amended Topic did not have a material impact on the consolidated financial statements.

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In June 2009, the FASB issued an amendment to the requirements of the Transfers and Servicing Topic, which addresses the effects of eliminating the qualifying SPE concept and redefines who the primary beneficiary is for purposes of determining which variable interest holder should consolidated the variable interest entity. The requirements of the amended Topic become effective for annual periods beginning after November 15, 2009. The Company is reviewing any impact this may have on the consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a Replacement of FASB Statement No. 162 (“SFAS No. 168”). SFAS No. 168 established that the FASB Accounting Standards Codification (“the Codification”) became the single official source of authoritative U.S. GAAP, other than guidance issued by the SEC. Following this statement, the FASB will not issue new standards in the form of Statements, Staff Positions or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates. All guidance contained in the Codification carries an equal level of authority. The GAAP hierarchy was modified to include only two levels of GAAP: authoritative and non-authoritative. All non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative. The Codification, which changes the referencing of financial standards, became effective for interim and annual periods ending on or after September 15, 2009. The adoption of SFAS No. 168 did have a material impact on the consolidated financial statements.

The Company has adopted the requirements of the Subsequent Events Topic effective beginning with the quarter ended September 30, 2009 and has evaluated for disclosure subsequent events that have occurred up through November 13, 2009, the date of issuance of these financial statements.

RESULTS OF OPERATIONS

Overview

The Company reported revenue of approximately $136.1 million for the three months ended September 30, 2009, compared with revenue of $153.2 million for the same period in 2008. The decrease was primarily the result of decreases in Transaction Services and Investment Management revenue of $11.2 million and $9.3 million, respectively, partially offset by increases in Management Services revenue of $4.0 million.

The net loss attributable to Grubb & Ellis Company for the third quarter of 2009 was $21.4 million, or $0.34 per diluted share, and includes a non-cash charge of $2.4 million for real estate related impairments and a $7.2 million charge, which includes an allowance for bad debt and write-offs of related party receivables and advances. In addition, the three month results included approximately $2.6 million of stock-based compensation and $1.9 million for amortization of other identified intangible assets.

The Company reported revenue of approximately $385.1 million for the nine months ended September 30, 2009, compared with revenue of $468.8 million for the same period in 2008. The decrease was primarily the result of decreases in Transaction Services and Investment Management revenue of $54.4 million and $40.6 million, respectively, partially offset by increases in Management Services revenue of $13.8 million.

The net loss attributable to Grubb & Ellis Company for the first nine months of 2009 was $95.7 million, or $1.51 per diluted share, and includes a non-cash charge of $16.6 million for real estate related impairments and a $21.6 million charge, which includes an allowance for bad debt and write-offs of related party receivables and advances. In addition, the nine month results included approximately $8.7 million of stock-based compensation and $5.7 million for amortization of other identified intangible assets.

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Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

The following summarizes comparative results of operations for the periods indicated.

	Three Months Ended
	September 30,						Change
(In thousands)	2009			2008			$			%
Revenue
Management services	$	67,456		$	63,479		$	3,977			6.3	%
Transaction services		46,321			57,502			(11,181	)		(19.4	)
Investment management		14,829			24,116			(9,287	)		(38.5	)
Rental related		7,498			8,119			(621	)		(7.6	)
Total revenue		136,104			153,216			(17,112	)		(11.2	)
Operating Expense
Compensation costs		116,339			120,765			(4,426	)		(3.7	)
General and administrative		24,531			40,258			(15,727	)		(39.1	)
Depreciation and amortization		3,504			4,884			(1,380	)		(28.3	)
Rental related		4,961			4,337			624			14.4
Interest		3,741			2,947			794			26.9
Merger related costs		933			2,657			(1,724	)		(64.9	)
Real estate related impairments		2,393			34,778			(32,385	)		(93.1	)
Goodwill and intangible assets impairment		583			—			583			100.0
Total operating expense		156,985			210,626			(53,641	)		(25.5	)
Operating Loss		(20,881	)		(57,410	)		36,529			63.6
Other (Expense) Income
Equity in losses of unconsolidated entities		(224	)		(5,859	)		5,635			96.2
Interest income		188			234			(46	)		(19.7	)
Other income (loss)		272			(508	)		780			153.5
Total other income (expense)		236			(6,133	)		6,369			103.8
Loss from continuing operations before income tax (provision) benefit		(20,645	)		(63,543	)		42,898			67.5
Income tax (provision) benefit		(277	)		15,943			(16,220	)		(101.7	)
Loss from continuing operations		(20,922	)		(47,600	)		26,678			56.0
Discontinued Operations
Gain (loss) from discontinued operations, net of taxes		(535	)		(14,941	)		14,406			96.4
(Loss) gain on disposal of discontinued operations, net of taxes		—			(185	)		185			100.0
Total loss from discontinued operations		(535	)		(15,126	)		14,591			96.5
Net loss		(21,457	)		(62,726	)		41,269			65.8
Net (loss) income from noncontrolling interests		(98	)		(6,444	)		6,346			98.5
Net loss attributable to Grubb & Ellis Company	$	(21,359	)	$	(56,282	)	$	34,923			62.1	%

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Revenue

Transaction and Management Services Revenue

The Company earns revenue from the delivery of transaction and management services to the commercial real estate industry. Transaction fees include commissions from leasing, acquisition and disposition, and agency leasing assignments as well as fees from appraisal and consulting services. Management fees, which include reimbursed salaries, wages and benefits, comprise the remainder of the Company’s services revenue, and include fees related to both property and facilities management outsourcing as well as project management and business services. The Company has typically experienced its lowest quarterly revenue from transaction services in the quarter ending March 31 of each year with higher and more consistent revenue in the quarters ending June 30 and September 30. The quarter ending December 31 has historically provided the highest quarterly level of revenue due to increased activity caused by the desire of clients to complete transactions by calendar year-end. As of September 30, 2009, the Company managed approximately 242.9 million square feet of property compared to 226.5 million square feet for the same period in 2008.

Management Services revenue increased $4.0 million or 6.3% to $67.5 million for the three months ended September 30, 2009 which reflects an increase in square feet under management of 15.3 million or 7.4% to 221.2 million total square feet under management as of September 30, 2009. Management Services revenue, which is primarily property management fees and reimbursable salaries, also includes property management fee revenue of approximately $1.6 million and $1.9 million for the three months ended September 30, 2009 and 2008, respectively, from the management of a significant portion of GERI’s captive property portfolio by Grubb & Ellis Managements Services.

Transaction Services revenue decreased $11.2 million or 19.4% to $46.3 million for the three months ended September 30, 2009. Transaction Services revenue primarily includes brokerage commission, valuation and consulting revenue. The Company’s Transaction Services business was negatively impacted by the current economic environment, which has reduced commercial real estate transaction velocity, particularly investment sales.

Investment Management Revenue

Investment Management revenue decreased $9.3 million or 38.5% to $14.8 million for the three months ended September 30, 2009. Investment Management revenue reflects revenue generated through the fee structure of the various investment products which included acquisition, loan and disposition fees of approximately $4.5 million and captive management fees of $7.9 million. Key drivers of this business are the dollar value of equity raised, the amount of transactions that are generated in the investment product platforms and the amount of assets under management.

In total, $112.0 million in equity was raised for the Company’s investment programs for the three months ended September 30, 2009, compared with $245.0 million in the same period in 2008. The decrease was driven by a decrease in TIC equity raised and by a decrease in equity raised by the Company’s public non-traded REITs. During the three months ended September 30, 2009, the Company’s public non-traded REIT programs raised $111.5 million, a decrease of 39.2% from the $183.3 million equity raised in the same period in 2008. The Company’s TIC 1031 exchange programs raised $500,000 in equity during the third quarter of 2009, compared with $46.2 million in the same period in 2008. The decrease in TIC equity raised for the three months ended September 30, 2009 reflects the continued decline in current market conditions. The decrease in equity raised by the Company’s public non-traded REITs is a result of the transition to the Company’s Healthcare REIT II program which commenced September 21, 2009.

Acquisition and loan fees decreased approximately $1.8 million, or 28.9%, to approximately $4.5 million for the three months ended September 30, 2009, compared to approximately $6.3 million for the same period in 2008. The quarter-over-quarter decrease in acquisition fees was primarily attributed a decrease of $2.3 million in fees from the TIC programs partially offset by a small increase in fees earned from the Company’s non-traded REIT programs. During the three months ended September 30, 2009, the Company acquired one property on behalf of its sponsored programs for an approximate aggregate total of $162.8 million, compared to six properties for an approximate aggregate total of $240.3 million during the same period in 2008.

Disposition fees decreased approximately $502,000, or 100%, to zero for the three months ended September 30, 2009, compared to approximately $502,000 for the same period in 2008. Offsetting the disposition fees during the three months ended September 30, 2008 was approximately $193,000 of amortization of identified intangible contract rights associated with the acquisition of Triple Net Properties Realty, Inc. (“Realty”) as they represent the right to future disposition fees of a portfolio of real properties under contract. No amortization of identified intangible contract rights was recorded for the three months ended September 30, 2009 because no disposition fees were recorded.

Captive management decreased approximately $2.0 million or 19.8% to $7.9 million for the three months ended September 30, 2009 which primarily reflects an increase in the deferral of fees.

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Rental Revenue

Rental revenue includes pass-through revenue for the master lease accommodations related to the Company’s TIC programs. Rental revenue also includes revenue from two properties held for investment.

Operating Expense Overview

The Company’s operating expenses decreased approximately $53.6 million, or 25.5%, to $157.0 million for the three months ended September 30, 2009, compared to approximately $210.6 million for the same period in 2008. This decrease reflects decreases in compensation costs from lower commissions paid and synergies created as a result of the Merger of $4.4 million and decreases of merger related costs of $1.7 million and general and administrative expense of $15.7 million. The Company recognized real estate impairments of $2.4 million during the three months ended September 30, 2009, a decrease of $32.4 million over the same period last year. Partially offsetting the overall decrease was an increase in interest expense of $794,000 for the three months ended September 30, 2009.

Compensation Costs

Compensation costs decreased approximately $4.4 million, or 3.7%, to $116.3 million for the three months ended September 30, 2009, compared to approximately $120.8 million for the same period in 2008 due to a decrease in commissions paid of approximately $7.6 million related to the Transactions Services portfolio as a result of decrease in activity and a decrease of approximately $1.3 million primarily related to the Investment Management business as a result of a reduction in headcount and decreases in salaries partially offset by an increase of $4.5 million as a result of an increase in reimbursable salaries, wages and benefits due to the growth in the Management Services portfolio.

General and Administrative

General and administrative expense decreased approximately $15.7 million, or 39.1%, to $24.5 million for the three months ended September 30, 2009, compared to approximately $40.3 million for the same period in 2008 due to a decrease of approximately $10.2 million in bad debt and related charges along with various decreases related to management’s cost saving efforts.

General and administrative expense was 18.0% of total revenue for the three months ended September 30, 2009, compared with 26.3% for the same period in 2008.

Depreciation and Amortization

Depreciation and amortization expense decreased approximately $1.4 million, or 28.3%, to $3.5 million for the three months ended September 30, 2009, compared to approximately $4.9 million for the same period in 2008 due to a decrease in depreciation and amortization of approximately $1.5 million related to one of the two properties held for investment as of September 30, 2009. Included in depreciation and amortization expense was $796,000 for amortization of other identified intangible assets.

Rental Expense

Rental expense includes pass-through expenses for master lease accommodations related to the Company’s TIC programs. Rental expense also includes expense from two properties held for investment.

Interest Expense

Interest expense increased approximately $794,000, or 26.9%, to $3.7 million for the three months ended September 30, 2009, compared to $2.9 million for the same period in 2008. The increase in interest expense is primarily due to an increase in the interest rate on the Credit Facility as a result of the 3^rd amendment to the Credit Facility whereby the rate increased to LIBOR plus 800 basis points from LIBOR plus 300 basis points.

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Real Estate Related Impairments

The Company recognized impairment charges of approximately $2.4 million during the three months ended September 30, 2009 related to certain unconsolidated real estate investments. These impairment charges were recognized as an other contingent liability related to commitments associated with certain of the Company’s TIC programs. The Company recognized an impairment charge of approximately $34.8 million during the three months ended September 30, 2008. The impairment charge was recognized against the carrying value of the investments as of September 30, 2008.

Discontinued Operations

In accordance with the requirements of the Property, Plant, and Equipment Topic, for the three months ended September 30, 2009 and 2008, discontinued operations included the results of operations of two properties and one limited liability company (“LLC”) entity classified as held for sale as of September 30, 2009.

Income Tax

The Company recognized a tax expense of approximately $277,000, net of an $8.3 million valuation allowance for the three months ended September 30, 2009, compared to a tax benefit of $15.9 million for the same period in 2008. The net $16.2 million increase in tax expense reflects the valuation allowance recorded in the current year period compared to tax benefits from the impairment of real estate held for investment recorded in the prior year period, three months ended September 30, 2008.

Net Loss Attributable to Grubb & Ellis Company

As a result of the above items, the Company recognized a net loss of $21.4 million, or $0.34 per diluted share for the three months ended September 30, 2009, compared to a net loss of $56.3 million, or $0.88 per diluted share, for the same period in 2008.

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Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

The following summarizes comparative results of operations for the periods indicated.

	Nine Months Ended
	September 30,						Change
(In thousands)	2009			2008			$			%
Revenue
Management services	$	199,636		$	185,855		$	13,781			7.4	%
Transaction services		118,793			173,191			(54,398	)		(31.4	)
Investment management		43,912			84,480			(40,568	)		(48.0	)
Rental related		22,754			25,302			(2,548	)		(10.1	)
Total revenue		385,095			468,828			(83,733	)		(17.9	)
Operating Expense
Compensation costs		342,072			365,488			(23,416	)		(6.4	)
General and administrative		82,868			84,387			(1,519	)		(1.8	)
Depreciation and amortization		8,368			13,692			(5,324	)		(38.9	)
Rental related		16,159			15,384			775			5.0
Interest		12,490			9,928			2,562			25.8
Merger related costs		933			10,217			(9,284	)		(90.9	)
Real estate related impairments		16,615			34,778			(18,163	)		(52.2	)
Goodwill and intangible assets impairment		583			—			583			100.0
Total operating expense		480,088			533,874			(53,786	)		(10.1	)
Operating Loss		(94,993	)		(65,046	)		(29,947	)		(46.0	)
Other (Expense) Income
Equity in losses of unconsolidated entities		(1,635	)		(10,602	)		8,967			84.6
Interest income		472			757			(285	)		(37.6	)
Other income (loss)		394			(3,801	)		4,195			110.4
Total other income (expense)		(769	)		(13,646	)		12,877			94.4
Loss from continuing operations before income tax (provision) benefit		(95,762	)		(78,692	)		(17,070	)		(21.7	)
Income tax (provision) benefit		(587	)		23,124			(23,711	)		(102.5	)
Loss from continuing operations		(96,349	)		(55,568	)		(40,781	)		(73.4	)
Discontinued Operations
Gain (loss) from discontinued operations, net of taxes		(379	)		(18,871	)		18,492			98.0
(Loss) gain on disposal of discontinued operations, net of taxes		(626	)		181			(807	)		(445.9	)
Total loss from discontinued operations		(1,005	)		(18,690	)		17,685			94.6
Net loss		(97,354	)		(74,258	)		(23,096	)		(31.1	)
Net (loss) income from noncontrolling interests		(1,686	)		(6,298	)		4,612			73.2
Net loss attributable to Grubb & Ellis Company	$	(95,668	)	$	(67,960	)	$	(27,708	)		(40.8	)%

Revenue

Transaction and Management Services Revenue

Management Services revenue increased$13.8 million or 7.4% to $199.6 million for the nine months ended September 30, 2009 which reflects an increase in square feet under management of 15.3 million or 7.4% to 221.2 million total square feet under management as of September 30, 2009. Management Services revenue, which is primarily property management fees and reimbursable salaries, also includes property management fee revenue of approximately $5.2 million and $5.6 million for the nine months ended September 30, 2009 and 2008, respectively, from the management of a significant portion of GERI’s captive property portfolio by Grubb & Ellis Managements Services.

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Transaction Services revenue decreased $54.4 million or 31.4% to $118.8 million for the nine months ended September 30, 2009. Transaction Services revenue primarily includes brokerage commission, valuation and consulting revenue. The Company’s Transaction Services business was negatively impacted by the current economic environment, which has reduced commercial real estate transaction velocity, particularly investment sales.

Investment Management Revenue

Investment Management revenue decreased $40.6 million or 48.0% to $43.9 million for the nine months ended September 30, 2009. Investment Management revenue reflects revenue generated through the fee structure of the various investment products which included acquisition, loan and disposition fees of approximately $7.5 million and captive management fees of $24.9 million. These fees include acquisition, disposition, financing, and property and asset management. Key drivers of this business are the dollar value of equity raised, the amount of transactions that are generated in the investment product platforms and the amount of assets under management.

In total, $533.0 million in equity was raised for the Company’s investment programs for the nine months ended September 30, 2009, compared with $760.5 million in the same period in 2008. The decrease was driven by a decrease in TIC equity raised and private client wealth management, partially offset by an increase in equity raised by the Company’s public non-traded REITs. During the nine months ended September 30, 2009, the Company’s public non-traded REIT programs raised $518.0 million, an increase of 30.8% from the $396.1 million equity raised in the same period in 2008. The Company’s TIC 1031 exchange programs raised $13.0 million in equity during the nine months ended September 30, 2009, compared with $152.9 million in the same period in 2008. The decrease in TIC equity raised for the nine months ended September 30, 2009 reflects the continued decline in current market conditions.

Acquisition and loan fees decreased approximately $23.1 million, or 75.5%, to approximately $7.5 million for the nine months ended September 30, 2009, compared to approximately $30.5 million for the same period in 2008. The decrease in acquisition fees was primarily attributed to a decrease of $12.2 million in fees earned from the Company’s non-traded REIT programs, a decrease in fees from the Private Client Management platform, formerly known as Wealth Management, of $4.4 million, and a decrease of $6.5 million in fees from the TIC programs. During the nine months ended September 30, 2009, the Company acquired 6 properties on behalf of its sponsored programs for an approximate aggregate total of $240.3 million, compared to 46 properties for an approximate aggregate total of $1.0 billion during the same period in 2008.

Disposition fees decreased approximately $4.6 million, or 100%, to zero for the nine months ended September 30, 2009, compared to approximately $4.6 million for the same period in 2008. Offsetting the disposition fees during the nine months ended September 30, 2008 was approximately $1.2 million of amortization of identified intangible contract rights associated with the acquisition of Realty as they represent the right to future disposition fees of a portfolio of real properties under contract. No amortization of identified intangible contract rights was recorded for the nine months ended September 30, 2009 because no disposition fees were recorded.

Captive management decreased approximately $3.5 million or 12.4% to $24.9 million for the nine months ended September 30, 2009 which primarily reflects an increase in the deferral of fees.

Rental Revenue

Rental revenue includes pass-through revenue for the master lease accommodations related to the Company’s TIC programs. Rental revenue also includes revenue from two properties held for investment.

Operating Expense Overview

The Company’s operating expense of $480.1 million for the nine months ended September 30, 2009 a decrease of $53.8 million compared to the same period in 2008. The Company recognized real estate impairments of $16.6 million during the nine months ended September 30, 2009, a decrease of $18.2 million compared to real estate impairments of $34.8 million in the same period of 2008. In addition, compensation costs decreased $23.4 million due to lower commissions paid and synergies created as a result of the Merger and merger related costs decreased $9.3 million. Depreciation and amortization expense decreased $5.3 million when compared to the prior period primarily due to depreciation charges related to two properties held for investment in 2008 and 2009. Partially offsetting the overall decrease was an increase in interest expense of $2.6 million for the nine months ended September 30, 2009.

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Compensation Costs

Compensation costs decreased approximately $23.4 million, or 6.4%, to $342.1 million for the nine months ended September 30, 2009, compared to approximately $365.5 million for the same period in 2008 due to a decrease in commissions paid of approximately $32.6 million related to the Transactions Services portfolio as a result of decrease in activity and a decrease of approximately $5.1 million primarily related to the Investment Management business as a result of a reduction in headcount and decreases in salaries partially offset by an increase of $14.3 million as a result of an increase in reimbursable salaries, wages and benefits due to the growth in the Management Services portfolio.

General and Administrative

General and administrative expense decreased approximately $1.5 million, or 1.8%, to $82.9 million for the nine months ended September 30, 2009, compared to approximately $84.4 million for the same period in 2008. The decrease reflects an increase of approximately $5.1 million in bad debt expense which is offset by decreases in items related to management’s cost saving efforts.

General and administrative expense was 21.5% of total revenue for the nine months ended September 30, 2009, compared with 18.0% for the same period in 2008.

Depreciation and Amortization

Depreciation and amortization expense decreased approximately $5.3 million, or 38.9%, to $8.4 million for the nine months ended September 30, 2009, compared to approximately $13.7 million for the same period in 2008. The decrease is primarily due to two properties the Company held for investment as of September 30, 2009. One of these properties was held for sale through June 30, 2009 and the other was held for sale through September 30, 2009. In accordance with the provisions of Property, Plant, and Equipment Topic, management determined that the carrying value of each property, before each property was classified as held for investment (adjusted for any depreciation and amortization expense and impairment losses that would have been recognized had the asset been continuously classified as held for investment) was greater than the carrying value net of selling costs, of the property at the date of the subsequent decision not to sell. Therefore, the Company made no additional adjustments to the carrying value of the asset as of September 30, 2009 and no depreciation expense was recorded during the period each property was held for sale. Included in depreciation and amortization expense was $2.4 million for amortization of other identified intangible assets.

Rental Expense

Rental expense includes pass-through expenses for master lease accommodations related to the Company’s TIC programs. Rental expense also includes expense from two properties held for investment.

Interest Expense

Interest expense increased approximately $2.6 million, or 25.8%, to $12.5 million for the nine months ended September 30, 2009, compared to $9.9 million for the same period in 2008. The increase in interest expense includes $1.5 million related to the reimbursement of mezzanine interest costs on certain TIC programs. In addition, interest costs related to the Credit Facility reflect an increase of $483,000 due to additional borrowings, an increase in the interest rate to LIBOR plus 800 basis points from LIBOR plus 300 basis points as a result of the 3 ^rd amendment to the Credit Facility and an increase of $368,000 related to the write off of loan fees related to the Credit Facility.

Real Estate Related Impairments

The Company recognized impairment charges of approximately $16.6 million during the nine months ended September 30, 2009, which includes $9.8 million related to certain unconsolidated real estate investments and $6.8 million related to property held for investment as of September 30, 2009. Impairment charges of $10.2 million were recognized against the carrying value of the investments and charges of $6.4 million were recorded as an other contingent liability related to commitments associated with certain of the Company’s TIC programs during the nine months ended September 30, 2009. In addition, the Company recognized approximately $1.8 million related to two properties sold during the nine months ended September 30, 2009, for which the net income (loss) of the properties are classified as discontinued operations. See Discontinued Operations discussion below. The Company recognized an impairment charge of approximately $34.8 million during the nine months ended September 30, 2008. The impairment charge was recognized against the carrying value of the investments as of September 30, 2008.

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Discontinued Operations

In accordance with the requirements of the Property, Plant, and Equipment Topic, for the nine months ended September 30, 2009 and 2008, discontinued operations included the results of operations of four properties and one limited liability company (“LLC”) entity classified as held for sale during the period. The net loss of $1.0 million during the nine months ended September 30, 2009 includes approximately $626,000 in loss on sale, net of taxes, related to the sale of the Danbury Property on June 3, 2009 and $1.8 million of real estate related impairments.

Income Tax

The Company recognized a tax expense of approximately $587,000 for the nine months ended September 30, 2009, compared to a tax benefit of $23.1 million for the same period in 2008. The net $23.7 million increase in tax expense was primarily a result of the $36.4 million valuation allowance recorded against continuing operations to offset tax benefits from the impairment of real estate held for sale recorded in discontinued operations during the nine months ended September 30, 2009 as compared to the same period in 2008. For the nine months ended September 30, 2009 and September 30, 2008, the reported effective income tax rates were (0.613%) and 29.39%, respectively. The change in the effective tax rate is primarily due to the impact of the $36.4 million valuation allowance. (See Note 19 of Notes to Consolidated Financial Statements in Item 1 of this Report for additional information.)

Net Loss Attributable to Grubb & Ellis Company

As a result of the above items, the Company recognized a net loss of $95.7 million, or $1.51 per diluted share, for the nine months ended September 30, 2009, compared to a net loss of $68.0 million, or $1.07 per diluted share, for the same period in 2008.

Liquidity and Capital Resources

As of September 30, 2009, cash and cash equivalents decreased by approximately $23.5 million, from a cash balance of $33.0 million as of December 31, 2008. The Company’s operating activities used net cash of $29.1 million, reflecting decreased in accounts receivable and prepaid assets of $17.2 million and payments of net operating liabilities totaling $6.5 million. Other operating activities used net cash totaling $39.8 million. Investing activities provided net cash of $81.2 million primarily as a result of the sale of two properties during the nine months ended September 30, 2009. Financing activities used net cash of $75.7 million primarily from principal repayments on notes payable of $79.2 million primarily related to two properties sold during the nine months ended September 30, 2009 offset by net contributions from noncontrolling interests of $4.1 million. The Company believes that it will have sufficient capital resources to satisfy its liquidity needs over the next twelve-month period. The Company expects to meet its long-term liquidity needs, which may include principal repayments of debt obligations, investments in various real estate investor programs and institutional funds and capital expenditures, through current and retained cash flow earnings, the sale of real estate properties, additional long-term secured and unsecured borrowings and proceeds from the potential issuance of debt or equity securities and the potential sale of other assets. As of September 30, 2009, the Company had $63.0 million outstanding under the Credit Facility.

On December 7, 2007, the Company entered into a $75.0 million credit agreement by and among the Company, the guarantors named therein, and the financial institutions defined therein as lender parties, with Deutsche Bank Trust Company Americas, as lender and administrative agent (the “Credit Facility”). The Company was restricted to solely use the line of credit for investments, acquisitions, working capital, equity interest repurchase or exchange, and other general corporate purposes. The line bore interest at either the prime rate or LIBOR based rates, as the Company may choose on each of its borrowings, plus an applicable margin ranging from 1.50% to 2.50% based on the Company’s Debt/Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) ratio as defined in the credit agreement.

On August 5, 2008, the Company entered into the First Letter Amendment to its Credit Facility. The First Letter Amendment, among other things, provided the Company with an extension from September 30, 2008 to March 31, 2009 to dispose of the three real estate assets that the Company had previously acquired on behalf of GERA. Additionally, the First Letter Amendment also, among other things, modified select debt and financial covenants in order to provide greater flexibility to facilitate the Company’s TIC Programs.

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On November 4, 2008, the Company amended its Credit Agreement (the “Second Letter Amendment”). The effective date of the Second Letter Amendment is September 30, 2008. (Certain capitalized terms set forth below that are not otherwise defined herein have the meaning ascribed to them in the Credit Facility, as amended.

The Second Letter Amendment, among other things, a) reduced the amount available under the Credit Facility from $75.0 million to $50.0 million by providing that no advances or letters of credit shall be made available to the Company after September 30, 2008 until such time as borrowings have been reduced to less than $50.0 million; b) provided that 100% of any net cash proceeds from the sale of certain real estate assets required to be sold by the Company shall permanently reduce the Revolving Credit Commitments, provided that the Revolving Credit Commitments shall not be reduced to less than $50.0 million by reason of the operation of such asset sales; and c) modified the interest rate incurred on borrowings by increasing the applicable margins by 100 basis points and by providing for an interest rate floor for any prime rate related borrowings.

Additionally, the Second Letter Amendment, among other things, modified restrictions on guarantees of primary obligations from $125.0 million to $50.0 million, modified select financial covenants to reflect the impact of the current economic environment on the Company’s financial performance, amended certain restrictions on payments by deleting any dividend/share repurchase limitations and modified the reporting requirements of the Company with respect to real property owned or held.

As of September 30, 2008, the Company was not in compliance with certain of its financial covenants related to EBITDA. As a result, part of the Second Letter Amendment included a provision to modify selected covenants. The Company was not in compliance with certain debt covenants as of March 31, 2009, all of which were effectively cured as of such date by the Third Amendment to the Credit Facility described below. As a consequence of the foregoing, and certain provisions of the Third Amendment, the $63.0 million outstanding under the Credit Facility has been classified as a current liability as of September 30, 2009.

On May 20, 2009, the Company further amended its Credit Facility by entering into the Third Amendment. The Third Amendment, among other things, bifurcated the existing credit facility into two revolving credit facilities, (i) a $38,000,000 Revolving Credit A Facility which was deemed fully funded as of the date of the Third Amendment, and (ii) a $29,289,245 Revolving Credit B Facility, comprised of revolving credit advances in the aggregate of $25,000,000 which were deemed fully funded as of the date of the Third Amendment and letters of credit advances in the aggregate amount of $4,289,245 which are issued and outstanding as of the date of the Third Amendment. The Third Amendment required the Company to draw down $4,289,245 under the Revolving Credit B Facility on the date of the Third Amendment and deposit such funds in a cash collateral account to cash collateralize outstanding letters of credit under the Credit Facility and eliminated the swingline features of the Credit Facility and the Company’s ability to cause the lenders to issue any additional letters of credit. In addition, the Third Amendment also changes the termination date of the Credit Facility from December 7, 2010 to March 31, 2010 and modified the interest rate incurred on borrowings by initially increasing the applicable margin by 450 basis points (or to 7.00% on prime rate loans and 8.00% on LIBOR based loans).

The Third Amendment also eliminated specific financial covenants, and in its place, the Company was required to comply with the approved budget, that has been agreed to by the Company and the lenders, subject to agreed upon variances. The approved budget related solely to the 2009 fiscal year (the “Budget”). The Budget was the Company’s operating cash flow budget, and encompassed all aspects of typical operating cash flows including revenues, fees and expenses, and such working capital components as receivables and accounts payables, taxes, debt service and any other identifiable cash flow items. Pursuant to the Budget, the Company was required to stay within certain variance parameters with respect to cumulative cash flow for the remainder of the 2009 year to remain in compliance with the Credit Facility. The Company was also required under the Third Amendment to effect the Recapitalization Plan, on or before September 30, 2009 and in connection therewith to effect the Partial Prepayment of the Revolving A Credit Facility. In the event the Company failed to effect the Recapitalization Plan and in connection therewith to reduce the Revolving Credit A Credit Facility by the Partial Prepayment amount, the (i) lenders would have had the right commencing on October 1, 2009, to exercise the Warrants, for nominal consideration, to purchase common stock of the Company equal to 15% of the common stock of the Company on a fully diluted basis as of such date, subject to adjustment, (ii) the applicable margin automatically increased to 11% on prime rate loans and increased to 12% on LIBOR based loans, (iii) the Company was required to amortize an aggregate of $10 million of the Revolving Credit A Facility in three (3) equal installments on the first business day of each of the last three (3) months of 2009, (iv) the Company was obligated to submit a revised budget by October 1, 2009, (v) the Credit Facility would have terminated on January 15, 2010, and (vi) no further advances were available to be drawn under the Credit Facility.

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In the event the Company effected the Recapitalization Plan and the Partial Prepayment amount on or prior to September 30, 2009, the Warrants would have automatically expired and not become exercisable, the applicable margin would have automatically been reduced to 3% on prime rate loans and 4% on LIBOR based loans and the Company had the right, subject to the requisite approval of the lenders, to seek an extension to extend the term of the Credit Facility to January 5, 2011, provided the Company also paid a fee of .25% of the then outstanding commitments under the Credit Facility. The Company calculated the initial fair value of the Warrants to be $534,000 and has recorded such amount in stockholders’ equity with a corresponding debt discount to the line of credit balance. Such debt discount amount will be amortized into interest expense over the remaining term of the Credit Facility. As of September 30, 2009, the net debt discount balance was $291,000 and is included in the current portion of line of credit in the accompanying consolidated balance sheet.

As a result of the Third Amendment the Company was required to prepay Revolving Credit A Advances (and to the extent the Revolving Credit A Facility shall be reduced to zero, prepay outstanding Revolving Credit B Advances) in an amount equal to 100% (or, after the Revolving Credit A Advances are reduced by at least the Partial Prepayment amount, in an amount equal to 50%) of Net Cash Proceeds (as defined in the Credit Agreement) from:

• assets sales,

• conversions of Investments (as defined in the Credit Agreement),

• the refund of any taxes or the sale of equity interests by the Company or its subsidiaries,

• the issuance of debt securities, or

• any other transaction or event occurring outside the ordinary course of business of the Company or its subsidiaries;

provided, however, that (a) the Net Cash Proceeds received from the sale of the certain real property assets shall be used to prepay outstanding Revolving Credit B Advances and to the extent Revolving Credit B Advances shall be reduced to zero, to prepay outstanding Revolving Credit A Advances, (b) the Company shall prepay outstanding Revolving Credit B Advances in an amount equal to 100% of the Net Cash Proceeds from the sale of the Danbury Property unless the Company is then not in compliance with the Recapitalization Plan in which event Revolving Credit A Advances shall be prepaid first and (c) the Company’s 2008 tax refund was used to prepay outstanding Revolving Credit B Advances upon the closing of the Third Amendment.

The Third Amendment required the Company to use its commercially reasonable best efforts to sell four other commercial properties, including the two remaining GERA Properties, by September 30, 2009. The Company’s Line of Credit is secured by substantially all of the assets of the Company.

On September 30, 2009, the Company further amended its Credit Facility by entering into the First Credit Facility Letter Amendment. The First Credit Facility Letter Amendment, among other things, modified and provided the Company an extension from September 30, 2009 to November 30, 2009 (the “Extension”) to (i) effect its Recapitalization Plan and in connection therewith to effect a prepayment of at least seventy two (72%) percent of the Revolving Credit A Advances (as defined in the Credit Facility), and (ii) sell four commercial properties, including the two real estate assets the Company had previously acquired on behalf of Grubb & Ellis Realty Advisors, Inc.

The First Credit Facility Letter Amendment also granted the Company a one-time right, exercisable by November 30, 2009, to prepay the Credit Facility in full for a reduced principal amount equal to approximately 65% of the aggregate principal amount of the Credit Facility then outstanding (the “Discount Prepayment Option”).

In connection with the Extension, the warrant agreement was also amended to extend from October 1, 2009 to December 1, 2009, the time when the Warrants are first exercisable by its holders.

The First Credit Facility Letter Amendment also granted a one-time waiver from the covenant requiring all proceeds of sales of equity or debt securities to be applied to pay down the Credit Facility to facilitate the sale by the Company to an affiliate of the Company’s largest stockholder and Chairman of the Board of Directors of the Company, $5.0 million of subordinated debt or equity securities of the Company (the “Permitted Placement”) so long as (i) the Permitted Placement is junior, subject and subordinate to the Credit Facility, (ii) the net proceeds of the Permitted Placement are placed into an account with the lender, (iii) the disbursement of the funds in such account is in accordance with the approved budget that has been agreed to by the Company and the ledners, (iv) that the lenders be granted a security interest in the net proceeds of the Permitted Placement, and (v) the Permitted Placement is otherwise satisfactory to the Lenders. In addition, if the Permitted Placement is in the form of subordinated debt, the Company and the entity making the $5.0 million loan are required to enter into a subordination agreement with the lenders.

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Finally, the First Credit Facility Letter Amendment also provided that $4.3 million that was deposited in a cash collateral account to cash collateralize outstanding letters of credit under the Credit Facility would instead be used to pay down the Credit Facility.

The Company’s Credit Facility is secured by substantially all of the Company’s assets. The outstanding balance on the Credit Facility was $63.0 million as of September 30, 2009 and December 31, 2008 and carried a weighted average interest rate of 8.37% and 4.51%, respectively.

On November 6, 2009, a portion of proceeds from the offering of preferred stock (see Note 20) were used to pay in full borrowings under the Credit Facility then outstanding of $66.8 million for a reduced amount equal to $43.4 million and the Credit Facility was terminated.

In connection with the Merger, the Company announced its intention to pay a $0.41 per share dividend per annum, which equates to approximately $26.5 million on an annual basis. The Company declared and paid such dividends for holders of records at the end of each of the first and second calendar quarters of 2008. On July 11, 2008, the Company’s Board of Directors approved the suspension of future dividend payments. In addition, the Board of Directors approved a share repurchase program under which the Company may repurchase up to $25 million of its common stock through the end of 2009. The Company did not repurchase any shares of its common stock during the nine months ended September 30, 2009.

The Credit Facility restricted our ability to operate outside of the approved budget without the permission of the requisite majority of lenders, and the failure to operate within the approved budget by more than the greater of $1,500,000 or 15% on a cumulative basis for more than three consecutive weeks would, absent the requisite approval, result in an event of default of the Credit Facility and make the entire balance due and payable. In addition, we were required to remit Net Cash Proceeds from the sale of assets including real estate assets to repay advances under the Credit Facility and pursue additional sources of capital in accordance with the Recapitalization Plan. The Company’s Credit Facility required the Company to implement the Recapitalization Plan and complete each step provided in the Recapitalization Plan by the dates set for such completion. In the event the Company was unable to effect the Partial Prepayment in connection with the Recapitalization Plan by September 30, 2009, the Company was required to amortize $10 million of the Revolving Credit A Facility in three equal installments on the first business day of each of the last three months of 2009 and the entire Credit Facility would become due and payable on January 15, 2010. In addition, the Company would not have access to any further advances under the Revolving Credit B Facility which would greatly reduce the Company’s liquidity. All of these demands put the Company’s liquidity and financial resources at risk.

On October 2, 2009, the Company effected the Permitted Placement (see Note 11) and issued a $5.0 million senior subordinated convertible note (the “Note”) to Kojaian Management Corporation. The Note (i) bears interest at twelve percent (12%) per annum, (ii) is co-terminous with the term of the Credit Facility (including if the Credit Facility is terminated pursuant to the Discount Prepayment Option), (iii) is unsecured and fully subordinate to the Credit Facility, and (iv) in the event the Company issues or sells equity securities in connection with or pursuant to a transaction with a non-affiliate of the Company while the Note is outstanding, at the option of the holder of the Note, the principal amount of the Note then outstanding is convertible into those equity securities of the Company issued or sold in such non-affiliate transaction. In connection with the issuance of the Note, Kojaian Management Corporation, the lenders to the Credit Facility and the Company entered into a subordination agreement (the “Subordination Agreement”). The Permitted Placement was a transaction by the Company not involving a public offering in accordance with Section 4(2) of the Securities Act of 1933, as amended (“the Securities Act”).

On November 6, 2009, the Company completed the private placement of 900,000 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. In conjunction with the offering, the entire $5.0 million principal balance of the Note was converted into the Preferred Stock at the offering price and the holder of the Note received accrued interest if approximately $57,000. In addition, the holder of the Note also purchased an additional $5 million of preferred stock at the offering price. The Company also granted the initial purchaser a 45-day option to purchase up to an additional 100,000 shares of Preferred Stock.

As previously disclosed, among other things with respect to the Preferred Stock offering, in the Current Report on Form 8-K filed by the Company on October 26, 2009, the Preferred Stock was offered in reliance on exemptions from the registration requirements of the Securities Act that apply to offers and sales of securities that do not involve a public offering. As such, the Preferred Stock was offered and will be sold only to (i) “qualified institutional buyers” (as defined in Rule 144A under the Securities Act), (ii) to a limited number of institutional “accredited investors” (as defined in Rule 501(a)(1), (2), (3) or (7) of the Securities Act), and (iii) to a limited number of individual “accredited investors” (as defined in Rule 501(a)(4), (5) or (6) of the Securities Act).

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As previously disclosed, among other things with respect to the Preferred Stock offering, in the Current Report on Form 8-K filed by the Company on November 11, 2009, upon the closing of the sale of the $90 million of Preferred Stock, the Company received cash proceeds of approximately $85.0 million after giving effect to the conversion of the Note and after deducting the initial purchaser’s discounts and certain offering expenses and giving effect to the conversion of the subordinated note. A portion of proceeds were used to pay in full borrowings under the Credit Facility then outstanding of $66.8 million for a reduced amount equal to $43.4 million, with the balance of the proceeds to be used for working capital purposes.

The Certificate of Designations with respect to the Preferred Stock provides, among other things, that upon the closing of the Offering, each share of Preferred Stock is initially convertible, at the holder’s option, into the Company’s common stock, par value $.01 per share (the “Common Stock”) at a conversion rate of 31.322 shares of Common Stock for each share of Preferred Stock. If the Company’s Certificate of Incorporation is amended to increase the number of authorized shares (as more fully discussed in the immediately following paragraph), the Preferred Stock will be convertible, at the holder’s option, into Common Stock 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, and a 10.0% premium to the closing price of the Common Stock on October 22, 2009.

The Company has agreed to seek as soon as practicable the approval of the stockholders holding at least a majority of the shares of the Common Stock voting separately as a class, and a majority of all shares of the Company’s Common Stock entitled to vote as a single class, which includes the Common Stock issuable upon the conversion of the Preferred Stock, to amend the Company’s Certificate of Incorporation to increase the Company’s authorized capital stock to 220,000,000 shares of capital stock, 200,000,000 of which shall be Common Stock and 20,000,000 of which shall be preferred stock issuable in one or more series or classes, and to permit the election by the holders of the Preferred Stock of two (2) directors in the event that the Company is in arrears with respect to the Company’s Preferred Stock for six or more quarters. If such amendment is not effective prior to 120 days after the date the Company first issues the Preferred Stock, (i) holders of Preferred Stock may require the Company to repurchase all, or a specified whole number, of their Preferred Stock at a repurchase price equal to 110% of the sum of the initial liquidation preference plus accumulated but unpaid dividends, and (ii) the annual dividend rate with respect to the Preferred Stock will increase by two percent (2%); provided, however, holders of Preferred Stock who do not vote in favor of the amendment will not be able to exercise such repurchase right, or be entitled to such two percent (2%) dividend increase.

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.

If the Company fails to pay the quarterly Preferred Stock dividend in full for two consecutive quarters, the dividend rate will automatically be increased by .50% of the initial liquidation preference per share per quarter (up to a maximum amount of increase of 2% of the initial liquidation preference per share) until cumulative dividends have been paid in full. In addition, subject to certain limitations, in the event the dividends on the Preferred Stock are in arrears for six or more quarters, whether or not consecutive, subject to the passage of the amendment to the Company’s Certificate of Incorporation discussed above, holders representing a majority of the shares of Preferred Stock voting together as a class with holders of any other class or series of preferred stock upon which like voting rights have been conferred and are exercisable will be entitled to nominate and vote for the election of two additional directors to serve on the board of directors until all unpaid dividends with respect to the Preferred Stock and any other class or series of preferred stock upon which like voting rights have been conferred or are exercisable have been paid or declared and a sum sufficient for payment has been set aside therefore.

During the six month period following the closing of the Offering, if the Company issues any securities, other than certain permitted issuances, and the price per share of the Common Stock (or the equivalent for securities convertible into or exchangeable for Common Stock) is less than the then current conversion price of the Preferred Stock, the conversion price will be reduced pursuant to a weighted average anti-dilution formula.

Holders of Preferred Stock may require the Company 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, the Company may, at its 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.

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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.

The Company has entered into a registration rights agreement (the “Registration Rights Agreement”) with one of the lead investors (and its affiliates) with respect to the shares of Preferred Stock, and the Common Stock issuable upon the conversion of such Preferred Stock, that was acquired by such lead investor (and affiliates) in the Offering. No other purchasers of the Preferred Stock in the Offering will have the right to have their shares of Preferred Stock, or shares of Common Stock issuable upon conversion of such Preferred Stock, registered. In addition, subject to certain limitations, the lead investor who acquired the registration rights also has certain preemptive rights in the event the Company issues for cash consideration any Common Stock or any securities convertible into or exchangeable for Common Stock (or any rights, warrants or options to purchase any such Common Stock) during the six-month period subsequent to the closing of the Offering. Such preemptive right is intended to permit such lead investor to maintain its pro rata ownership of the Preferred Stock acquired in the Offering.

Holders of the Preferred 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, 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, and 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.

Pursuant to the overallotment option of up to 100,000 shares of Preferred Stock granted to the initial purchaser in the Company’s $90 million offering of Preferred Stock to various qualified institutional buyers and accredited investors, as previously disclosed in a Current Report on Form 8-K, as filed on each of October 26, 2009 and November 11, 2009, the Company effected the sale of a portion of the overallotment option on November 13, 2009 of an aggregate of 14,350 shares of Preferred Stock for net proceeds of approximately $1.4 million.

This Form 10-Q shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Preferred Stock in any state in which the offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state.

Commitments, Contingencies and Other Contractual Obligations

Contractual Obligations — The Company leases office space throughout the United States through non-cancelable operating leases, which expire at various dates through 2016.

There have been no significant changes in the Company’s contractual obligations since December 31, 2008.

TIC Program Exchange Provision — Prior to the Merger, NNN entered into agreements in which NNN agreed to provide certain investors with a right to exchange their investment in certain TIC Programs for an investment in a different TIC program. NNN also entered into an agreement with another investor that provided the investor with certain repurchase rights under certain circumstances with respect to their investment. The agreements containing such rights of exchange and repurchase rights pertain to initial investments in TIC programs totaling $31.6 million. In July 2009 the Company received notice from an investor of their intent to exercise such rights of exchange and repurchase with respect to an initial investment totaling $4.5 million. The Company is currently evaluating such notice to determine the nature and extent of the right of such exchange and repurchase, if any.

The Company deferred revenues relating to these agreements of $86,000 and $246,000 for the three months ended September 30, 2009 and 2008, respectively. The Company deferred revenues relating to these agreements of $281,000 and $492,000 for the nine months ended September 30, 2009 and 2008, respectively. Additional losses of $14.3 million and $4.5 million related to these agreements were recorded during the quarter ended December 31, 2008 and during the nine months ended September 30, 2009, respectively, to reflect the impairment in value of properties underlying the agreements with investors. As of September 30, 2009, the Company had recorded liabilities totaling $22.6 million related to such agreements, consisting of $3.8 million of cumulative deferred revenues and $18.8 million of additional losses related to these agreements.

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Guarantees — From time to time the Company provides guarantees of loans for properties under management. As of September 30, 2009, there were 147 properties under management with loan guarantees of approximately $3.5 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.8 billion. As of December 31, 2008, there were 151 properties under management with loan guarantees of approximately $3.5 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.8 billion. In addition, each consolidated VIE is joint and severally liable, along with the other investors in each relative TIC, on the non-recourse mortgage debt related to the VIE’s interests in the relative TIC investment. This non-recourse mortgage debt totaled $277.2 million and $277.8 million as of September 30, 2009 and December 31, 2008, respectively.

The Company’s guarantees consisted of the following as of September 30, 2009 and December 31, 2008:

	September 30,		December 31,
(In thousands)	2009		2008
Non-recourse/carve-out guarantees of debt of properties under management(1)	$	3,438,375	$	3,414,433
Non-recourse/carve-out guarantees of the Company’s debt(1)	$	107,000	$	107,000
Recourse guarantees of debt of properties under management	$	39,717	$	42,426
Recourse guarantees of the Company’s debt	$	10,000	$	10,000

(1) A “non-recourse/carve-out” guarantee imposes liability on the guarantor in the event the borrower engages in certain acts prohibited by the loan documents. Each non-recourse carve-out guarantee 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, liability under the non-recourse carve-out guarantees 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 indemnification agreement from borrower.

Certain violations (typically the first three listed above) render the entire debt balance recourse to the guarantor regardless of the actual damage incurred by lender, while the liability for other violations is limited to the damages incurred by the lender. Notice and cure provisions vary between guarantees. Generally the guarantor irrevocably and unconditionally guarantees to the lender the payment and performance of the guaranteed 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 covenants and agrees that it is liable for the guaranteed obligations as a primary obligor. As of September 30, 2009, to the best of the Company’s knowledge, there is no amount of debt owed by the Company as a result of the borrowers engaging in prohibited acts.

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Management initially evaluates these guarantees to determine if the guarantee meets the criteria required to record a liability in accordance with the requirements of the Guarantees Topic. Any such liabilities were insignificant as of September 30, 2009 and December 31, 2008. In addition, on an ongoing basis, the Company evaluates the need to record additional liability in accordance with the requirements of the Contingencies Topic. As of September 30, 2009 and December 31, 2008, the Company had recourse guarantees of $39.7 million and $42.4 million, respectively, relating to debt of properties under management. As of September 30, 2009, approximately $21.3 million of these recourse guarantees relate to debt that has matured or is not currently in compliance with certain loan covenants. In evaluating the potential liability relating to such guarantees, the Company considers 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 September 30, 2009 and December 31, 2008, the Company recorded a liability of $5.2 million and $9.1 million, respectively, related to its estimate of probable loss related to recourse guarantees of debt of properties under management which matured in January and April 2009.

Investment Program Commitments — During June and July 2009, the Company revised the offering terms related to certain investment programs which it sponsors, including the commitment to fund additional property reserves and the waiver or reduction of future management fees and disposition fees. The company recorded a liability for future funding commitments as of September 30, 2009 for these unconsolidated VIEs totaling $1.4 million to fund TIC Program reserves.

Deferred Compensation Plan — During 2008, the Company 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 September 30, 2009 and December 31, 2008, $2.6 million and $1.7 million, respectively, reflecting the non-stock liability under this plan were included in Accounts payable and accrued expenses. The Company has purchased whole-life insurance contracts on certain employee participants to recover distributions made or to be made under this plan and as of September 30, 2009 and December 31, 2008 have recorded the cash surrender value of the policies of $1.0 million and $1.1 million, respectively, in Prepaid expenses and other assets.

In addition, the Company awards “phantom” shares of Company stock to participants under the deferred compensation plan. As of September 30, 2009 and December 31, 2008, the Company awarded an aggregate of 6.0 million and 5.4 million phantom shares, respectively, to certain employees with an aggregate value on the various grant dates of $23.3 million and $22.5 million, respectively. As of September 30, 2009, an aggregate of 5.7 million phantom share grants were outstanding. 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, grants with respect to 900,000 phantom shares had a guaranteed minimum share price ($3.1 million in the aggregate) that will result in the Company paying additional compensation to the participants should the value of the shares upon vesting be less than the grant date value of the shares. The Company accounts 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Derivatives — The Company’s credit facility debt obligations are floating rate obligations whose interest rate and related monthly interest payments vary with the movement in LIBOR and/or prime lending rates. As of September 30, 2009 and December 31, 2008, the outstanding principal balance on the credit facility totaled $63.0 million and on the mortgage loan debt obligations totaled $138.6 million and $216.0 million, respectively. Since interest payments on any future obligation will increase if interest rate markets rise, or decrease if interest rate markets decline, the Company will be subject to cash flow risk related to these debt instruments. In order to mitigate this risk, the terms of the Company’s amended credit agreement require the Company to maintain interest rate hedge agreements against 50 percent of all variable interest rate debt obligations. To fulfill this requirement, the Company held two interest rate cap agreements with Deutsche Bank AG, which provide for quarterly payments to the Company equal to the variable interest amount paid by the Company in excess of 6.00% of the underlying notional amounts. These rate cap agreements expired in April 2009. In addition, the terms of certain mortgage loan agreements require the Company to purchase two-year interest rate caps on 30-day LIBOR with a LIBOR strike price of 6.00%, thereby locking the maximum interest rate on borrowings under the mortgage loans at 7.70% for the initial two year term of the mortgage loans.

The Company’s earnings are affected by changes in short-term interest rates as a result of the variable interest rates incurred on its line of credit. The Company’s line of credit debt obligation is secured by its assets, bears interest at the bank’s prime rate or LIBOR plus applicable margins based on the Company’s financial performance and mature in December 2010. Since interest payments on this obligation will increase if interest rate markets rise, or decrease if interest rate markets decline, the Company is subject to cash flow risk related to this debt instrument as amounts are drawn under the Credit Facility.

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Additionally, the Company’s earnings are affected by changes in short-term interest rates as a result of the variable interest rate incurred on the portion of the outstanding mortgages on its real estate held for sale. As of September 30, 2009 and December 31, 2008, the outstanding principal balance on these variable rate debt obligations was $31.6 million and $108.7 million, respectively, with a weighted average interest rate of 6.00% and 3.78% per annum, respectively. Since interest payments on these obligations will increase if interest rates rise, or decrease if interest rates decline, the Company is subject to cash flow risk related to these debt instruments. As of September 30, 2009, a 0.50% increase in interest rates would not have increased the Company’s overall annual interest expense since the Company’s variable rate mortgage debt has a minimum interest rate of 6.00% and is based on LIBOR plus an applicable margin and a 0.50% increase in LIBOR plus the applicable margin would not have exceeded the minimum interest rate of 6.00% in effect as of September 30, 2009. As of December 31, 2008, for example, a 0.50% increase in interest rates would have increased the Company’s overall annual interest expense by approximately $390,000, or 3.67%. This sensitivity analysis contains certain simplifying assumptions, for example, it does not consider the impact of changes in prepayment risk.

During the fourth quarter of 2006, GERI entered into several interest rate lock agreements with commercial banks aggregating to approximately $400.0 million, with interest rates ranging from 6.15% to 6.19% per annum. All rate locks were cancelled and all deposits in connection with these agreements were refunded to the Company in April 2008.

Except for Grubb & Ellis Alesco Global Advisors, LLC, as previously described, the Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged financial instruments.

Item 4. Controls and Procedures.

Material Weakness Previously Disclosed

During the first nine months of 2009, there has been an ongoing focus on the remediation activities to address the material weaknesses in disclosure and financial reporting controls reported in the 2008 Form 10-K/A. As previously reported, because many of the remedial actions undertaken were very recent and related, in part, to the hiring of additional personnel and many of the controls in our system of internal controls rely extensively on manual review and approval, the successful operation of these remedial actions for, at least, several fiscal quarters may be required prior to management being able to conclude that the material weaknesses have been eliminated.

The Principal Executive Officer and the Principal Financial Officer anticipate that the remedial actions and resulting improvement in controls will generally strengthen our disclosure controls and procedures, as well as our internal control over financial reporting (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act), and will, over time, address the material weaknesses identified in the 2008 Form 10-K/A.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2008, we carried out an evaluation, under the supervision of our interim principal executive officer (Interim CEO) and principal financial officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. In light of the material weakness discussed above, which has not been fully remediated as of the end of the period covered by this Quarterly Report, our Interim CEO and CFO concluded, after the evaluation described above, that our disclosure controls were not effective. As a result of this conclusion, the financial statements for the period covered by this report were prepared with particular attention to the material weakness previously disclosed. Accordingly, management believes that the condensed consolidated financial statements included in this Quarterly Report fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented.

Changes in Internal Controls over Financial Reporting

Other than the remediation activities noted above, there were no changes to the Company’s controls over financial reporting during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II
OTHER INFORMATION ¹

Item 1. Legal Proceedings.

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Deferred Compensation Plan — During 2008, the Company 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 September 30, 2009 and December 31, 2008, $2.6 million and $1.7 million, respectively, reflecting the non-stock liability under this plan were included in Accounts payable and accrued expenses. The Company has purchased whole-life insurance contracts on certain employee participants to recover distributions made or to be made under this plan and as of September 30, 2009 and December 31, 2008 have recorded the cash surrender value of the policies of $1.0 million and $1.1 million, respectively, in Prepaid expenses and other assets.

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In addition, the Company awards “phantom” shares of Company stock to participants under the deferred compensation plan. As of September 30, 2009 and December 31, 2008, the Company awarded an aggregate of 6.0 million and 5.4 million phantom shares, respectively, to certain employees with an aggregate value on the various grant dates of $23.3 million and $22.5 million, respectively. On September 30, 2009, an aggregate of 5.7 million phantom share grants were outstanding. 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, grants with respect to 900,000 phantom shares had a guaranteed minimum share price ($3.1 million in the aggregate) that will result in the Company paying additional compensation to the participants should the value of the shares upon vesting be less than the grant date value of the shares.

On June 3, 2009, pursuant to the Company’s 2006 Omnibus Equity Plan, the Company granted to certain of its executive officers an aggregate of 150,000 restricted shares of the Company’s common stock which vest in equal one-third installments on each of the next three anniversaries of the date of grant and had an aggregate fair market value of $104,000 on the date of grant.

The issuances by the Company of restricted shares in the transactions described above were exempt from the registration requirements of Section 5 of the Securities Act pursuant to Section 4(2) of the Securities Act, as amended, as such transactions did not involve a public offering by the Company.

Pursuant to the overallotment option of up to 100,000 shares of Preferred Stock granted to the initial purchaser in connection with the Company’s 90,000,000 Preferred Stock offering, on November 13, 2009 the Company effected the sale of a portion of the overallotment option and sold an aggregate of 14,350 shares of Preferred Stock for net proceeds of approximately $1.4 million. The Company will use the net proceeds for working capital purposes.

Item 5. Other Information.

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers

On November 9, 2009, the Company announced that Thomas P. D’Arcy will join the Company as president, chief executive officer and a member of the board of directors, effective November 16, 2009 (the “Effective Date”).

The Company and Mr. D’Arcy entered into a three-year Employment Agreement, commencing on the Effective Date (the “Employment Agreement”), pursuant to which Mr. D’Arcy will serve as the Company’s President and Chief Executive Officer. The term of the Employment Agreement is subject to successive one (1) year extensions unless either party advises the other to the contrary at least ninety (90) days prior to the then expiration of the then current term. Pursuant to the Employment Agreement, Mr. D’Arcy will be appointed to serve on the Company’s Board of Directors as a Class C Director until the 2010 annual meeting of stockholders, unless prior to such meeting, the Company eliminates its staggered Board, in which event Mr. D’Arcy’s appointment to the Board shall be voted on at the next annual meeting of stockholders. Mr. D’Arcy will be a nominee for election to the Company’s Board of Directors at each subsequent annual meeting of the stockholders for so long as the Employment Agreement remains in effect.

Mr. D’Arcy will receive a base salary of $650,000 per annum. Mr. D’Arcy is entitled to receive target bonus cash compensation of up to 200% of his base salary based upon annual performance goals to be established by the Compensation Committee of the Company. Mr. D’Arcy is guaranteed a cash bonus with respect to the 2010 calendar year of 200% of base salary, but there is no guaranteed bonus with respect to any subsequent year. In addition, there is no cash bonus compensation with respect to the period commencing on the Effective Date and continuing up to and through December 31, 2009.

Commencing with calendar year 2010, at the discretion of the Board, Mr. D’Arcy is also eligible to participate in a performance-based long term incentive plan, consisting of an annual award payable either in cash, restricted shares of Common Stock, or stock options exercisable for shares of Common Stock, as determined by the Compensation Committee. The target for any such long-term incentive award will be $1.2 million per year, subject to ratable, annual vesting over three years. Subject to the provisions of Mr. D’Arcy’s Employment Agreement, an initial long-term incentive award with respect to calendar year 2010 will be granted in the first quarter of 2011 and will vest in equal tranches of 1/3 each commencing on December 31, 2011.

In connection with the entering into of the Employment Agreement, Mr. D’Arcy agreed to purchase $500,000 of the Company’s 12% Cumulative Participating Preferred Convertible Perpetual Preferred Stock (the “Preferred Stock”) which Mr. D’Arcy purchased on November 13, 2009.

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On the Effective Date, Mr. D’Arcy will receive a restricted stock award of 2,000,000 restricted shares (the “Restricted Shares”) of the Company’s common stock, par value $.01 per share (the “Common Stock”). One Million (1,000,000) of the Restricted Shares are subject to vesting over three (3) years in equal annual increments of one-third (1/3) each, commencing on the day immediately preceding the one (1) year anniversary of the Effective Date. The other One Million (1,000,000) Restricted Shares are subject to the vesting based upon the market price of the Company’s Common Stock during the initial three (3) year term of the Employment Agreement. Specifically, (i) in the event that for any thirty (30) consecutive trading days the volume weighted average closing price per share of the Common Stock on the exchange or market on which the Company’s shares are publically listed or quoted for trading is at least Three Dollars and Fifty Cents ($3.50), then fifty percent (50%) of such Restricted Shares shall vest, and (ii) in the event that for any thirty (30) consecutive trading days the volume weighted average closing price per share of the Company’s Common Stock on the exchange or market on which the Company’s shares of Common Stock are publically listed or quoted for trading is at least Six Dollars ($6.00), then the remaining fifty (50%) percent of such Restricted Shares shall vest. Vesting with respect to all Restricted Shares is subject to Mr. D’Arcy’s continued employment by the Company, subject to the terms of a Restricted Share Agreement to be entered into by Mr. D’Arcy and the Company on the Effective Date, and other terms and conditions set forth in the Employment Agreement.

Mr. D’Arcy will receive from the Company a one-time cash payment of $35,000 as reimbursement for all of his out-of-pocket transitory relocation expenses. Mr. D’Arcy is also entitled to reimbursement expenses of $100,000 incurred in relocating to the Company’s principal executive offices.

Mr. D’Arcy is also entitled to a professional fee reimbursement of up to $15,000 incurred by Mr. D’Arcy for legal and tax advice in connection with the negotiation and entering into the Employment Agreement.

Mr. D’Arcy is entitled to participate in the Company’s health and other benefit plans generally afforded to executive employees and is reimbursed for reasonable travel, entertainment and other reasonable expenses incurred in connection with his duties. The Employment Agreement contains confidentiality, non-competition, no raid, non-solicitation, non-disparagement and indemnification provisions.

The Employment Agreement is terminable by the Company upon Mr. D’Arcy’s death or incapacity or for Cause (as defined in the Employment Agreement), without any additional compensation other than what has accrued to Mr. D’Arcy as of the date of any such termination, except that in the case of death or incapacity.

In the event that Mr. D’Arcy is terminated without Cause, or if Mr. D’Arcy terminates the agreement for Good Reason (as defined in the Employment Agreement), Mr. D’Arcy is entitled to receive: (i) all monies due to him which right to payment or reimbursement accrued prior to such discharge; (ii) his annual base salary, payable in accordance with the Company’s customary payroll practices for 24 months; (iii) in lieu of any bonus cash compensation for the calendar year of termination, an amount equal to two times Mr. D’Arcy’s bonus cash compensation earned in the calendar year prior to termination, subject to Mr. D’Arcy’s right to receive the guaranteed bonus with respect to the 2010 calendar year regardless when the termination without Cause occurs; (iv) an amount payable monthly, equal to the amount Mr. D’Arcy paid for continuation of health insurance coverage for such month under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”)until the earlier of 18 months from the termination date or when Mr. D’Arcy obtains replacement health coverage from another source; (v) the number of shares of Common Stock or unvested options with respect to any long-term incentive awards granted prior to termination shall immediately vest; and (vi) all Restricted Shares shall automatically vest.

In the event that Mr. D’Arcy is terminated without Cause or resigns for Good Reason (i) within one year after a Change of Control (as defined in the Employment Agreement) or (ii) within three months prior to a Change of Control, in contemplation thereof, Mr. D’Arcy is entitled to receive (a) all monies due to him which right to payment or reimbursement accrued prior to such discharge, (b) two times his base salary payable in accordance with the Company’s customary payroll practices, over a 24-month period, (c) in lieu of any bonus cash compensation for the calendar year of termination, an amount equal to two times his target annual cash bonus earned in the calendar year prior to termination, subject to Mr. D’Arcy’s right to receive the guaranteed bonus with respect to the 2010 calendar year regardless when the termination in connection with a Change of Control occurs, (d) an amount payable monthly, equal to the amount Mr. D’Arcy paid for continuation of health insurance coverage for such month under the COBRA until the earlier of 18 months from the termination date or when Mr. D’Arcy obtains replacement health coverage from another source; (e) the number of shares of Common Stock or unvested options with respect to any long-term incentive awards granted prior to termination shall immediately vest; and (f) the Restricted Shares will automatically vest.

The Company’s payment of any amounts to Mr. D’Arcy upon his termination without Cause, for Good Reason or upon a Change of Control is contingent upon Mr. D’Arcy executing the Company’s then standard form of release.

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Mr. D’Arcy, 49, has been since April 2008 and is currently the non-executive chairman of the board of directors of Inland Real Estate Corporation (NYSE: IRC), where he has also been an independent director since 2005. Mr. D’Arcy has over 20 years of experience acquiring, developing and financing all forms of commercial and residential real estate. He is currently a principal in Bayside Realty Partners, a private real estate company focused on acquiring, renovating and developing land and income producing real estate primarily in the New England area. From 2001 to 2003, Mr. D’Arcy was president and chief executive officer of Equity Investment Group, a private real estate company owned by an investor group which included The Government of Singapore, The Carlyle Group and Northwestern Mutual Life Insurance Company. Prior to his tenure with Equity Investment Group, Mr. D’Arcy was the chairman of the board, president and chief executive officer of Bradley Real Estate, Inc., a Boston-based real estate investment trust traded on the NYSE, from 1989 to 2000. Mr. D’Arcy is a graduate of Bates College. There are no family relationships between Mr. D’Arcy and the Company.

The foregoing summary of Mr. D’Arcy’s Employment Agreement does not purport to be complete and is qualified in its entirety by the Employment Agreement, which is attached hereto as Exhibit 10.1 and incorporated herein by reference.

Item 6. Exhibits.

The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this quarterly report.

¹ Items 1A, 3 and 4 are not applicable for the nine months ended September 30, 2009.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GRUBB & ELLIS COMPANY

(Registrant)
 

/s/ Richard W. Pehlke  

Richard W. Pehlke 

Chief Financial Officer
(Principal Financial and Accounting Officer) 

Date: November 13, 2009

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Grubb & Ellis Company

EXHIBIT INDEX

For the quarter ended September 30, 2009

Exhibit
(31†)	Section 302 Certifications
(32†)	Section 906 Certification

† Filed herewith.

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EX-10.1

Exhibit 10.1

EXECUTION COPY

EMPLOYMENT AGREEMENT

By and Between

GRUBB & ELLIS COMPANY

and

THOMAS D’ARCY

TABLE OF CONTENTS

	Page
1. EMPLOYMENT		1
2. DUTIES AND RESPONSIBILITIES OF EXECUTIVE		1
3. COMPENSATION		2
4. BENEFITS		6
5. TERM OF EMPLOYMENT; PREFERRED EQUITY INVESTMENT		6
6. CONFIDENTIALITY		7
7. RESTRICTIVE COVENANTS		8
8. TERMINATION		10
9. VIOLATION OF OTHER AGREEMENTS		15
10. SPECIFIC PERFORMANCE; DAMAGES		15
11. NOTICES		15
12. WAIVERS		16
13. PRESERVATION OF INTENT		17
14. ENTIRE AGREEMENT		17
15. INUREMENT; ASSIGNMENT		17
16. AMENDMENT		17
17. HEADINGS; CERTAIN DEFINITIONS		17
18. COUNTERPARTS		18
19. GOVERNING LAW; DISPUTES		18

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (this “Agreement”) entered into as of November 4, 2009, by and between GRUBB & ELLIS COMPANY, a Delaware corporation having an address at 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705 (the “Company”), and THOMAS D’ARCY an individual residing at [REDACTED] (“Executive”).

W I T N E S S E T H:

WHEREAS, commencing on the Effective Date (as that term is defined in Section 5(a) below), the Company desires to employ Executive and Executive desires to provide his exclusive services to the Company in connection with the Company’s business; and

WHEREAS, both parties desire to clarify and specify the rights and obligations which each have with respect to the other in connection with Executive’s employment.

NOW, THEREFORE, in consideration of the agreements and covenants herein set forth, the parties hereby agree as follows:

1. Employment

On the Effective Date, the Company hereby employs Executive as its Chief Executive Officer and President, and Executive hereby accepts such exclusive employment as of the Effective Date and agrees to render Executive’s full time services as an employee of the Company, all subject to and on the terms and conditions herein set forth. Executive shall be deemed to be an employee at will, subject to the terms of this Agreement.

2. Duties and Responsibilities of Executive

(a) On the Effective Date, Executive shall be employed as the Company’s Chief Executive Officer and President, and Executive agrees to provide Executive’s full time services to the Company, subject to the other provisions of this Section 2. Executive’s responsibilities and duties shall be commensurate with those of a similarly situated chief executive officer of an entity engaged in the business engaged, or proposed to be engaged, in by the Company. In the performance of his duties, Executive shall report directly to the Board of Directors of the Company (the “Board” or “Board of Directors”). In addition, upon the Effective Date, Executive shall be appointed to serve on the Company’s Board of Directors as a Class C director (“Class C Director”) until the 2010 annual meeting of stockholders at which the election of Class C Directors is to be voted on by the Company’s stockholders, unless prior to the 2010 annual meeting of stockholders the Company eliminates its staggered Board, in which event Executive’s appointment to the Board of Directors shall be voted on at the next annual meeting of stockholders. Further, for so long as this Agreement is in effect, Executive shall be a nominee for election to the Company’s Board of Directors at each subsequent annual meeting of stockholders at which the election of Class C Directors is to be voted on (or alternatively, if the Company eliminates its staggered Board, at each subsequent annual meeting of stockholders at which the election of directors is to be voted on). In addition, Executive agrees that upon the termination of Executive’s employment with the Company at any time and for

any reason whatsoever, that immediately and simultaneously upon any such termination Executive shall be deemed to have automatically and irrevocably resigned from the Company’s Board of Directors, and the Board of Directors of and employment with any subsidiary or affiliate of the Company; provided, however, that such termination and deemed resignation(s) shall not affect Executive’s post-employment rights and benefits under this Agreement.

(b) Executive shall use diligent efforts to maintain and enhance the business and reputation of the Company and shall perform such other duties commensurate with Executive’s position as may, from time to time, be lawfully and reasonably designated to Executive by the Board. Executive’s principal place of employment shall initially be the Santa Ana, California metropolitan area, although Executive shall be readily available to travel as the reasonable needs of the Company shall require. In addition, in the event that the Company moves its principal executive offices during the “Term” (as defined in Section 5(a) below) to either the New York, New York or Chicago, Illinois metropolitan area, subject to the provisions of Section 3(e) below, Executive shall relocate to either such metropolitan area. Executive shall be domiciled within reasonable proximity (i.e., the metropolitan area) of either Santa Ana, California, Chicago, Illinois or New York, New York (depending upon in which city the Company’s principal executive offices are situated), no later than August 1, 2010. Executive shall devote himself to the business and affairs of the Company on a full-time basis; provided, however, that so long as such activity does not materially interfere with Executive’s performance of his duties and responsibilities hereunder, and is not contrary to the interests of the Company, Executive may (i) serve on the board of directors (or similar governing body) of another company or entity that is not, in the good faith judgment of the Board, materially competitive with any business conducted by the Company, (ii) participate in civic, charitable or educational activities, and on behalf of civic, charitable or educational organizations, and/or (iii) maintain, monitor and pursue personal and family investments, including but not limited to real estate investments, provided that such investments do not involve business activities or investments that, in the good faith judgment of the Board, are not insubstantially competitive with any part of the business of the Company. In connection with the foregoing, Executive shall be permitted to continue to serve as a non-executive member (including the Chairman) of the board of directors of Inland Real Estate Corp. (“Inland”), provided that the business of Inland does not, in the good faith judgment of the Board, become competitive with the business of the Company; it being agreed by the Company that, as currently constituted on the date hereof, the business of Inland is not competitive with the business of the Company. In addition, Executive will not serve on any committees of the board of directors of Inland; provided that, notwithstanding the foregoing, it is acknowledged that Executive shall be permitted to continue to serve on the audit committee of the board of directors of Inland (the “Inland Audit Committee”) for an interim period of up until the next annual meeting of the stockholders of Inland or until such sooner time as he is replaced on the Inland Audit Committee.

3. Compensation

(a) In consideration for Executive’s services to be performed under this Agreement and as compensation therefor, Executive shall receive, in addition to all other benefits provided for in this Agreement, a base salary (the “Base Salary”) at a rate of Six Hundred Fifty Thousand Dollars ($650,000) per annum. All payments of Base Salary shall be subject to all applicable withholdings and deductions, and shall be payable at least monthly, and otherwise in accordance with the Company’s customary payroll practices. The Base Salary shall be subject to

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annual review by the Compensation Committee of the Board (the “Compensation Committee”) and, pursuant to such annual review, the Base Salary, as then currently in effect, may be increased, but not decreased, at the discretion of the Compensation Committee, or by the Board.

(b) In addition to the Base Salary, Executive shall be eligible to receive annual bonus compensation (“Bonus Compensation”) as determined by the Board or the Compensation Committee based upon performance targets established by the Board or Compensation Committee and Executive. Commencing with the 2010 calendar year, for each calendar year during the Term, the annual target for the Bonus Compensation is 200% of Executive’s Base Salary at the end of the applicable calendar year. With respect to any partial calendar year during the Term hereof subsequent to 2010, Executive’s Bonus Compensation shall be pro-rated based on the actual number of days during such partial calendar year that Executive provided his services hereunder. The Bonus Compensation payable with respect to the 2010 calendar year (but not subsequent calendar years) shall be guaranteed, notwithstanding any subsequent or contrary decisions or determinations by the Company, the Board or the Compensation Committee, and such bonus payments for calendar year 2010 shall be equal to One Million Three Hundred Thousand Dollars ($1,300,000), subject to all of the other terms and conditions of this Agreement (the “Guaranteed Bonus”). There shall be no Bonus Compensation with respect to the period commencing on the Effective Date and continuing up to and through December 31, 2009.

All Bonus Compensation shall be payable in cash in accordance with the procedures established from time to time by the Compensation Committee, subject to all applicable withholding and deductions, and in accordance with the Company’s reasonable and customary payroll and bonus payment practices. All Bonus Compensation with respect to any calendar year during the Employment Period hereof shall be paid in the immediately following calendar year, but no later than March 15th of such immediately following calendar year and at the same time that other senior-level executives of the Company receive their bonus compensation.

(c) Commencing with respect to calendar year 2010, at the discretion of the Board of Directors reasonably exercised in a manner consistent with the performance of the Company and the compensation of other senior executives in the same industry and based upon performance targets established by the Board or Compensation Committee and Executive, Executive shall be entitled to participate in a performance-based long term incentive award plan, which shall consist of an annual award payable either in cash, restricted shares of the Company’s common stock, par value $.01 per share (the “Common Stock”), or stock options exercisable for shares of Common Stock (the “Stock Options”), in each instance, as determined by the Board or the Compensation Committee. The target for any such long-term incentive award (the “Long-Term Incentive Award”) shall be One Million Two Hundred Thousand Dollars ($1,200,000) per year, and any Long-Term Incentive Award shall be subject to ratable, annual vesting over three (3) years. Subject to the provisions hereof, an initial Long-Term Incentive Award with respect to calendar year 2010 shall be granted in the first quarter of 2011 and shall vest in equal annual tranches of one-third (1/3) each commencing on December 31, 2011.

In the event that any Long-Term Incentive Award is payable in Common Stock or Stock Options, the number of shares of Common Stock or the number of Stock Options (and the exercise price of such Stock Options) payable with respect to each Long-Term Incentive Award shall

3

be determined by dividing (i) the dollar amount of the Long-Term Incentive Award granted by the Board or the Compensation Committee, by (ii) the volume weighted average closing price per share of the Company’s Common Stock on the exchange or market on which the Company’s shares of common stock are publicly listed or quoted for trading during the fourth calendar quarter of the calendar year with respect to which the Long Term Incentive Award is being granted.

(d) Subsequent to the Effective Date and within five (5) business days after Executive effects the “Executive Equity Purchase” (as that term is defined in Section 5(b) below), Executive shall receive from the Company a one-time cash payment as reimbursement for all of Executive’s out-of-pocket transitory relocation expenses, including transitory housing and travel expenses for six (6) months, in the amount of Thirty-five Thousand Dollars ($35,000) (the “Transition Reimbursement”). The Transition Reimbursement, if any, shall be paid no later than March 15, 2010. In addition, Executive shall be entitled to reimbursement for expenses incurred, not in excess of One Hundred Thousand Dollars ($100,000), in relocating to, or within reasonable proximity of, Santa Ana, California, Chicago, Illinois or New York, New York (depending upon in which city the Company’s principal executive offices are situated) by August 1, 2010 (the “Relocation Allowance”). Subject to the applicable provisions of Section 4(b) below, the Relocation Allowance shall be paid in a lump sum upon such relocation.

(e) In the event that during the term hereof Executive is required to relocate to either the New York, New York or Chicago, Illinois metropolitan area because the Company moves its principal executive offices to either such metropolitan area after Executive has previously relocated in accordance with the provisions of Section 3(d) above, the Company shall pay to Executive a further relocation allowance that shall be comparable to the initial Relocation Allowance, to reimburse Executive’s out-of-pocket relocation expenses, including transitory housing and travel expenses, in a maximum amount to be mutually agreed upon in good faith by Executive and the Company (the “Further Relocation Allowance”). Subject to the applicable provisions of Section 4(b) below, the Further Relocation Allowance shall be paid in a lump sum upon any such further relocation.

(f) On the Effective Date, the Company, subject to the approval of the Board to be obtained no later than the Effective Date (by a duly held meeting or unanimous written consent in lieu thereof), shall grant to Executive a restricted stock award (the “Restricted Stock Award”) of Two Million (2,000,000) restricted shares of Common Stock. The shares of restricted Common Stock subject to the Restricted Stock Award shall vest as follows: (i) One Million (1,000,000) shares (the “Time Vested Shares”) which shall vest at the rate of thirty-three and one-third percent (33¹/₃%) on each of the three (3) successive anniversary dates commencing on the one (1) year anniversary of the day immediately preceding the one (1) year anniversary of the Effective Date; (ii) One Million (1,000,000) shares (the “Initial Stock Price Performance Shares”) which shall vest as follows: (A) in the event that for any thirty (30) consecutive “trading days” (as defined in Section 17 below) during the “Initial Term” (as defined in Section 5(a) below) of this Agreement the volume weighted average closing price per share of the Company’s Common Stock on the exchange or market on which the Company’s shares of Common Stock are publically listed or quoted for trading is at least Three Dollars and Fifty Cents ($3.50), then Five Hundred Thousand (500,000) of the Stock Price Performance Shares shall vest (the “3.50 Tranche”); and (B) in the event that for any thirty (30) consecutive trading days during the Initial Term of this Agreement the volume weighted average

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closing price per share of the Company’s Initial Common Stock on the exchange or market on which the Company’s shares of Common Stock are publically listed or quoted for trading is at least Six Dollars ($6.00), then an additional Five Hundred Thousand (500,000) of the Stock Price Performance Shares shall vest (the “6.00 Tranche”). In addition, in the event that the Executive Equity Purchase exceeds Five Hundred Thousand ($500,000) Dollars, Executive shall be granted, upon the establishing of the “conversion price” (as defined below), an additional number of Stock Price Purchase Performance Shares (the “Additional Stock Price Performance Shares”) equal to the dollar amount by which the Executive Equity Purchase exceeds Five Hundred Thousand ($500,000) Dollars (the “Excess Investment”) divided by the conversion price of the “Preferred Stock” (as defined in Section 5(b)) sold in the “Preferred Financing” (as defined in Section 5 below); provided, however, in no event shall the dollar amount of the Excess Investment with respect to which Executive shall be entitled to receive Additional Stock Price Performance Shares exceed One Million ($1,000,000) Dollars. As used herein, the term “conversion price” shall mean the conversion price of the Preferred Stock after giving effect to the outcome of the requisite stockholder votes of the proposed amendment to the Company’s certificate of incorporation to increase the Company’s authorized capital, and which amendment shall be put before the Company’s stockholders for approval at the next annual meeting of the Company’s stockholders to be held in December, 2009. In the event that the calculation of the number of Additional Stock Price Performance Shares results in a fractional share, the fractional share shall be rounded up to the nearest whole share. Any Additional Stock Price Performance Shares shall be allocated equally between the 3.50 Tranche and the 6.00 Tranche. The Stock Price Performance Shares and any Additional Stock Price Performance Shares are hereinafter collectively referred to as the “Performance Shares”.

Vesting with respect to all Restricted Stock Awards shall be subject to the continued employment of Executive by the Company (except as provided in Sections 8(d), 8(e) and 8(f) below) and subject to the restrictions, vesting and forfeiture provisions and the other terms and conditions of this Agreement and the Company’s standard form of Restricted Share Agreement in the form annexed hereto as Exhibit I (the “Restricted Share Agreement”). Accordingly, upon the occurrence of a Change of Control, as that term is defined in Section 8(f) hereof, there shall be no acceleration of any unvested Time Vested Shares, any unvested Performance Shares or any unvested shares of Common Stock or Stock Options subject to any Long-Term Incentive Award unless, in connection with such Change of Control, Executive’s employment is also terminated in accordance with the provisions set forth in the first paragraph of Section 8(f), in which latter event the terms of section 8(f) shall govern. Where provisions of this Agreement and those of any Company plan, policy or program may be in conflict or inconsistent, the provisions of this Agreement shall control without limitation.

Vested shares of Common Stock relating to any Restricted Stock Award under this Section 3(f) shall be delivered to Executive no later than thirty (30) days after such shares vest.

(g) Subsequent to the Effective Date and within five (5) business days after Executive effects the Executive Equity Purchase, the Company shall reimburse Executive for Executive’s reasonable, documented professional fees and disbursements, up to $15,000, that were incurred by Executive for legal and tax advice in connection with the negotiation and entering into of this Agreement (the “Professional Fee Reimbursement”).

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4. Benefits

(a) In addition to the Base Salary, the Bonus Compensation, the Guaranteed Bonus, any Long-Term Incentive Award, the Transition Allowance, the Relocation Allowance, any Further Relocation Allowance, the Restricted Stock Award and the Professional Fee Reimbursement, all as provided for in Section 3 hereof, Executive shall be entitled to an aggregate of four (4) weeks of vacation per year, which shall accrue on a monthly basis. In addition, Executive shall be entitled to participate in or receive benefits equivalent to any employee benefit plan or other arrangement, including but not limited to any medical, dental, vision, retirement, disability and life insurance, and professional membership, social membership, entertainment, automotive, transportation, technology or personal services allowance, generally made available by the Company to its most senior executives, subject to or on a basis consistent with the terms, conditions and overall administration of such plans or arrangements; provided, that such plans and arrangements are made available at the absolute and sole discretion of the Company and nothing in this Agreement establishes any right of Executive to the availability or continuance of any such plan or arrangement.

(b) Executive shall be entitled to prompt reimbursement for all reasonable travel, entertainment and other reasonable expenses incurred in connection with the Company’s business, provided that such expenses are (i) pre-approved by the Company if not in accordance with the Company’s policies, and (ii) adequately documented and vouchered in accordance with the Company’s policies. Any reimbursements provided under this Section 4(b) or under Section 3(d) or 3(e) above shall be subject to the following: (i) any such reimbursement provided during one calendar year shall not affect the amount of such reimbursement provided during a subsequent calendar year; (ii) such reimbursements may not be exchanged or substituted for other forms of compensation to Executive; and (iii) reimbursement payments shall be made to Executive no later than the last day of the calendar year immediately following the calendar year in which the expense is incurred. This Section 4(b) and the reimbursement provisions of Section 3(d) and 3(e) above shall be in effect for the Term hereof.

5. Term of Employment; Preferred Equity Investment

(a) The term of Executive’s employment hereunder shall commence on November 16, 2009 (the “Effective Date”) and shall initially terminate on the date immediately preceding the three (3) year anniversary thereof, or such earlier time in accordance with Section 8 hereof (the “Initial Term”); provided, however, in the event that (i) Company does not advise Executive at least ninety (90) days prior to the expiration of the Initial Term, or (ii) Executive does not advise the Company at least ninety (90) days prior to the expiration of the Initial Term (and on each subsequent, successive anniversary of the Effective Date thereafter), the term of this Agreement shall automatically be extended for one or more additional one (1) year period(s) (as the case may be), unless terminated earlier in accordance with Section 8 hereof (the Initial Term, plus any one (1) year extension(s) thereof in accordance with the immediately preceding proviso, is hereinafter referred to as the “Term”).

(b) It is presently anticipated that the Company’s currently proposed sale of a new series of 12% Cumulative Participating Perpetual Convertible Preferred Stock (the “Preferred Stock”) pursuant to that certain confidential offering memorandum dated October 23, 2009 (the

6

“Preferred Financing”) will close on November 6, 2009 (the “Preferred Financing Initial Closing Date”). Executive agrees to purchase $500,000 of Preferred Stock offered and sold by the Company in the Preferred Financing (the “Executive Equity Purchase”) on the date of the Preferred Financing Initial Closing Date, provided that the Preferred Stock is made available to Executive for purchase and sale on such date, and if $500,000 of Preferred Stock is not offered for purchase and sale to Executive on the Preferred Financing Initial Closing Date, then Executive shall execute and deliver binding subscription documentation (identical to the subscription documentation executed and delivered by officers and directors of the Company) no later than the Preferred Financing Initial Closing Date obligating Executive to purchase $500,000 of Preferred Stock on the first date subsequent to the Preferred Financing Initial Closing Date that purchase of the Preferred Stock is made available to Executive. In the event that the Preferred Financing Initial Closing Date does not occur on or before November 20, 2009, then this Agreement may be terminated by either the Company or Executive by written notice delivered to the other within ten (10) days after November 20, 2009, and, upon any delivery of a notice of termination by either Executive or the Company as hereinabove provided, this Agreement shall automatically be terminated and void ab initio; provided, however, in the event of such termination by Executive or the Company, no later than March 15, 2010, Executive shall be reimbursed for all out-of-pocket expenses incurred by Executive pursuant to Executive’s employment with the Company.

6. Confidentiality

(a) Executive agrees and covenants that, at any time during which Executive is employed by the Company (which, for purpose of this Section 6 shall include the Company’s subsidiaries and affiliates) or thereafter, Executive will not (without first obtaining the express permission of the Company) (i) divulge to any individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture, or other entity, or a government or any political subdivision or agency thereof (“Person”), or use (either by Executive or in connection with any business), any “Confidential Information” (as hereinafter defined in Section 6(c) hereof) or (ii) divulge to any Person, or use (either by Executive or in connection with any business), any “Trade Secrets” (as hereinafter defined in Section 6(c) hereof) to which Executive may have had access or which had been revealed to Executive during the course of Executive’s employment, unless such disclosure is pursuant to a court order, disclosure in litigation involving the Company or in any reports or applications required by law to be filed with any governmental agency, in which event Executive shall endeavor to provide at least ten (10) days’ prior written notice to the Company, if possible, and if not possible, then as much prior notice as Executive, in good faith, believes is reasonably possible to provide under the circumstances.

(b) Any interest in patents, patent applications, inventions, copyrights, developments, innovations, methods, processes, analyses, drawings, and reports (collectively, “Inventions”) which Executive may develop during the period Executive is employed under this Agreement (either during regular business hours or otherwise) relating to the fields in which the Company may then be engaged shall belong to the Company; and Executive shall disclose the Inventions to the Company and forthwith upon request of the Company, Executive shall execute all such assignments and other documents and take all such other action as the Company may

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reasonably request in order to vest in the Company all right, title, and interest in and to the Inventions free and clear of all liens, charges, and encumbrances.

(c) As used in this Agreement, the term “Confidential Information” shall mean and include all information and data in respect of the Company’s (including its subsidiaries’ and affiliates’) operations, financial condition, products, customers and business (including, without limitation, artwork, photographs, specifications, facsimiles, samples, business, marketing or promotional plans, creative written material and information relating to characters, concepts, names, trademarks, tradenames, tradedress and copyrights) which may be communicated to Executive or to which Executive may have access in the course of Executive’s employment by the Company. Notwithstanding the foregoing, the term “Confidential Information” shall not include information which:

(i) is, at the time of the disclosure, a part of the public domain through no improper act or omission by Executive;

(ii) is hereafter lawfully disclosed to Executive by a third party who or which did not acquire the information under an obligation of confidentiality to or through the Company; or

(iii) is general business knowledge not unique or specific to the Company.

As used in this Agreement, the term “Trade Secrets” shall mean and include information, without regard to form, including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers which is not commonly known by or available to the public and which information (i) derives economic value, actual or potential, from not being known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. In addition, the term “trade secrets” includes all information protectible as “trade secrets” under applicable law.

Nothing in this Section 6 shall limit any protection, definition or remedy provided to the Company under any law, statute or legal principle relating to Confidential Information or Trade Secrets.

(d) Executive agrees that at the time of leaving the employ of the Company Executive will deliver to the Company and not keep or deliver to anyone else any and all notes, notebooks, drawings, memoranda, documents, and in general, any and all material relating to the business of the Company (except Executive’s personal files and records) or relating to any employee, officer, director, agent or representative of the Company.

7. Restrictive Covenants

(a) Non-Competition. Executive hereby agrees and covenants that during the period (“Non-Compete Period”) beginning with the initial commencement of Executive’s employment with the Company (including subsidiaries or affiliates) and ending one (1) year

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following the last day of Executive’s employment with the Company, Executive will not, directly or indirectly, engage in or become interested (whether as an owner, principal, agent, stockholder, member, partner, trustee, venturer, lender or other investor, director, officer, employee, consultant or through the agency of any person or entity or otherwise) in any business or enterprise that at any time during the Non-Compete Period shall be, in whole or in substantial part competitive with any material part of the business conducted by the Company (which, for purposes of this Section 7 shall include the Company’s subsidiaries and affiliates) as of the last day of Executive’s employment with the Company; except that ownership of not more than 1% of the outstanding securities of any class of any entity that is listed on a national securities exchange or quoted or traded in the over-the-counter market shall not be considered a breach of this Section 7(a). Any engagement, interest or activity permitted under or pursuant to Section 2(b) above shall not be considered a breach of this Section 7(a).

(b) No-Raid. Executive agrees and covenants that for the period commencing on the date hereof and ending one (1) year following the termination of Executive’s employment with the Company (the “Limited Period”), Executive will not (without first obtaining the written permission of the Company), directly or indirectly, recruit any then current employee or independent contractor of the Company, or any individual who served in any such capacity for the Company at any time six (6) months prior thereto, for employment or any other relationship (including but not limited to as an independent contractor), or induce or seek to cause such person to terminate his or her employment with the Company. As used in Sections 7(a) and 7(b) hereof, all references to the Company includes the Company’s subsidiaries and affiliates.

(c) Nondisparagement. Each of the Company and Executive represents and agrees that during the term hereof and thereafter each will not in any way disparage the other (and with respect to the Company, Executive’s agreement hereunder shall also apply to the Company’s current, former and future officers and directors), or make any comments, statements, or communications to the media or to any other third party that reasonably may be considered to be intentionally and materially (i) derogatory or (ii) detrimental to the good name or business reputation of any of the aforementioned parties or entities. Executive agrees that he shall direct all third party inquiries regarding Executive’s employment with the Company to the Company’s Senior Vice President of Human Resources. The provisions of this Section 7(c) shall survive the expiration or termination of this Agreement.

(d) Indemnification. Executive shall be indemnified by the Company in accordance with the Company’s Bylaws, as same may be amended from time to time. The Company agrees to maintain in full force and effect throughout the Employment Period either its directors’ and officers’ liability insurance policy in effect on the date hereof, or any replacement policy thereof on such terms and conditions as may be approved by the Board, and any agreements to indemnify executive employees of the Company.

(e) Cooperation by Executive. With respect to any litigation, arbitration, mediation, administrative hearing, or any other dispute resolution process to which the Company is a party or which Executive is a witness at any time during or after the expiration of the Employment Period, Executive, subject to the reasonable requests of the Company and Executive’s personal schedule, agrees to cooperate fully with the Company, its attorneys and agents, with respect to any

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process including but not limited to, interviews, depositions, preparation for testimony, and testifying or otherwise providing evidence at no out of pocket cost to Executive. Executive shall be indemnified by the Company in connection with Executive’s activities pursuant to this Section 7(e), and the provisions of this Section 7(e) shall survive the expiration or termination of this Agreement. In the event Executive is requested to provide such cooperation or assistance after the expiration or termination of this Agreement, Executive shall be reasonably compensated by the Company for his time at an hourly rate comparable to senior consultants to the Company.

8. Termination

The following termination provisions and benefits are in lieu of the benefits available under the Company’s written policies and procedures, as same may be from time to time amended. Executive agrees that his termination provisions shall not be governed by such policies and plans.

(a) Cause. Notwithstanding the terms of this Agreement, the Company may discharge Executive and terminate this Agreement for cause (“Cause”) only in the event (i) of Executive’s willful and repeated refusal, to materially perform his duties or a material covenant hereunder with reasonable diligence, or to follow a material, lawful directive of the Board commensurate with Executive’s position (other than a failure or refusal resulting from Executive’s incapacity), (ii) Executive’s commission of an act involving a fraud, embezzlement, or theft against the property or personnel of the Company, (iii) Executive’s engagement in conduct that the Company in good faith reasonably determines will have a material adverse affect on the reputation, business, assets, properties, results of operations or financial condition of the Company, (iv) Executive shall be indicted for a non-driving related felony or a crime involving moral turpitude, or (v) Executive shall fail to effect the Executive Equity Purchase in accordance with Section 5(b) above. Notwithstanding anything set forth herein to the contrary, prior to the Company having the right to discharge Executive pursuant to clauses (i) or (iii) of the immediately preceding sentence, the Company shall first be required to give Executive at least thirty (30) days’ prior written notice of any alleged breach under Section 8(a)(i) or Section 8(a)(iii) above (the “Notice”), and for such Notice to be effective it must specify in reasonable detail the nature of, and facts and circumstances relative to, such alleged Cause, and Executive shall have a reasonable opportunity to cure any such alleged improper actions within such thirty (30) day period (and in the event Executive takes such curative actions, the Notice shall be deemed withdrawn). Executive shall have had an opportunity, together with counsel, to be heard before the Board upon receipt of the Notice. As used in this Section, the Company includes the Company’s subsidiaries and affiliates, but any determination of Cause shall be made only by formal action of a majority of the Board not including Executive. In the event Executive is discharged pursuant to this Section 8(a), (i) Executive’s Base Salary, Bonus Compensation, and all benefits under Section 4 hereof shall terminate immediately upon such discharge (subject to applicable law, such as pursuant to the applicable provisions of sections 601 through 608 of the Employee Retirement Income Security Act of 1974 regarding continuation coverage), (ii) Executive’s right to all unvested equity awards granted to Executive during the Term hereof hereunder shall immediately and automatically terminate and be of no further force or effect, including but not limited to all unvested Performance Shares, all unvested Time Vested Shares and all unvested shares of Common Stock or Stock Options subject to any Long-Term Incentive Award, (iii) Executive’s right to exercise any vested Stock Options shall terminate automatically, and (iv) the Company shall have no further obligations to Executive except for payment and reimbursement to

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Executive for any monies due to Executive which right to payment or reimbursement accrued prior to such discharge, including any Base Salary or Bonus Compensation for a calendar year which has been earned, but not yet paid.

(b) Incapacity. Should Executive become incapacitated to the extent that Executive is unable to perform Executive’s duties pursuant to this Agreement for a period of more than one hundred eighty (180) days in any twelve (12) month period by reason of illness, disability or other incapacity, the Company may, subject to the requirements of applicable law, terminate this Agreement upon written notice at any time after said one hundred eighty (180) day period and the Company shall have no further obligations to Executive or his legal representatives except for payment and reimbursement to Executive or his legal representatives for any monies and other compensation due to Executive (including but not limited to Base Salary, Bonus Compensation, Guaranteed Bonus, Common Stock and Stock Options) which right to payment, receipt or reimbursement accrued prior to such termination.

(c) Death. This Agreement shall terminate immediately upon the death of Executive, in which case the Company shall have no further obligations to Executive or his legal representatives except for payment and reimbursement to Executive’s estate or his legal representatives for any monies and other compensation due to Executive (including but not limited to Base Salary, Bonus Compensation, Guaranteed Bonus, Common Stock and Stock Options) which right to payment, receipt or reimbursement accrued prior to Executive’s death.

(d) Termination Without Cause. At any time subsequent to the Effective Date, the Company may terminate Executive’s employment with the Company without Cause (as defined in Section 8(a) above), for any reason at any time, upon written notice to Executive, whereupon Executive shall be entitled to receive (i) all monies due to Executive which right to payment or reimbursement accrued prior to such discharge, (ii) Base Salary in accordance with the Company’s customary payroll practices for a period of twenty-four (24) months following the date of such termination, (iii) in lieu of any Bonus Compensation for the calendar year of termination, an amount equal to two (2) times Executive’s Bonus Compensation earned in the calendar year prior to termination, payable in cash, on the next immediately following date when similar annual bonus compensation is paid to other executive officers of the Company (but in no event later than March 15^th of the calendar year following the calendar in which the termination occurs); provided, however, notwithstanding the foregoing provisions of this subclause 8(d)(iii), in the event of a termination pursuant to this Section 8(d) at any time prior to the payment of the Guaranteed Bonus, it is expressly understood and agreed that Executive shall be entitled to receive the Guaranteed Bonus pursuant to this subclause 8(d)(iii), (iv) an amount, payable monthly, equal to the amount Executive paid for continuation of health insurance coverage for such month under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”), until the earlier of (A) eighteen (18) months from the termination date, or (B) Executive obtains replacement health coverage from another source, (v) the number of shares of Common Stock or Stock Options that are unvested with respect to any Long-Term Incentive Awards granted to Executive prior to termination, which shall immediately vest and shall be delivered no later than March 15^th of the calendar year following the calendar year in which the termination occurs, and (vi) all then unvested Time Vested Shares and Performance Shares shall automatically vest upon the termination and shall be delivered no later than March 15^th of the calendar year following the calendar year in which the termination occurs. The Company’s payment

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of any amounts to Executive other than with respect to subclause (i) in the immediately preceding sentence upon the termination of Executive’s employment without Cause is expressly subject to and contingent upon Executive executing and delivering to the Company within twenty-one (21) days of such termination the Company’s then current form of release for all claims hereunder (the “Release”).

(e) Termination by Executive for Good Reason. Executive may terminate his employment under this Agreement at any time for Good Reason by giving written notice to the Company. For purposes of this Section 8(e), “Good Reason” shall mean any of the following conditions: (i) a material breach of this Agreement by the Company; (ii) other than in connection with relocating to either the New York, New York or Chicago, Illinois metropolitan area as a consequence of the Company moving its principal executive offices to either such metropolitan area, Executive is required to permanently relocate outside of a seventy-five (75) mile radius from Santa Ana, California, (iii) a reduction in Executive’s Base Salary as then currently in effect (i.e. inclusive of any increases in the Base Salary as same may have been increased subsequent to the execution hereof in accordance with the provisions of Section 3(a) above); (iv) a material reduction in Executive’s duties and responsibilities; or (v) Executive is required to directly report to any other executive officer of the Company; provided, however, that no Good Reason shall exist unless Executive provides the Company with written notice of the condition within 90 days of Executive’s learning of the condition’s initial existence and the Company has not cured the condition within 30 days of such notice. In the event of a termination by Executive for Good Reason, Executive shall be entitled to receive (i) all monies due to Executive which right to payment or reimbursement accrued prior to such discharge, (ii) Base Salary in accordance with the Company’s customary payroll practices for a period of twenty-four (24) months following the date of such termination, (iii) in lieu of any Bonus Compensation for the calendar year of termination, an amount equal to two (2) times Executive’s Bonus Compensation earned in the calendar year prior to termination, payable in cash, on the next immediately following date when similar annual bonus compensation is paid to other executive officers of the Company (but in no event later than March 15^th of the calendar year following the calendar year in which the termination occurs); provided, however, notwithstanding the foregoing provisions of this subclause 8(e)(iii), in the event of a termination pursuant to this Section 8(e) at any time prior to the payment of the Guaranteed Bonus, it is expressly understood and agreed that Executive shall be entitled to receive the Guaranteed Bonus pursuant to this subclause 8(e)(iii), (iv) an amount, payable monthly, equal to the amount Executive paid for continuation of health insurance coverage for such month under COBRA, until the earlier of (A) eighteen (18) months from the termination date, or (B) Executive obtains replacement health coverage from another source, (v) the number of shares of Common Stock or Stock Options that are unvested with respect to any Long-Term Incentive Awards granted to Executive prior to termination, which shall immediately vest and shall be delivered no later than March 15^th of the calendar year following the calendar year in which the termination occurs, and (vi) all then unvested Time Vested Shares and Performance Shares shall automatically vest upon the termination and shall be delivered no later than March 15^th of the calendar year following the calendar year in which the termination occurs. The Company’s payment of any amounts to Executive other than with respect to subclause (i) in the immediately preceding sentence upon Executive’s termination for Good Reason is expressly subject to and contingent upon Executive executing and delivering to the Company within twenty-one (21) days of Executive’s termination for Good Reason the Release.

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(f) Termination Pursuant to a Change of Control. In the event that subsequent to the Effective Date (i) Executive is terminated by the Company or its succesor without Cause or Executive terminates the Agreement for Good Reason within one (1) year after a “Change of Control” (as defined below), or (ii) Executive is terminated by the Company without Cause or Executive terminates the Agreement for Good Reason within three (3) months prior to a Change of Control, Executive shall be entitled to receive (i) all monies due to Executive which right to payment or reimbursement accrued prior to such discharge, (ii) two (2) times Executive’s Base Salary payable in accordance with the Company’s customary payroll practices over a twenty-four (24) month period, (iii) in lieu of any Bonus Compensation for the calendar year of termination, an amount equal to two (2) times Executive’s Bonus Compensation earned in the calendar year prior to termination, payable in cash, on the next immediately following date when similar annual bonus compensation is paid to other executive officers of the Company (but in no event later than March 15^th of the calendar year following the calendar year in which the termination occurs) ); provided, however, notwithstanding the foregoing provisions of this subclause 8(f)(iii), in the event of a termination pursuant to this Section 8(f) at any time prior to the payment of the Guaranteed Bonus, it is expressly understood and agreed that Executive shall be entitled to receive the Guaranteed Bonus pursuant to this subclause 8(f)(iii), (iv) an amount, payable monthly, equal to the amount Executive paid for continuation of health insurance coverage for such month under COBRA, until the earlier of (A) eighteen (18) months from the termination date, or (B) Executive obtains replacement health coverage from another source, (v) the number of shares of Common Stock or Stock Options that are unvested with respect to any Long-Term Incentive Awards granted to Executive prior to termination, which shall immediately vest and shall be delivered no later than March 15^th of the calendar year following the calendar year in which the termination occurs, and (vi) all then unvested Time Vested Shares and Performance Shares shall automatically vest upon the termination and shall be delivered no later than March 15^th of the calendar year following the calendar year in which the termination occurs. The Company’s payment of any amounts to Executive other than with respect to subclause (i) in the immediately preceding sentence upon the termination of Executive’s employment without Cause or for Good Reason is expressly subject to and contingent upon Executive executing and delivering to the Company within twenty-one (21) days of such termination the Release.

For purposes of this Agreement, the term “Change of Control” shall mean the occurrence of any of the following events subsequent to the Effective Date: (i) the acquisition by any person, entity or group (other than a Current Investor, an Affiliate of a Current Investor, the Company or an Affiliate of the Company) in one or more transactions, of beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of 50% or more of the Voting Stock of the Company; (ii) the completion by any person, entity or group (other than a Current Investor, an Affiliate of a Current Investor, the Company or an Affiliate of the Company) of a tender offer or an exchange offer for more than 50% of the outstanding Voting Stock of the Company; (iii) the effective time of (1) a merger or consolidation of the Company with one or more corporations (other than a corporation or corporations in which at least 50% the Voting Stock is beneficially owned by a Current Investor or an Affiliate of a Current Investor) as a result of which the holders of the outstanding Voting Stock of the Company immediately prior to such merger or consolidation directly or indirectly hold less than 50% of the Voting Stock of the surviving or resulting corporation or (2) a transfer of all or substantially all of the property or assets of the Company (other than to an entity in which a Current Investor, an Affiliate of a Current Investor, the Company or an Affiliate of the

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Company owns at least 50% of the Voting Stock); (iv) individuals who constitute the Board as of the Effective Date (the “Incumbent Board”) ceasing for any reason to constitute at least a majority of the Board (provided, however, that any individual becoming a director subsequent to such date whose appointment or election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent Board, but excluding for this purpose any such individual whose initial election or appointment to the Board occurs as a result of an election contest with respect to the election or removal of directors or other solicitation of proxies or consents by or on behalf of a person other than the Board); or (v) a complete liquidation of the Company. For purposes of this definition of Change of Control: “Affiliate” shall have the meaning given to such term in Rule 405 under the Securities Act of 1933, as amended; “Current Investor” shall mean any stockholder of the Company, who or that, as of the Effective Date, either alone or together with their or its Affiliates beneficially owns 20% or more of the outstanding Voting Stock of the Company; and “Voting Stock” shall mean the outstanding capital stock or equity interests of any entity that are entitled to vote for the election of directors of such entity. For the avoidance of doubt, the currently proposed recapitalization of the Company pursuant to the Preferred Financing shall not constitute a Change of Control.

(g) Exclusivity of Severance Provisions. The Change of Control payment contemplated in Section 8(f) and the severance payments contemplated in Section 8(d) or Section 8(e), are mutually exclusive (i.e. Executive may be entitled to one or the other, but not both).

(h) Section 409A. Notwithstanding anything in this Agreement to the contrary, if any amounts or benefits payable under this Agreement on account of Executive’s termination of employment constitute deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), no payments or benefits shall be paid or provided until Executive incurs a separation from service within the meaning of Treasury Regulation § 1.409A-1(h) from the Company and any entity that would be considered a single employer with the Company under Code Sections 414(b) or 414(c) (“Separation from Service”). If, at the time of the Executive’s Separation from Service, Executive is a “specified employee” (within the meaning of Code Section 409A and Treasury Regulation §1.409A-3(i)(2)), the Company will not pay or provide any “Specified Benefits” (as defined herein) until immediately after the six-month period (the “409A Suspension Period”) beginning immediately after the Executive’s Separation from Service and all Specified Benefits that would otherwise have been paid or provided during the 409A Suspension Period shall be paid or provided on the first business day immediately following the 409A Suspension Period. For purposes of this Agreement, “Specified Benefits” are any amounts or benefits that constitute deferred compensation subject to Code Section 409A that are paid on account of Executive’s Separation from Service. This Agreement is intended to comply with (or be exempt from) Code Section 409A, and the Company shall have reasonable discretion to interpret and construe this Agreement and any associated documents in any manner that establishes an exemption from (or otherwise conforms them to) the requirements of Code Section 409A. The Company reserves the right to unilaterally amend this Agreement without the consent of Executive in order to accurately reflect its correct interpretation and operation under Section 409A, as well as to maintain an exemption from or compliance with Code Section 409A, provided that Executive shall receive prompt written notice of any such amendment and be given an opportunity to present any concerns with such amendment to the Board for its good faith consideration and action. Nevertheless, and notwithstanding any other

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provision of this Agreement, neither the Company nor any of its employees, directors, or their agents shall have any obligation to mitigate, nor hold Executive harmless from, any or all taxes (including any imposed under Code Section 409A) arising under this Agreement.

9. Violation of Other Agreements

Executive represents and warrants to the Company that he has no written employment agreement or any other written agreement or other understanding of any nature whatsoever with his employer immediately preceding the entering into of this Agreement (or any other former employer) that would prohibit him from entering this Agreement or that would in any fashion prevent, prohibit, restrict or hinder Executive or the Company from directly or indirectly soliciting, for employment any current or prior employee of his immediately preceding employer, or any other employer, or that would in any fashion prevent, prohibit, restrict or hinder Executive or the Company from soliciting, directly or indirectly, any current or prior clients or prospects of Executive’s immediately preceding employer or any other former employer. Accordingly, Executive is legally able to enter into this Agreement and accept employment with the Company; that Executive is not prohibited by the terms of any agreement, understanding, law or policy from entering into this Agreement; that the terms hereof will not and do not violate or contravene the terms of any agreement, understanding, law or policy to which Executive is or may be a party, or by which Executive may be bound or subject; and that Executive is under no physical or mental disability that would hinder the performance of Executive’s duties under this Agreement.

10. Specific Performance; Damages

In the event of a breach or threatened breach of the provisions of Section 6 or Section 7 hereof, Executive agrees that the injury which could be suffered by the Company (which for purposes of this Section 10 shall include the Company’s successor-in-interest, subsidiaries and affiliates) would be of a character which could not be fully compensated for solely by a recovery of monetary damages. Accordingly, Executive agrees that in the event of a breach or threatened breach of Section 6 or Section 7 hereof, in addition to and not in lieu of any damages sustained by the Company and any other remedies which the Company may pursue hereunder or under any applicable law, the Company shall have the right to equitable relief, including but not limited to the issuance of a temporary or permanent injunction or restraining order, by any court of competent jurisdiction against the commission or continuance of any such breach or threatened breach, without the necessity of proving any actual damages or posting of any bond or surety therefor.

11. Notices

Any and all notices, demands or requests required or permitted to be given under this Agreement shall be given in writing and sent, by registered or certified U.S. mail, return receipt requested, by hand, by overnight courier, or by facsimile, addressed to the parties hereto at their addresses set forth above or such other addresses as they may from time-to-time designate by written notice, given in accordance with the terms of this Section, together with copies thereof as follows:

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In the case of the Company, to:

Grubb & Ellis Company
1551 N. Tustin Avenue, Suite 300
Santa Ana, CA 9270
Attention: Chairman of the Board
Facsimile: (714) 881-2217

With a copy simultaneously by like means to:

Zukerman Gore Brandeis & Crossman, LLP
875 Third Avenue
New York, NY 10022
Attention: Clifford A. Brandeis, Esq.
Main: (212) 223-6700
Facsimile: (212) 223-6433
Email: cbrandeis@zgbcllp.com

In the case of Executive, to:

Thomas D’Arcy
[REDACTED]
[REDACTED] Facsimile: [REDACTED]; Attention Emmett E. Lyne, Esq.

With a copy simultaneously by like means to:

Emmett E. Lyne, Esq.
Rich May, a Professional Corporation
176 Federal Street
Boston, MA 02110-2223
Main: (617) 556-3800
Direct: (617) 556-3885
Fax: (617) 556-3889
Email: elyne@richmaylaw.com
 

Notice given as provided in this Section shall be deemed effective: (i) on the date hand delivered, (ii) on the first business day following the sending thereof by overnight courier with receipt confirmed, (iii) on the seventh calendar day (or, if it is not a business day, then the next succeeding business day thereafter) after the depositing thereof into the exclusive custody of the U.S. Postal Service, certified mail, return receipt requested, and (iv) when transmitted by facsimile with receipt confirmed.

12. Waivers

No waiver by any party of any default with respect to any provision, condition or requirement hereof shall be deemed to be a waiver of any other provision, condition or requirement hereof; nor

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shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter.

13. Preservation of Intent

Should any provision of this Agreement be determined by a court having jurisdiction in the premises to be illegal or in conflict with any laws of any state or jurisdiction or otherwise unenforceable, the Company and Executive agree that such provision shall be modified to the extent legally possible so that the intent of this Agreement may be legally carried out.

14. Entire Agreement

This Agreement sets forth the entire and only agreement or understanding between the parties relating to the subject matter hereof and supersedes and cancels all previous agreements, negotiations, letters of intent, correspondence, commitments, plans and representations in respect thereof among them, including, without limitation, any prior employment agreement and any special severance agreements and no party shall be bound by any conditions, definitions, warranties or representations with respect to the subject matter of this Agreement except as provided in this Agreement.

15. Inurement; Assignment

The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon any successor of the Company or to the business of the Company, subject to the provisions hereof. The Company may assign this Agreement to any person, firm or corporation controlling, controlled by, or under common control with the Company. Neither this Agreement nor any rights or obligations of Executive hereunder shall be transferable or assignable by Executive, other than the rights which inure to his estate and legal representatives hereunder in the event of the death of Executive during the Employment Period.

16. Amendment

This Agreement may not be amended in any respect except by an instrument in writing signed by the parties hereto.

17. Headings; Certain Definitions

The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement.

As used herein, the term “trading day” shall mean any day of the year on which the market or exchange on which the Company’s Common Stock is listed or quoted for trading is open to the public for trading. As used herein the term “business day” shall mean any day of the year other than a Saturday or a Sunday or holiday on commercial banks are open for business in Santa Ana, California.

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18. Counterparts

This Agreement may be executed in one or more original, facsimile or electronic counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

19. Governing Law; Disputes

This Agreement shall be governed by, construed and enforced in accordance with the internal laws of the State of Delaware, without giving reference to principles of conflict of laws. Other than with respect to any dispute or controversy arising under Section 10 hereof, any dispute or controversy arising under, out of, in connection with or in relation to this Agreement shall be finally determined and settled by arbitration. Arbitration shall be initiated by one party making written demand upon the other party and simultaneously filing the demand together with required fees in the office of the American Arbitration Association in Wilmington, Delaware. The arbitration proceeding shall be conducted in Wilmington, Delaware by a single arbitrator in accordance with the Commercial Arbitration Rules as required by the arbitrator. Each party shall bear their own legal costs and expenses in connection with any arbitration and the parties shall share equally all arbitration fees; provided, however, that the arbitrator shall have the discretion to award legal costs and expenses of arbitration in the interests of fairness. Except as required by the arbitrator, the parties shall have no obligation to comply with discovery requests made in the arbitration proceeding. The arbitration award shall be a final and binding determination of the dispute and shall be fully enforceable as an arbitration award in any court having jurisdiction and venue over such parties.

In the event of any dispute or controversy arising under Section 10 hereof, each of the parties hereto irrevocably consents to the exclusive venue and jurisdiction of the federal and state courts located in the State of Delaware, County of Kent, and the prevailing party in such dispute or controversy shall have the right to recover, at the discretion of the court in the interests of fairness, from the non-prevailing party all legal costs and expenses and all court costs expended by the prevailing party in connection with such dispute or controversy.

[Remainder of Page Intentionally Blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

THOMAS D’ARCY
GRUBB & ELLIS COMPANY
By:
	C. Michael Kojaian
	Chairman of the Board

[Signature Page to Employment Agreement]

EXHIBIT I

RESTRICTED STOCK AWARD AGREEMENT

Pursuant to that certain executive employment agreement dated as of  _____  , 2009 (the "Employment Agreement”) by and between Grubb & Ellis Company, a Delaware corporation (the "Company”), and Thomas D’Arcy (“Executive”), the Company has granted to Executive the number of shares of the Company’s common stock, $0.01 par value (“Stock”), as set forth in the Employment Agreement (the “Shares”), upon the terms and conditions set forth in the Employment Agreement and this restricted stock agreement (the “Agreement”).

ARTICLE I

GENERAL

1.1 Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Employment Agreement.

ARTICLE II

GRANT OF RESTRICTED STOCK

2.1 Grant of Restricted Stock. In consideration of Executive’s employment with or service to the Company or its subsidiaries pursuant to the Employment Agreement, and for other good and valuable consideration, effective as of the Effective Date (the “Effective Date”), the Company hereby agrees to issue to Executive the Shares, upon the terms and conditions set forth in this Agreement and in the Employment Agreement.

2.2 Issuance of Shares. The issuance of the Shares under this Agreement shall occur upon the Effective Date (the “Issuance Date”). Subject to the provisions of Article IV, the Company shall issue the Shares (which shall be issued in Executive’s name) on the Issuance Date.

2.3 Conditions to Issuance of Stock Certificates. The Shares, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any Shares prior to fulfillment of all of the following conditions:

(a) The admission of such Shares to listing on all stock exchanges on which the Stock is then listed;

(b) The completion of any registration or other qualification of such Shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Board of Directors shall, in its absolute discretion, deem necessary or advisable;

(c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Board of Directors shall, in its absolute discretion, determine to be necessary or advisable;

(d) The lapse of such reasonable period of time following the Issuance Date as the Board of Directors may from time to time establish for reasons of administrative convenience; and

(e) The receipt by the Company of full payment for all amounts which, under federal, state or local tax law, the Company (or other employer corporation) is required to withhold upon issuance of such Shares.

Notwithstanding the foregoing, the Company will ensure that upon the vesting of any Shares pursuant to the Employment Agreement, these conditions shall have been satisfied with respect to such vested Shares.

2.4 Rights as Stockholder. Except as otherwise provided herein, upon delivery of the Shares to the escrow agent pursuant to Article IV, Executive shall have all the rights of a stockholder with respect to said Shares, subject to the restrictions herein, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect to the Shares; provided, however, that any and all extraordinary cash dividends paid on such Shares and any and all shares of Stock, capital stock or other securities or property received by or distributed to Executive with respect to the Shares as a result of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company shall also be subject to the Forfeiture Restriction (as defined in Section 3.1) and the restrictions on transfer in Section 3.4 until such restrictions on the underlying Shares lapse or are removed pursuant to this Agreement (or, if such Shares are no longer outstanding, until such time as such Shares would have been released from the Forfeiture Restriction pursuant to this Agreement). In addition, in the event of any merger, consolidation, share exchange or reorganization affecting the Shares, including, without limitation, a Change in Control, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction received with respect to, in exchange for or in substitution of the Shares shall also be subject to the Forfeiture Restriction (as defined in Section 3.1) and the restrictions on transfer in Section 3.4 until such restrictions on the underlying Shares lapse or are removed pursuant to this Agreement (or, if such Shares are no longer outstanding, until such time as such Shares would have been released from the Forfeiture Restriction pursuant to this Agreement). Any such assets or other securities received by or distributed to Executive with respect to, in exchange for or in substitution of any Unreleased Shares (as defined in Section 3.3) shall be immediately delivered to the Company to be held in escrow pursuant to Section 4.1. Notwithstanding the foregoing, any dividends or other distributions paid or made with respect to Shares prior to the date that such Shares are released from the Forfeiture Restriction and which are not also subject to the Forfeiture Restriction (as described above) shall be paid or made to Executive no later than the earlier of (i) the end of the calendar year in which the dividends or distributions are paid or made to shareholders of the Stock or (ii) the 15^th day of the third month following the date the dividends or distributions are paid or made to shareholders of the Stock.

ARTICLE III

RESTRICTIONS ON SHARES

3.1 Forfeiture Restriction. Subject to the provisions of Section 3.2, if Executive has a termination of employment for any or no reason, all of the Unreleased Shares (as defined in Section 3.3) shall thereupon be forfeited immediately and without any further action by the Company (the “Forfeiture Restriction”). Upon the occurrence of such a forfeiture, the Company shall become the legal and beneficial owner of the Shares being forfeited and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Shares being forfeited by Executive. In the event any of the Unreleased Shares are forfeited under this Section 3.1, any cash, cash equivalents, assets or securities received by or distributed to Executive with respect to, in exchange for or in substitution of such Shares and held by the escrow agent pursuant to Section 4.1 shall be promptly transferred by the escrow agent to the Company.

3.2 Release of Shares from Forfeiture Restriction. The Shares shall be released from the Forfeiture Restriction in accordance with the applicable vesting provisions set forth in the Employment Agreement (including, for the avoidance of doubt, the accelerated vesting provisions of Sections 8(d), 8(e) and 8(f) of the Employment Agreement). Any of the Shares released from the Forfeiture Restriction shall thereupon be released from the restrictions on transfer under Section 3.4. In the event any of the Shares are released from the Forfeiture Restriction, any dividends or other distributions paid on such Shares and held by the escrow agent pursuant to Section 4.1 shall be promptly paid by the escrow agent to Executive (provided that such payment shall in no event be later than March 15 of the calendar year following the calendar year in which such Shares are released from the Forfeiture Restriction).

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3.3 Unreleased Shares. Any of the Shares which, from time to time, have not yet been released from the Forfeiture Restriction are referred to herein as "Unreleased Shares.”

3.4 Restrictions on Transfer. Unless otherwise permitted by Board of Directors or the Compensation Committee of the Company (the “Committee”), no Unreleased Shares or any dividends or other distributions thereon or any interest or right therein or part thereof, shall be liable for the debts, contracts or engagements of Executive or his or her successors in interest or shall be subject to sale or other disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such sale or other disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted sale or other disposition thereof shall be null and void and of no effect. Notwithstanding the foregoing, the Unreleased Shares and all other property, amounts, interests and rights related thereto shall not be transferable (within the meaning of Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”)) at any time prior to the time of release from the Forfeiture Restrictions.

ARTICLE IV

ESCROW OF SHARES

4.1 Escrow of Shares. To insure the availability for delivery of Executive’s Unreleased Shares in the event of forfeiture of such Shares by Executive pursuant to Section 3.1, Executive hereby appoints the Secretary of the Company, or any other person designated by the Committee as escrow agent, as his or her attorney-in-fact to assign and transfer unto the Company, such Unreleased Shares, if any, forfeited by Executive pursuant to Section 3.1 and any dividends or other distributions thereon. The Unreleased Shares and stock assignment shall be held by the Secretary of the Company, or such other person designated by the Committee, in escrow, until the Unreleased Shares are forfeited by Executive as provided in Section 3.1, until such Unreleased Shares are released from the Forfeiture Restriction, or until such time as this Agreement no longer is in effect.

4.2 Transfer of Forfeited Shares. Executive hereby authorizes and directs the Secretary of the Company, or such other person designated by the Board of Directors or the Committee, to transfer the Unreleased Shares which have been forfeited by Executive to the Company.

4.3 No Liability for Actions in Connection with Escrow. The Company, or its designee, shall not be liable for any act it may do or omit to do with respect to holding the Shares in escrow while acting in good faith and in the exercise of its reasonable judgment.

ARTICLE V

OTHER PROVISIONS

5.1 Adjustment for Stock Split. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, the Committee shall make appropriate and equitable adjustments in the number of Shares that at the time of such event are Unreleased Shares subject to the Forfeiture Restriction. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to such Shares, to any and all shares of capital stock or other securities, property or cash which may be issued in respect of, in exchange for, or in substitution of such Shares, and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof.

5.2 Taxes. Executive has reviewed with Executive’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Employment Agreement and this Agreement. Executive is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Executive understands that Executive (and not the Company) shall be responsible for Executive’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. Executive understands that Executive will recognize ordinary income for

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federal income tax purposes under Section 83 of the Code as the restrictions applicable to the Unreleased Shares lapse. In this context, “restriction” includes the Forfeiture Restriction. Executive understands that Executive may elect to be taxed for federal income tax purposes at the time the Shares are issued rather than as and when the Forfeiture Restriction lapses by filing an election under Section 83(b) of the Code with the Internal Revenue Service no later than thirty days following the date of issuance.

EXECUTIVE ACKNOWLEDGES THAT IT IS EXECUTIVE’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b), EVEN IF PARTICIPNAT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON EXECUTIVE’S BEHALF.

5.3 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of this Agreement or the Employment Agreement, Executive expressly acknowledges and agrees that Executive is subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act”), the Shares and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

5.4 Administration. Intentionally Omitted.

5.5 Restrictive Legends and Stop-Transfer Orders.

(a) Any share certificate(s) evidencing the Shares issued hereunder shall be endorsed with the following legend and any other legend(s) that may be required by any applicable federal or state securities laws:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE IN FAVOR OF THE COMPANY AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK AWARD AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

(b) Executive agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

(c) The Company shall not be required: (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement, or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

5.6 Tax Withholding.

(a) The Company shall be entitled to require payment of any sums required by federal, state or local tax law to be withheld with respect to the transfer of the Shares or the lapse of the Forfeiture Restriction with respect to the Shares, or any other taxable event related thereto. The Company may permit Executive to make such payment in one or more of the forms specified below:

(i) by cash or check made payable to the Company;

(ii) by the deduction of such amount from other compensation payable to Executive;

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(iii) by tendering Shares which are not subject to the Forfeiture Restriction and which have a then current Fair Market Value (as defined in Section 5.6(c) below) not greater than the amount necessary to satisfy the Company’s withholding obligation based on the minimum statutory withholding rates for federal, state and local income tax and payroll tax purposes; or

(iv) in any combination of the foregoing.

(b) In the event Executive fails to provide timely payment of all sums required by the Company pursuant to Section 5.6(a), the Company shall have the right and option, but not obligation, to treat such failure as an election by Executive to provide all or any portion of such required payment by means of tendering Shares in accordance with Section 5.6(a)(iii).

(c) As used herein, the term “Fair Market Value” means if the Shares are listed on any national securities exchange, the closing sales price, if any, on the largest such exchange on the valuation date, or, if none, on the most recent trade date immediately prior to the valuation date provided such trade date is no more than thirty (30) days prior to the valuation date. If the Shares are not then listed on any such exchange, the fair market value of such Shares shall be the closing sales price if such is reported, or otherwise the mean between the closing “Bid” and the closing “Ask” prices, if any, as reported in the National Association of Securities Dealers Automated Quotation System (“NASDAQ”) for the valuation date, or if none, on the most recent trade date immediately prior to the valuation date provided such trade date is no more than thirty (30) days prior to the valuation date. If the Shares are not then either listed on any such exchange or quoted in NASDAQ, or there has been no trade date within such thirty (30) day period, the fair market value shall be the mean between the average of the “Bid” and the average of the “Ask” prices, if any, as reported in the National Daily Quotation System for the valuation date, or, if none, for the most recent trade date immediately prior to the valuation date provided such trade date is not more than thirty (30) days prior to the valuation date. If the fair market value cannot be determined under the preceding three sentences, it shall be determined in good faith by the Board of Directors .

5.7 Notices. Any notice to be given under the terms of this Agreement to the Company shall be in accordance with the notice provisions set forth in Section 11 of the Employment Agreement. By a notice given pursuant to this Section 5.7 or Section 11 of the Employment Agreement, either party may hereafter designate a different address for notices to be given to that party.

5.8 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

5.9 Governing Law; Severability. This Agreement shall be administered, interpreted and enforced under the laws of the State of Delaware without regard to conflicts of laws thereof. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

5.10 Conformity to Securities Laws. Executive acknowledges that this grant is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act of 1933, as amended and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

5.11 Amendments. This Agreement may not be modified, amended or terminated except by an instrument in writing, signed by Executive and by a duly authorized representative of the Company.

5.12 No Employment Rights. Nothing in the this Agreement shall confer upon Executive any right to continue in the employ of the Company or any subsidiary or shall interfere with or restrict in any way the rights of the Company and its subsidiaries, which are expressly reserved, to discharge Executive at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company and Executive.

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5.13 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Executive and his or her heirs, executors, administrators, successors and assigns.

5.14 Counterparts. This Agreement may be executed in one or more original, facsimile or electronic counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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[Restricted Stock Award Agreement]

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Gary H. Hunt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Grubb & Ellis Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

/s/ Gary H. Hunt  

Gary H. Hunt 

Interim Chief Executive Officer 

Date: November 13, 2009

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard W. Pehlke, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Grubb & Ellis Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

/s/ Richard W. Pehlke  

Richard W. Pehlke 

Chief Financial Officer 

Date: November 13, 2009

EX-32

Exhibit 32

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, the Interim Chief Executive Officer and the Chief Financial Officer of Grubb & Ellis Company (the “Company”), each hereby certifies that to his knowledge, on the date hereof:

(a) the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2009 filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Gary H. Hunt  

Gary H. Hunt 

Interim Chief Executive Officer

November 13, 2009 

/s/ Richard W. Pehlke  

Richard W. Pehlke 

Chief Financial Officer
November 13, 2009