Discontinued Operations

6 Months Ended

Jun. 30, 2011

Discontinued Operations [Abstract]

DISCONTINUED OPERATIONS

10. DISCONTINUED OPERATIONS

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

On June 1, 2011, we entered into a definitive agreement for the sale of substantially all of the assets of our real estate investment fund business, Alesco, to Lazard Asset Management LLC. Closing of the transaction is subject to customary approvals and is expected to occur in the third quarter of 2011. We anticipate recognizing a loss on the sale of Alesco of approximately $3.0 million in the third quarter of 2011 due to the deficit balance in noncontrolling interests.

On August 10, 2011, we completed the sale of Daymark for (1) a cash payment of $0.5 million, (2) a $5.0 million promissory note provided to NNNRA, and (3) the assumption by the purchaser of $10.7 million of the net intercompany balance payable from us to NNNRA. We expect to record a gain on sale related to the disposition of Daymark in the third quarter of 2011, after writing off all of the net assets and liabilities associated with Daymark (included in summarized balance sheet below) and recognizing the transactions costs related to such transaction.

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

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

The following table summarizes the assets held for sale and liabilities held for sale as of June 30, 2011 and December 31, 2010:

	June 30,		December 31,
(In thousands)	2011		2010
Restricted cash	$	3,528	$	4,652
Assets under management		848		901
Accounts receivable from related parties — net		13,395		12,718
Notes receivable — net		—		6,126
Notes and advances to related parties — net		10,660		12,275
Prepaid expenses and other assets		767		682
Investments in unconsolidated entities		5,224		5,178
Property held for sale		45,159		45,858
Property, equipment and leasehold improvements — net		906		1,096
Identified intangible assets — net		6,127		7,398
Other assets — net		4,316		3,430
Total assets	$	90,930	$	100,314
Accounts payable and accrued expenses	$	13,518	$	8,098
Due to related parties		1,617		2,178
Other liabilities		15,423		25,704
NNN senior notes		16,277		16,277
Mortgage notes		70,000		70,000
Capital lease obligations		13		22
Deferred tax liabilities		36		199
Total liabilities	$	116,884	$	122,478

From August 1, 2006 to January 2007, NNN Collateralized Senior Notes, LLC (the “NNN Senior Notes Program”), a wholly owned subsidiary of Daymark, issued $16.3 million of notes which mature on August 29, 2011 and bear interest at a rate of 8.75% per annum. Interest on the notes is payable monthly in arrears on the first day of each month, commencing on the first day of the month occurring after issuance. The notes mature five years from the date of first issuance of any of such notes, with two one-year options to extend the maturity date of the notes at the Senior Notes Program’s option. The interest rate will increase to 9.25% per annum during any extension. The Senior Notes Program has the right to redeem the notes, in whole or in part, at par value. The notes are the NNN Senior Notes Program’s senior obligations, ranking pari passu in right of payment with all other senior debt incurred and ranking senior to any subordinated debt it may incur. The notes are effectively subordinated to all present or future debt secured by real or personal property to the extent of the value of the collateral securing such debt. The notes are secured by a pledge of the NNN Senior Notes Program’s membership interest in NNN Series A Holdings, LLC, which is the Senior Notes Program’s wholly owned subsidiary for the sole purpose of making the investments. Each note is guaranteed by Grubb & Ellis Realty Investors, LLC (“GERI”). The guarantee is secured by a pledge of GERI membership interest in the NNN Senior Notes Program. The guarantee requires GERI to maintain at all times during the term the notes are outstanding a net worth of at least $0.5 million. As of June 30, 2011, GERI met the net worth requirement.

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

The following table summarizes the income (loss) and (expense) components — net of taxes that comprised discontinued operations for the three and six months ended June 30, 2011 and 2010:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands)	2011			2010			2011			2010
Revenue	$	7,088		$	6,101		$	11,058		$	14,544
Rental related revenue		3,346			7,585			7,206			15,299
Compensation costs		(6,762	)		(5,807	)		(11,645	)		(12,311	)
General and administrative		(6,709	)		(2,731	)		(11,409	)		(4,509	)
Provision for doubtful accounts		(1,158	)		(962	)		(2,245	)		(1,500	)
Depreciation and amortization		(900	)		(1,661	)		(2,287	)		(3,314	)
Rental related		(2,263	)		(5,463	)		(4,607	)		(10,851	)
Interest		(1,599	)		(2,272	)		(3,143	)		(4,544	)
Real estate related recoveries (impairments)		834			(1,553	)		9,858			(1,823	)
Intangible asset impairment		—			(1,025	)		(480	)		(1,639	)
Equity in earnings (losses) of unconsolidated entities		163			(202	)		256			(223	)
Interest income		37			31			78			51
Other income (expense)		28			(283	)		315			(238	)
Income tax benefit (provision)		(51	)		23			(51	)		31
Loss from discontinued operations — net of taxes	$	(7,946	)	$	(8,219	)	$	(7,096	)	$	(11,027	)