e10vqza

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A


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

		For the quarter ended September 30, 2008

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 (§ 232.405 of this chapter) 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 November 3, 2008 was 64,628,798 shares.

EXPLANATORY NOTE

This amendment on Form 10-Q/A is being filed to reflect the restatement of the Registrant’s consolidated financial statements as of and for the three and nine month periods ended September 30, 2008 and 2007. See Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements, including “Note 2 to the Consolidated Financial Statements” for the impact of the restatement on each period presented.

This amendment to the Company’s Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2008 filed with the Securities and Exchange Commission on November 10, 2008 amends and restates only those items of the previously filed Form 10-Q which have been affected by the restatement, although all items of the Form 10-Q are reproduced in this amendment. In order to preserve the nature and character of the disclosures set forth in such items as originally filed, no attempt has been made in this amendment to modify or update such disclosures except as required to reflect the effects of the restatement. For additional information regarding the restatement, see “Note 2 to the Consolidated Financial Statements” included in Part I, Item 1.

Part I — FINANCIAL INFORMATION


Item 1.	Financial Statements.

GRUBB & ELLIS COMPANY

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


	September 30, 2008			December 31, 2007
	Restated

ASSETS
Current assets:
Cash and cash equivalents	$	34,426		$	49,328
Restricted cash		33,735			70,023
Investment in marketable securities		4,915			9,052
Current portion of accounts receivable from related parties — net		25,379			32,795
Current portion of advances to related parties — net		8,291			6,667
Notes receivable from related party — net		9,100			7,600
Service fees receivable — net		20,620			19,521
Current portion of professional service contracts — net		7,477			7,235
Real estate deposits and pre-acquisition costs		7,549			11,818
Properties held for sale including investments in unconsolidated entities — net		17,570			98,206
Identified intangible assets and other assets held for sale — net		2,155			23,569
Prepaid expenses and other assets		26,042			13,032
Deferred tax assets		5,347			7,991

Total current assets		202,606			356,837
Accounts receivable from related parties — net		7,168			10,360
Advances to related parties — net		7,733			3,751
Professional service contracts — net		11,604			13,088
Investments in unconsolidated entities		11,804			22,191
Properties held for investment — net		183,646			233,970
Property, equipment and leasehold improvements — net		14,628			16,743
Goodwill		171,723			169,317
Identified intangible assets — net		133,841			145,427
Other assets — net		14,466			16,858
Deferred tax assets		907			—

Total assets	$	760,126		$	988,542


LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	63,059		$	102,004
Due to related parties		1,112			3,329
Current portion of line of credit		63,000			—
Current portion of notes payable and capital lease obligations		453			30,447
Notes payable of properties held for sale including investments in unconsolidated entities		10,656			91,020
Liabilities of properties held for sale — net		72			907
Other liabilities		30,307			14,017

Total current liabilities		168,659			241,724
Long-term liabilities:
Line of credit		—			8,000
Senior notes		16,277			16,277
Notes payable and capital lease obligations		215,027			228,254
Other long-term liabilities		20,598			30,421
Deferred tax liabilities		—			29,914

Total liabilities		420,561			554,590
Commitments and contingencies (See Note 15)		—			—
Minority interest		8,886			29,896
Stockholders’ equity:
Preferred stock: $0.01 par value; 10,000,000 shares authorized as of September 30, 2008 and December 31, 2007; no shares issued and outstanding as of September 30, 2008 and December 31, 2007		—			—
Common stock: $0.01 par value; 100,000,000 shares authorized; 64,646,398 and 64,824,777 shares issued and outstanding as of September 30, 2008 and December 31, 2007, respectively		646			648
Additional paid-in capital		400,596			393,665
(Accumulated deficit) retained earnings		(70,563	)		10,792
Accumulated other comprehensive loss		—			(1,049	)

Total stockholders’ equity		330,679			404,056

Total liabilities, minority interest and stockholders’ equity	$	760,126		$	988,542

See accompanying notes to consolidated financial statements.

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,
	2008			2007			2008			2007
	Restated			Restated			Restated			Restated

REVENUE
Transaction services	$	57,502		$	—		$	173,191		$	—
Investment management		24,116			40,742			84,479			110,988
Management services		63,479			—			185,855			—
Rental related		13,220			9,565			41,146			17,625

Total revenue		158,317			50,307			484,671			128,613

OPERATING EXPENSE
Compensation costs		120,765			17,142			365,488			45,043
General and administrative		40,263			10,049			84,399			29,770
Depreciation and amortization		7,019			5,012			21,750			6,018
Rental related		7,643			7,687			26,258			13,743
Interest		4,410			3,199			14,534			7,036
Merger related costs		2,657			140			10,217			201
Real estate related impairments		57,485			—			57,485			—

Total operating expense		240,242			43,229			580,131			101,811

OPERATING (LOSS) INCOME		(81,925	)		7,078			(95,460	)		26,802

OTHER (EXPENSE) INCOME
Equity in (losses) earnings of unconsolidated real estate		(5,855	)		395			(10,602	)		1,870
Interest income		234			915			757			2,184
Other		(509	)		(699	)		(3,801	)		413

Total other (expense) income		(6,130	)		611			(13,646	)		4,467

(Loss) income from continuing operations before minority interest and income tax benefit (provision)		(88,055	)		7,689			(109,106	)		31,269
Minority interest in loss (income) of consolidated entities		6,444			(760	)		6,298			(1,265	)

(Loss) income from continuing operations before income tax benefit (provision)		(81,611	)		6,929			(102,808	)		30,004
Income tax benefit (provision)		25,712			(2,281	)		35,267			(11,651	)

(Loss) income from continuing operations		(55,899	)		4,648			(67,541	)		18,353

Discontinued operations
Loss from discontinued operations — net of taxes		(198	)		(416	)		(600	)		(478	)
(Loss) gain on disposal of discontinued operations — net of taxes		(185	)		184			181			390

Total loss from discontinued operations		(383	)		(232	)		(419	)		(88	)

NET (LOSS) INCOME	$	(56,282	)	$	4,416		$	(67,960	)	$	18,265

Basic (loss) earnings per share
(Loss) income from continuing operations	$	(0. 88	)	$	0.11		$	(1.06	)	$	0.44
Loss from discontinued operations		—			—			(0.01	)		—

Net (loss) earnings per share	$	(0.88	)	$	0.11		$	(1.07	)	$	0.44

Diluted (loss) earnings per share
(Loss) income from continuing operations	$	(0.88	)	$	0.11		$	(1.06	)	$	0.44
Loss from discontinued operations		—			(0.01	)		(0.01	)		(0.01	)

Net (loss) earnings per share	$	(0.88	)	$	0.10		$	(1.07	)	$	0.43

Basic weighted average shares outstanding		63,601			41,943			63,574			41,943

Diluted weighted average shares outstanding		63,601			42,127			63,574			42,057

Dividends declared per share	$	—		$	0.09		$	0.2050		$	0.23

See accompanying notes to consolidated financial statements.

GRUBB & ELLIS COMPANY

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


	For the Nine Months
	Ended September 30,
	2008			2007
	Restated			Restated

CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(67,960	)	$	18,265
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Equity in losses (earnings) of unconsolidated real estate		10,602			(1,870	)
Depreciation and amortization		28,017			5,732
Loss on disposal of property, equipment and leasehold improvements		312			605
Impairment of real estate held for investment		45,767			—
Stock-based compensation		8,484			5,014
Compensation expense on profit sharing arrangements		1,716			1,084
Amortization/write-off of intangible contractual rights		1,179			2,620
Amortization of deferred financing costs		342			494
Loss (gain) on sale of marketable equity securities		3,344			(411	)
Deferred income taxes		(28,849	)		(4,183	)
Allowance for uncollectible accounts		10,861			566
Minority interest		(6,298	)		1,265
Other operating noncash gains (losses)		612			(130	)
Changes in operating assets and liabilities:
Accounts receivable from related parties		4,635			(10,483	)
Prepaid expenses and other assets		(24,395	)		(34,763	)
Accounts payable and accrued expenses		(31,103	)		3,101
Other liabilities		8,614			3,160

Net cash used in operating activities		(34,120	)		(9,934	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(3,359	)		(2,515	)
Tenant improvements and capital expenditures		(2,958	)		—
Purchases of marketable equity securities		(505	)		(23,774	)
Proceeds from sale of marketable equity securities		2,653			21,680
Advances to related parties		(10,169	)		(8,545	)
Proceeds from repayment of advances to related parties		22,543			44,089
Payments to related parties		(2,217	)		(1,012	)
Origination of notes receivable from related parties		(15,100	)		(22,900	)
Repayment of notes receivable from related parties		13,600			30,700
Investments in unconsolidated entities		(673	)		(5,048	)
Distributions of capital from unconsolidated real estate		603			59
Acquisition of properties		(111,690	)		(503,222	)
Proceeds from sale of properties held for sale		—			100,456
Real estate deposits and pre-acquisition costs		(56,568	)		(66,088	)
Proceeds from collection of real estate deposits and pre-acquisition costs		81,851			76,967
Restricted cash		15,270			(18,493	)

Net cash used in investing activities		(66,719	)		(377,646	)

CASH FLOWS FROM FINANCING ACTIVITIES
Advances on line of credit		55,000			—
Borrowings on notes payable and capital lease obligations		—			56,502
Repayments of notes payable and capital leases obligations		(43,273	)		(4,698	)
Proceeds from issuance of participating notes		—			6,014
Other financing costs		52			840
Borrowings on notes payable of properties held for sale		94,149			305,769
Repayments of notes payable of properties held for sale		(12,946	)		(34,465	)
Deferred financing costs		(2,693	)		(959	)
Net proceeds from the issuance of common stock		314			—
Repurchase of common stock		(1,840	)		—
Dividends paid to common stockholders		(15,129	)		(9,611	)
Contributions from minority interests		15,323			19,165
Distributions to minority interests		(3,020	)		(1,328	)

Net cash provided by financing activities		85,937			337,229

NET DECREASE IN CASH AND CASH EQUIVALENTS		(14,902	)		(50,351	)
Cash and cash equivalents — Beginning of period		49,328			102,226

Cash and cash equivalents — End of period	$	34,426		$	51,875

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Dividends accrued	$	—		$	3,931

Deconsolidation of assets held by variable interest entities	$	243,398		$	149,772

Deconsolidation of liabilities held by variable interest entities	$	198,409		$	108,158

See accompanying notes to consolidated financial statements.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2008


1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

In certain instances throughout this Interim Report phrases such as “legacy Grubb & Ellis” or similar descriptions are used to reference, when appropriate, the Company prior to the stock merger (the “Merger”) on December 7, 2007, of Grubb & Ellis Company (the “Company”), with NNN Realty Advisors, Inc. (“NNN”). Similarly, in certain instances throughout this interim report the term NNN, “legacy NNN,” or similar phrases are used to reference, when appropriate, NNN Realty Advisors, Inc. prior to the Merger.

Upon the closing of the Merger, a change of control of the Company occurred, as the former stockholders of legacy NNN acquired approximately 60% of the Company’s issued and outstanding common stock. Pursuant to the Merger, each issued and outstanding share of legacy NNN automatically converted into 0.88 of a share of common stock of the Company. Based on accounting principles generally accepted in the United States of America (“GAAP”), the Merger was accounted for using the purchase method of accounting. The Merger was structured as a reverse merger, therefore legacy NNN is considered the accounting acquirer of legacy Grubb & Ellis. As a consequence, the operating results for the three and nine months ended September 30, 2008 reflect the consolidated results of the newly merged company while the three and nine months ended September 30, 2007 include solely the operating results of legacy NNN.

Unless otherwise indicated, all pre-merger NNN share data has been adjusted to reflect the conversion as a result of the Merger.

NNN is a real estate investment management company and sponsor of tax deferred tenant-in-common (“TIC”) 1031 property exchanges as well as a sponsor of public non-traded real estate investment trusts (“REITs”) and other investment programs. Pursuant to the Merger, the Company now sponsors real estate investment programs under the Grubb & Ellis brand, Grubb & Ellis Realty Investors, LLC (“GERI”) (formerly Triple Net Properties, LLC). GERI raises capital for these programs through an extensive network of broker-dealer relationships. GERI structures, acquires, manages and disposes of real estate for these programs, earning fees for each of these services. Additionally, GERI continues to offer full-service real estate asset management services.

Legacy Grubb & Ellis business units provide a full range of real estate services, including transaction services, which comprises its brokerage operations, and management and consulting services for both local and multi-location clients, which includes third-party property management, corporate facilities management, project management, client accounting, business services and engineering services.

Operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be achieved in future periods.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Grubb & Ellis Company and its consolidated subsidiaries (collectively, the “Company”), and are prepared in accordance with 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 for the year ended December 31, 2007. In the opinion of

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

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.

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.

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.

Reclassifications

Certain reclassifications have been made to prior year and prior interim period amounts in order to conform to the current period presentation. These reclassifications have no effect on reported net income.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 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 issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157 (the “FSP”). The FSP amends SFAS No. 157 to delay the effective date of SFAS No. 157 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 SFAS No. 157 as of January 1, 2008 as it relates to financial assets and financial liabilities. For items within its scope, the FSP defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company will adopt SFAS No. 157 as it relates to non-financial assets and non-financial liabilities in the first quarter of 2009 and does not believe adoption will have a material effect on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Company adopted SFAS No. 159 on a prospective basis on January 1, 2008. The adoption of SFAS No. 159 did not have a material impact on the consolidated financial statements since the Company did not elect to apply the fair value option for any of its eligible financial instruments or other items on the January 1, 2008 effective date.

In December 2007, the FASB issued revised SFAS No. 141, Business Combinations, (“SFAS No. 141R”). SFAS No. 141R will change the accounting for business combinations and will require an acquiring entity to

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS No. 141R 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. SFAS No. 141R will have an impact on accounting for business combinations once adopted but the effect is dependent upon acquisitions at that time.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51, (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the impact of adopting SFAS No. 160 on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS No. 161”). SFAS No. 161 is 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. SFAS No. 161 achieves 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. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company will adopt SFAS No. 161 in the first quarter of 2009 and does not believe the adoption will have a material effect on its consolidated financial statements.

In April 2008, the FASB issued FSP SFAS No. 142-3, Determination of the Useful Life of Intangible Assets, (“FSP SFAS 142-3”). FSP SFAS 142-3 is intended to improve the consistency between the useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets, (“SFAS No. 142”), and the period of expected cash flows used to measure the fair value of the assets under SFAS No. 141R. FSP SFAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions in determining the useful life of recognized intangible assets. In addition to the required disclosures under SFAS No. 142, FSP SFAS 142-3 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. FSP SFAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The Company will adopt FSP SFAS 142-3 on January 1, 2009. The adoption of FSP SFAS 142-3 is not expected to have a material impact on the consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”), 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 described in SFAS No. 128, Earnings per Share. FSP EITF 03-6-1, which will 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 is currently evaluating the impact of adopting FSP EITF 03-6-1 on its consolidated financial statements.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


2.	RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

On March 16, 2009, management and the Audit Committee of the Board of Directors concluded that the Company’s previously issued audited financial statements should be restated, for the reasons discussed below.

The restatement of the Company’s financial statements was based upon a review of the accounting treatment of certain transactions entered into by NNN with respect to certain tenant in common investment programs (“TIC Programs”) sponsored by NNN prior to the Merger. The review of NNN’s accounting treatment was prompted by the Company being made aware of the existence of a letter agreement, wherein 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 (the “Exchange Letter”). In the course of its review, the Company became aware of additional letter agreements, some providing for a right of exchange similar to that contained in the Exchange Letter, another that provided the investor with certain repurchase rights under certain circumstances with respect to their investment and others in which NNN committed to provide certain investors in certain TIC Programs a specified rate of return. The agreements containing such rights of exchange and repurchase rights pertain to initial investments in TIC programs totaling $31.6 million.

Upon review of the accounting treatment for these letter agreements as well as other TIC Programs and master lease arrangements, management concluded that NNN had not accounted for some of the letter agreements and that NNN had incorrectly recognized revenue as it related to these letter agreements as well as other TIC Programs and master lease arrangements under Statement of Financial Accounting Standards Statement No. 66, Accounting for Sales of Real Estate, and Statement of Position 92-1, Accounting for Real Estate Syndication Income, because the Company had various forms of continuing involvement after the close of the sale of the investments in the TIC Programs to third-parties. As a result of the recognition by the Company of the applicable fee revenue in the incorrect accounting period, the Company decreased revenues in the three and nine months ended September 30, 2008 by approximately $919,000 and $2.1 million, respectively; and increased revenues in the three and nine months ended September 30, 2007 by approximately $605,000 and $385,000, respectively, to correct these errors.

Management also concluded that because NNN had various forms of continuing involvement after the close of the sale of the investments in the TIC Programs to third-parties, certain entities involved in the TIC Programs were variable interest entities in which the Company was the primary beneficiary and therefore were required to be consolidated in accordance with FIN 46(R), Consolidation of Variable Interest Entities an Interpretation of ARB 51 (“FIN 46(R)”). As a result, the Company increased total assets by $5.2 million, total liabilities by $316,000 and minority interest by $4.9 million as of September 30, 2008 to correct this error.

Restatement adjustments pertaining to income taxes relate to the revenue recognition restatement adjustments described above.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

All applicable notes have been restated to reflect the above described adjustments.


	September 30, 2008
	As previously
(In thousands)	reported			Adjustments(1)			As Restated

ASSETS
Current assets:
Restricted cash/reserves	$	33,419		$	316		$	33,735
Current portion of accounts receivable from related parties - net		25,403			(24	)		25,379

Current portion of advances to related parties - net		8,634			(343	)		8,291

Prepaid expenses and other assets		24,894			1,148			26,042
Total current assets		201,509			1,097			202,606

Investments in unconsolidated entities		6,944			4,860			11,804
Deferred tax assets		-			907			907
Total assets		753,262			6,864			760,126

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		61,622			1,437			63,059
Other liabilities		9,204			21,103			30,307
Total current liabilities		146,119			22,540			168,659
Long-term liabilities:
Deferred tax liabilities		2,984			(2,984	)		-
Total liabilities		401,005			19,556			420,561
Minority interest		4,027			4,859			8,886
Stockholders’ equity:
Accumulated deficit		(53,012	)		(17,551	)		(70,563	)
Total stockholders’ equity		348,230			(17,551	)		330,679
Total liabilities, minority interest and stockholders’ equity		753,262			6,864			760,126

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


	For the Three Months Ended									For the Nine Months Ended
	September 30, 2008									September 30, 2008
	As Previously									As Previously
(In thousands)	Reported			Adjustments(1)			As Restated			Reported			Adjustments(1)			As Restated

REVENUE
Investment management	$	25,035		$	(919	)	$	24,116		$	86,561		$	(2,082	)	$	84,479
Total revenue		159,236			(919	)		158,317			486,753			(2,082	)		484,671

OPERATING EXPENSE
Compensation costs		118,874			1,891			120,765			359,853			5,635			365,488
Depreciation and amortization		8,910			(1,891	)		7,019			27,385			(5,635	)		21,750
Real estate related impairments		45,767			11,718			57,485			45,767			11,718			57,485
Total operating expense		228,524			11,718			240,242			568,413			11,718			580,131
OPERATING (LOSS) INCOME		(69,288	)		(12,637	)		(81,925	)		(81,660	)		(13,800	)		(95,460	)
OTHER (EXPENSE) INCOME
Equity in losses of unconsolidated entities		(120	)		(5,735	)		(5,855	)		(6,318	)		(4,284	)		(10,602	)
Interest income		235			(1	)		234
Other		(508	)		(1	)		(509	)
Total other expense		(393	)		(5,737	)		(6,130	)		(9,362	)		(4,284	)		(13,646	)
Loss from continuing operations before minority interest and income tax benefit		(69,681	)		(18,374	)		(88,055	)		(91,022	)		(18,084	)		(109,106	)
Minority interest in loss of consolidated entities		703			5,741			6,444			2,008			4,290			6,298
Loss from continuing operations before income tax benefit		(68,978	)		(12,633	)		(81,611	)		(89,014	)		(13,794	)		(102,808	)
Income tax benefit		25,346			366			25,712			34,434			833			35,267
Loss from continuing operations		(43,632	)		(12,267	)		(55,899	)		(54,580	)		(12,961	)		(67,541	)
Loss on disposal of discontinued operations — net of taxes		(186	)		1			(185	)
Total loss from discontinued operations		(384	)		1			(383	)
NET LOSS	$	(44,016	)	$	(12,266	)	$	(56,282	)	$	(54,999	)	$	(12,961	)	$	(67,960	)

Basic loss per share
Loss from continuing operations	$	(0.69	)	$	(0.19	)	$	(0.88	)	$	(0.86	)	$	(0.20	)	$	(1.06	)
Loss from discontinued operations	$	—		$	—		$	—		$	(0.01	)	$	—		$	(0.01	)

Net loss per share	$	(0.69	)	$	(0.19	)	$	(0.88	)	$	(0.87	)	$	(0.20	)	$	(1.07	)
Diluted loss per share
Loss from continuing operations	$	(0.69	)	$	(0.19	)	$	(0.88	)	$	(0.86	)	$	(0.20	)	$	(1.06	)
Loss from discontinued operations	$	—		$	—		$	—		$	(0.01	)	$	—		$	(0.01	)

Net loss per share	$	(0.69	)	$	(0.19	)	$	(0.88	)	$	(0.87	)	$	(0.20	)	$	(1.07	)
Basic weighted average shares outstanding		63,601						63,601			63,574						63,574

Diluted weighted average shares outstanding		63,601						63,601			63,574						63,574

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


	For the Three Months Ended									For the Nine Months Ended
	September 30, 2007									September 30, 2007
	As Previously									As Previously
(In thousands)	Reported			Adjustments(1)			As Restated			Reported			Adjustments(1)			As Restated

REVENUE
Investment management	$	40,137		$	605		$	40,742		$	110,603		$	385		$	110,988
Total revenue		49,702			605			50,307			128,228			385			128,613

OPERATING EXPENSE
General and administrative											29,769			1			29,770
Interest		3,200			(1	)		3,199			6,685			351			7,036
Total operating expense		43,230			(1	)		43,229			101,459			352			101,811
OPERATING INCOME		6,472			606			7,078			26,769			33			26,802
OTHER INCOME (EXPENSE)
Equity in (losses) earnings of unconsolidated entities		(519	)		914			395			(40	)		1,910			1,870
Interest income											2,182			2			2,184
Total other (expense) income		(303	)		914			611			2,555			1,912			4,467
Income from continuing operations before minority interest and income tax provision		6,169			1,520			7,689			29,324			1,945			31,269
Minority interest in loss (income) of consolidated entities		155			(915	)		(760	)		111			(1,376	)		(1,265	)
Income from continuing operations before income tax provision		6,324			605			6,929			29,435			569			30,004
Income tax provision		(2,039	)		(242	)		(2,281	)		(11,423	)		(228	)		(11,651	)
Income (loss) from continuing operations		4,285			363			4,648			18,012			341			18,353
NET INCOME (LOSS)	$	4,053		$	363		$	4,416		$	17,924		$	341		$	18,265

Basic earnings per share
Income from continuing operations	$	0.10		$	0.01		$	0.11		$	0.43		$	0.01		$	0.44
Loss from discontinued operations	$	—		$	—		$	—		$	—		$	—		$	—

Net earnings per share	$	0.10		$	0.01		$	0.11		$	0.43		$	0.01		$	0.44
Diluted earnings per share
Income from continuing operations	$	0.10		$	0.01		$	0.11		$	0.43		$	0.01		$	0.44
Loss from discontinued operations	$	—		$	(0.01	)	$	(0.01	)	$	—		$	(0.01	)	$	(0.01	)

Net earnings per share	$	0.10		$	—		$	0.10		$	0.43		$	—		$	0.43
Basic weighted average shares outstanding		41,943						41,943			41,943						41,943
Diluted weighted average shares outstanding		42,127						42,127			42,057						42,057

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


	For the Nine Months Ended									For the Nine Months Ended
	September 30, 2008									September 30, 2007
	As Previously									As Previously
(In thousands)	Reported			Adjustments(1)			As Restated			Reported			Adjustments(1)			As Restated

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(54,999	)	$	(12,961	)	$	(67,960	)	$	17,924		$	341		$	18,265
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in losses (earnings) of unconsolidated entities		6,318			4,284			10,602			40			(1,910	)		(1,870	)
Deferred income taxes		(28,016	)		(833	)		(28,849	)		(4,411	)		228			(4,183	)
Minority interest		(2,008	)		(4,290	)		(6,298	)		(111	)		1,376			1,265
Other liabilities		(5,186	)		13,800			8,614			3,195			(35	)		3,160

(1) Amounts presented as “adjustments” include changes as a result of the restatement along with reclassifications to conform to current year presentation. The reclassification adjustments do not have an effect on net income (loss).


3.	MARKETABLE SECURITIES

In accordance with the provisions of the FSP, the Company has partially applied the provisions of SFAS No. 157 only to its financial assets recorded at fair value, which consist of available-for-sale marketable securities. SFAS No. 157 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. Level 1 inputs, the highest priority, are quoted prices in active markets for identical assets, while other levels use observable market data or internally-developed valuation models. The valuation of the Company’s available-for-sale marketable securities is based on quoted prices in active markets for identical securities.

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


	As of December 31, 2007
			Gross					Fair
	Historical		Unrealized					Market
(In thousands)	Cost		Gains		Losses			Value

Equity securities	$	4,440	$	—	$	(1,355	)	$	3,085

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 the value of these securities was other than temporary. Sales of marketable equity securities resulted in realized losses of approximately $700,000 during the three months ended September 30, 2007 and realized gains of approximately $411,000 during the nine months ended September 30, 2007.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Investments in Limited Partnerships

The Company, through its subsidiary, Grubb & Ellis Alesco Global Advisors, LLC (“Alesco”), serves as the general partner and investment advisor to six hedge fund limited partnerships, five of which are required to be consolidated: Grubb & Ellis AGA Realty Income Fund, LP, AGA Strategic Realty Fund, L.P., AGA Global Realty Fund LP and AGA Realty Income Partners LP and one mutual fund which is required to be consolidated, Grubb & Ellis Realty Income Fund.

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 minority interest in loss of consolidated entities on the statement of operations. Alesco earned approximately $99,000 of management fees based on ownership interest under the agreements. As of September 30, 2008, these limited partnerships had assets of approximately $4.9 million, primarily consisting of exchange traded marketable securities, including equity securities and foreign currencies.

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


	As of September 30, 2008									As of December 31, 2007
			Gross					Fair									Fair
	Historical		Unrealized					Market		Historical		Gross Unrealized					Market
(In thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value

Equity securities	$	5,548	$	72	$	(705	)	$	4,915	$	7,250	$	134	$	(1,417	)	$	5,967


	For the Three Months Ended											For the Nine Months Ended
	September 30, 2008											September 30, 2008
	Investment											Investment
(In thousands)	Income			Realized			Unrealized		Total			Income			Realized			Unrealized		Total

Equity securities	$	108		$	(568	)	$	212	$	(248	)	$	237		$	(2,172	)	$	622	$	(1,313	)
Less investment expenses		(77	)		—			—		(77	)		(244	)							(244	)

	$	31		$	(568	)	$	212	$	(325	)	$	(7	)	$	(2,172	)	$	622	$	(1,557	)

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


4.	RELATED PARTIES

Related party balances are summarized below:

Accounts Receivable

Accounts receivable from related parties consisted of the following:


(In thousands)	September 30, 2008			December 31, 2007

Accrued property management fees	$	20,268		$	19,574
Accrued lease commissions		8,302			9,945
Other accrued fees		4,763			4,432
Other receivables		1,151			4,147
Accrued asset management fees		2,033			1,206
Accounts receivable from sponsored REITs		5,429			4,796
Accrued real estate acquisition fees		1,828			87

Total		43,774			44,187
Allowance for uncollectible receivables		(11,227	)		(1,032	)

Accounts receivable from related parties — net		32,547			43,155
Less portion classified as current		(25,379	)		(32,795	)

Non-current portion	$	7,168		$	10,360

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, generally have payment terms of one year or less, and bear interest at a range of 6.0% to 12.0% per annum. The advances consisted of the following:


(In thousands)	September 30, 2008			December 31, 2007
	Restated

Advances to properties of related parties	$	15,176		$	9,823
Advances to related parties		2,413			2,434

Total		17,589			12,257
Allowance for uncollectible advances		(1,565	)		(1,839	)

Advances to related parties — net		16,024			10,418
Less portion classified as current		(8,291	)		(6,667	)

Non-current portion	$	7,733		$	3,751

As of December 31, 2007, advances to a program 30.0% owned and solely managed by Anthony W. Thompson, the Company’s former Chairman, who subsequently resigned in February 2008 but remains a substantial stockholder of the Company, totaled $1.0 million including accrued interest. These amounts were repaid in full during the nine months ended September 30, 2008 and as of September 30, 2008 there were no outstanding advances related to this program. However, as of September 30, 2008, accounts receivable totaling $321,000 is due from this program. On November 4, 2008, the Company made a formal written demand to Mr. Thompson for these monies.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

As of September 30, 2008, advances to a program 40.0% owned and, as of April 1, 2008, solely managed by Mr. Thompson totaled $963,000, which includes $41,000 in accrued interest. As of September 30, 2008, the total outstanding balance of $963,000 was past due. On November 4, 2008 the Company made a formal written demand to Mr. Thompson for these monies.

Notes Receivable From Related Party

In December 2007, the Company advanced $10.0 million 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 and $6.0 million to Apartment REIT and Grubb & Ellis Healthcare REIT, Inc. (“Healthcare REIT”), respectively, on an unsecured basis. The unsecured note for Apartment REIT originally had a maturity date of December 27, 2008 and bore interest at a fixed rate of 4.95% per annum. Effective 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 unsecured note for Healthcare REIT, Inc. matures on December 30, 2008 and bears interest at a fixed rate of 4.96% per annum. Both notes require monthly interest-only payments beginning on August 1, 2008 and provide for a default interest rate in an event of default equal to 2.00% per annum in excess of the stated interest rate. Healthcare REIT repaid in full the $6.0 million note in the third quarter of 2008. In September 2008, the Company advanced an additional $5.4 million to Apartment REIT on an unsecured basis. The unsecured note matures on March 15, 2009 and bears interest at a fixed rate of 4.99% 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. As of September 30, 2008, the balance owed by Apartment REIT to the Company on the two unsecured notes totals $9.1 million in principal with no interest outstanding.


5.	INVESTMENTS IN UNCONSOLIDATED ENTITIES (Restated)

As of September 30, 2008 and December 31, 2007, the Company held investments in five joint ventures totaling $5.2 million and $5.9 million, respectively, which represent a range of 5.0% to 10.0% ownership interest in each property. In addition, pursuant to FIN No. 46(R), the Company has consolidated nine limited liability companies (“LLCs”) with investments in unconsolidated entities totaling $20.4 million as of September 30, 2008 and 13 LLCs with investments in unconsolidated entities totaling $17.0 million as of December 31, 2007, respectively (of which $15.5 million and $5.9 million is included in properties held for sale including investments in unconsolidated entities on the consolidated balance sheet as of September 30, 2008 and December 31, 2007, respectively). In addition, the Company had an investment in Grubb & Ellis Realty Advisors, Inc. (“GERA”) of $4.1 million as of December 31, 2007. The remaining amounts within investments in unconsolidated entities are related to various LLCs, which represent ownership interests of less than 1.0%.

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.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

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. The Company’s combined carrying value of these GERA investments as of December 31, 2007, totaled approximately $4.1 million, net of an unrealized loss, and was included in investments in unconsolidated entities in the Company’s consolidated balance sheet as of that date.

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. See Note 6 of Notes to Consolidated Financial Statements for additional disclosure related to the three commercial properties that were subject to this proposed transaction with GERA.


6.	PROPERTIES HELD FOR INVESTMENT

A summary of the balance sheet information for properties held for investment is as follows:


(In thousands)	Useful Life	September 30, 2008			December 31, 2007

Building and capital improvements	39 years	$	168,965		$	211,555
Accumulated depreciation			(11,630	)		(3,896	)

Total			157,335			207,659
Land			26,311			26,311

Properties held for investment — net		$	183,646		$	233,970

The Company recognized approximately $2.4 million and $1.2 million of depreciation expense related to the properties held for investment for the three months ended September 30, 2008 and 2007, respectively, and approximately $8.0 million and $1.3 million for the nine months ended September 30, 2008 and 2007, respectively.

As of September 30, 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, 2008. The Company has a covenant within its credit agreement which requires the sale of certain of these assets before March 31, 2009, and 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 SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, this resulted in an assessment of the value of the assets given this reduced potential ownership hold period. This valuation review resulted in the Company recognizing an impairment charge of approximately $57.5 million against the

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

carrying value of the properties as of September 30, 2008, which is recorded separately on the statement of operations.

On October 31, 2008, the Company entered into an agreement to sell the Danbury Corporate Center located at 39 Old Ridgebury Road, Danbury, Connecticut, to an unaffiliated entity for a purchase price of $76,000,000. Per the terms of the agreement, the Company received an initial deposit of $1.25 million from the purchaser upon the execution of the agreement. The Company is scheduled to receive an additional $5.0 million upon successful completion by the purchaser of an inspection period on or before January 8, 2009. If such inspection and other customary closing conditions are met, the closing of the property sale is expected to occur on or before March 2, 2009.

As of December 31, 2007 the Company had classified certain properties it owned, as held for sale to its then affiliated entity, GERA. At that time, and through March 31, 2008, the Company had a binding agreement to sell the properties to GERA, subject to obtaining the requisite consents from the stockholders of GERA. Such consents were not obtained at a special meeting of GERA’s stockholders on February 28, 2008, and thereafter, the Company had been involved in various negotiations to market these properties for potential sale or joint venture, subject to establishing an appropriate structure for such sale. The contraction of the real estate capital markets in the second quarter of 2008 impacted the Company’s ability to continue to pursue such courses of action and, as a result, these assets no longer qualified for held for sale treatment. As a result, the Company reclassified these assets as properties held for investment in its financial statements as of June 30, 2008. Such treatment also resulted in the Company reclassifying certain other amounts which had been recorded within properties held for sale in the Company’s December 31, 2007 financial statements and recognizing additional catch-up depreciation and amortization relating to the periods the Company had classified the properties as held for sale totaling approximately $8.9 million during the three months ended June 30, 2008.


7.	BUSINESS COMBINATIONS AND GOODWILL

Merger of Grubb & Ellis Company with NNN Realty Advisors, Inc.

On December 7, 2007, the Company effected the Merger.

Under the purchase method of accounting, the Merger consideration of $172.2 million was determined based on the fair value of the Company’s common stock and vested options outstanding at the Merger date.

As part of its Merger transition, the Company recently completed its personnel reorganization plan, and recorded additional severance liabilities totaling approximately $400,000 and $2.3 million during the three and nine months ended September 30, 2008, respectively, which increased the goodwill recorded from the acquisition. These liabilities relate primarily to severance and other benefits to be paid to involuntarily terminated employees of the acquired company. Such liabilities, totaling approximately $7.4 million, have been recorded related to the personnel reorganization plan, of which approximately $5.2 million has been paid to terminated employees as of September 30, 2008. As a result of the Merger, approximately $109.4 million has been recorded to goodwill as of September 30, 2008.

Prior to the Merger, legacy NNN also acquired two smaller companies during 2007, NNN/ROC Apartment Holdings, LLC and Alesco, for purchase price cash consideration aggregating approximately $4.7 million, of which $500,000 was recorded to goodwill.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Supplemental information

Unaudited pro forma results, assuming the above mentioned 2007 acquisitions had occurred as of January 1, 2007 for purposes of the 2007 pro forma disclosures, are presented below. The unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had all acquisitions occurred on January 1, 2007, and may not be indicative of future operating results.


	Unaudited Pro Forma		Unaudited Pro Forma
	Results for the		Results for the
	Three Months Ended		Nine Months Ended
(In thousands, except per share amounts)	September 30, 2007		September 30, 2007
	Restated		Restated

Revenue	$	178,715	$	517,013
Income from continuing operations	$	7,696	$	11,797
Net income	$	7,643	$	11,709
Basic earnings per share	$	0.18	$	0.28
Weighted average shares outstanding for basic earnings per share		41,943		41,943
Diluted earnings per share	$	0.18	$	0.28
Weighted average shares outstanding for diluted earnings per share		42,127		42,057


8.	PROPERTY ACQUISITIONS

During the nine months ended September 30, 2008, the Company completed the acquisition of two office properties and two multifamily residential properties on behalf of TIC sponsored programs, all of which were sold to the respective programs during the same period. Additionally, the Company acquired an interest in one office property which is a TIC sponsored program, which was classified as property held for sale upon acquisition and continues to be classified as such as of September 30, 2008. The aggregate purchase price including the closing costs of these five properties was $111.7 million, of which $70.0 million was financed with mortgage debt.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


9.	IDENTIFIED INTANGIBLE ASSETS

Identified intangible assets consisted of the following:


(In thousands)	Useful Life	September 30, 2008			December 31, 2007

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	$	20,538		$	20,538
Accumulated amortization — contract rights			(4,700	)		(3,521	)

Contract rights, net			15,838			17,017

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		5,436			5,579
Internally developed software	4 years		6,200			6,200
Customer backlog	1 year		300			300
Other contract rights	5 to 7 years		1,418			1,418
Non-compete and employment agreements	3 to 4 years		97			597

			88,151			88,794
Accumulated amortization			(2,975	)		(338	)

Other identified intangible assets, net			85,176			88,456

Identified intangible assets — properties
In place leases and tenant relationships	35 to 95 months		34,647			35,923
Above market leases	1 to 24 months		7,653			7,653

			42,300			43,576
Accumulated amortization — properties			(9,473	)		(3,622	)

Identified intangible assets, net — properties			32,827			39,954

Total identified intangible assets, net		$	133,841		$	145,427

Amortization expense recorded for contract rights was approximately $193,000 and $799,000 for the three months ended September, 2008 and 2007, respectively, and approximately $1.2 million and $2.6 million for the nine months ended September 30, 2008 and 2007, respectively. Amortization expense was charged as a reduction to investment management revenue in each respective period. The amortization of the contract rights for intangible assets will be applied based on the net relative value of disposition fees realized when the properties are sold.

Amortization expense recorded for the other identified intangible assets was approximately $869,000 and $57,000 for the three months ended September 30, 2008 and 2007, respectively, and approximately $2.6 million and $57,000 for the nine months ended September 30, 2008 and 2007, respectively. Amortization expense was included as part of operating expense in the accompanying consolidated statements of operations.

Amortization expense recorded for in place leases and tenant relationships was approximately $2.8 million and $976,000 for the three months ended September 30, 2008 and 2007, respectively, and approximately $5.9 million and $1.0 million, for the nine months ended September 30, 2008 and 2007, respectively. Amortization expense was included as part of operating expense in the accompanying consolidated statements of operations.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Amortization expense recorded for the above market leases was approximately $132,000 and $166,000 for the three months ended September 30, 2008 and 2007, respectively, and approximately $1.2 million and $181,000 for the nine months ended September 30, 2008 and 2007, respectively. Amortization expense was charged as a reduction to rental related revenue in the accompanying consolidated statements of operations.


10.	ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:


(In thousands)	September 30, 2008		December 31, 2007
	Restated

Accrued liabilities	$	14,922	$	14,990
Salaries and related costs		16,876		16,028
Accounts payable		8,125		10,961
Broker commissions		9,250		26,597
Dividends		—		1,733
Severance		4,020		4,965
Bonuses		3,573		14,934
Property management fees and commissions due to third parties		3,373		4,909
Interest		1,234		1,431
Other		1,686		5,456

Total	$	63,059	$	102,004

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

11. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes payable and capital lease obligations consisted of the following:


(In thousands)	September 30, 2008			December 31, 2007

Mortgage debt payable to various financial institutions for real estate held for investment, with variable interest rates based on London Interbank Offered Rate (“LIBOR”) and include an interest rate cap for LIBOR at 6.00% (interest rates ranging from 4.99% to 5.99% per annum as of September 30, 2008). The notes require monthly interest-only payments and mature in July 2009 and have automatic one-year extension options	$	107,539		$	120,500
Mortgage debt payable to various financial institutions for real estate held for investment. Fixed interest rates range from 5.95% to 6.32% per annum. The notes mature at various dates through November 2018. As of September 30, 2008, all notes require monthly interest-only payments		107,000			107,000
Mezzanine debt payable to various financial institutions, with variable interest rates based on LIBOR (ranging from 11.31% to 12.00% per annum as of December 31, 2007), required monthly interest-only payments. These debts were paid in full during the first and second quarters of 2008		—			30,000
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		315			411
Capital leases obligations		626			790

Total		215,480			258,701
Less portion classified as current		(453	)		(30,447	)

Non-current portion	$	215,027		$	228,254

GERI historically had entered into several interest rate lock agreements with commercial banks. All rate locks were cancelled and all deposits in connection with these agreements were refunded to the Company in April 2008.

The Company restructured the financing of two properties through amendments to the mortgage note in July 2008. The amendments allowed the Company to use pre-funded reserves of approximately $13.0 million to reduce the outstanding balance of the mortgage note payable on the properties. In connection with the amendments, the LIBOR margin was changed to 3.50% from 2.50%, the cross collateralization provisions of the mortgages were removed and several minor covenants were revised.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

12. NOTES PAYABLE OF PROPERTIES HELD FOR SALE INCLUDING INVESTMENTS IN UNCONSOLIDATED ENTITIES

Notes payable of properties held for sale including investments in unconsolidated entities consisted of the following:


(In thousands)	September 30, 2008		December 31, 2007

Mortgage debt payable to a financial institution with a variable interest rate based on LIBOR (interest rate of approximately 5.50% per annum as of September 30, 2008). The note requires monthly interest-only payments and quarterly principal payments of $125,000 on each of December 31, 2008, March 31, 2009 and June 30, 2009 and matures on September 30, 2009	$	1,000	$	—
Mezzanine debt payable to an entity managed by an affiliate, with a fixed rate of interest of 12.00%. Principal and interest payments are due on the maturity date which is 90 days from each advance. The advances mature at various dates through December 2008		9,656		—
Mortgage debt payable to various financial institutions for real estate held for sale. Fixed interest rates range from 6.14% to 6.79% per annum. The notes were scheduled to mature at various dates through January 2018. As of December 31, 2007, all notes required monthly interest-only payments (paid in full in 2008)		—		72,230
Mezzanine debt payable to various financial institutions for real estate held for sale, fixed and variable interest rates range from 6.86% to 10.23% per annum. The notes were scheduled to mature at various dates through December 2008. As of December 31, 2007, all notes required monthly interest-only payments (paid in full in 2008)		—		18,790

Total	$	10,656	$	91,020


13.	LINE OF CREDIT

The Company’s Line of Credit (as defined below) is secured by substantially all of the Company’s assets and requires the Company to meet certain minimum loan to value, debt service coverage and performance covenants, including the timely payment of interest. The outstanding balance on the Line of Credit was $63.0 million and $8.0 million as of September 30, 2008 and December 31, 2007, respectively, and carried a weighted average interest rate of 5.63% and 7.75%, respectively.

On November 4, 2008, the Company amended (the “Second Letter Amendment”) its $75 million senior secured revolving credit facility revising certain terms of that certain Second Amended and Restated Credit Agreement dated as of December 7, 2007, as amended (the “Credit Facility” or “Line of Credit”). The effective date of the Second Letter Amendment is September 30, 2008.

The Second Letter Amendment, among other things, a) modifies the amount available under the Credit Facility from $75,000,000 to $50,000,000 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 $50,000,000; b) provides that 100% of any net cash proceeds from the sale of certain real estate assets that have 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 $50,000,000 by reason of the operation of such sale; and c) modifies 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.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Additionally, the Second Letter Amendment, among other things, modifies restrictions on guarantees of primary obligations from $125,000,000 to $50,000,000, modifies select financial covenants to reflect the impact of the current economic environment on the Company’s financial performance, amends certain restrictions on payments by deleting any dividend/share repurchase limitations and modifies 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 performance. As a result, part of the Second Letter Amendment included a provision to modify selected covenants. The Debt /EBITDA ratio for the quarters ending September 30, 2008 and December 31, 2008 were amended from 3.75:1.00 to 5.50:1.00, while the Debt /EBITDA Ratio for the quarters ending March 31, 2009 and thereafter remain at 3.50:1.00. The Interest Coverage Ratio for the quarters ending September 30, 2008, December 31, 2008 and March 31, 2009 were amended from 3.50:1.00 to 3.25:1.00, while the Interest Coverage Ratio for the quarters ended June 30, 2009 and September 30, 2009 remained unchanged at 3.50:1.00 and for the quarters ended December 31, 2009 and thereafter remained unchanged at 4.00:1.00. The Recourse Debt/Core EBITDA Ratio for the quarters ending September 30, 2008 and December 31, 2008 were amended from 2.25:1.00 to 4.25:1.00, while the Recourse Debt/Core EBITDA Ratio for the quarters thereafter remained unchanged at 2.25:1.00. The Core EBITDA to be maintained by the Company at all times was reduced from $60.0 million to $30.0 million and the Minimum Liquidity to be maintained by the Company at all times was reduced from $25.0 million to $15.0 million. As a result of the Second Letter Amendment the Company is in compliance with all debt covenants as of September 30, 2008. However, due to the current economic and business environment, the Company has limited visibility to future performance and there is uncertainty as to the Company’s ability to meet the covenants over the next twelve months. Therefore, the Line of Credit has been classified as a current liability as of September 30, 2008.


14.	SEGMENT DISCLOSURE

In conjunction with the Merger, management re-evaluated its reportable segments and determined that the Company’s reportable segments consist of Transaction Services, Investment Management, and Management Services. The Company’s Investment Management segment includes all of NNN’s historical business and, therefore, all historical data has been conformed to reflect the reportable segments as a combined company.

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.

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.

Management Services — Management Services provides property management and related services for owners of investment properties and facilities management services for corporate owners and occupiers.

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.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

The Company evaluates the performance of its segments based upon operating (loss) income. Operating (loss) income 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.


	Transaction			Investment			Management
Three Months Ended September 30, 2008	Services			Management			Services		Total
	Restated			Restated			Restated		Restated
(In thousands)

Revenue	$	57,502		$	24,116		$	63,479	$	145,097
Compensation costs		53,400			12,440			54,925		120,765
General and administrative		12,683			24,459			3,121		40,263

Segment operating (loss) income	$	(8,581	)	$	(12,783	)	$	5,433	$	(15,931	)


	Transaction		Investment		Management
Three Months Ended September 30, 2007	Services		Management		Services		Total
	Restated		Restated		Restated		Restated
(In thousands)

Revenue	$	—	$	40,742	$	—	$	40,742
Compensation costs		—		17,142		—		17,142
General and administrative		—		10,049		—		10,049

Segment operating income	$	—	$	13,551	$	—	$	13,551


	Transaction			Investment		Management
Nine Months Ended September 30, 2008	Services			Management		Services		Total
	Restated			Restated		Restated		Restated
(In thousands)

Revenue	$	173,191		$	84,479	$	185,855	$	443,525
Compensation costs		162,208			35,062		168,218		365,488
General and administrative		36,851			38,997		8,551		84,399

Segment operating (loss) income	$	(25,868	)	$	10,420	$	9,086	$	(6,362	)

Segment assets	$	138,652		$	249,832	$	53,583	$	442,067


	Transaction		Investment		Management
Nine Months Ended September 30, 2007	Services		Management		Services		Total
	Restated		Restated		Restated		Restated
(In thousands)

Revenue	$	—	$	110,988	$	—	$	110,988
Compensation costs		—		45,043		—		45,043
General and administrative		—		29,770		—		29,770

Segment operating income	$	—	$	36,175	$	—	$	36,175

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

The following is a reconciliation between segment operating (loss) income to consolidated net (loss) income:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2008			2007			2008			2007
	Restated			Restated			Restated			Restated

Reconciliation to consolidated net (loss) income:
Total segment operating (loss) income	$	(15,931	)	$	13,551		$	(6,362	)	$	36,175
Non-segment:
Rental operations, net		5,577			1,878			14,888			3,882
Other operating expenses		(71,571	)		(8,351	)		(103,986	)		(13,255	)
Other (expense) income		(6,130	)		611			(13,646	)		4,467
Minority interest in loss (income) of consolidated entities		6,444			(760	)		6,298			(1,265	)
Income tax benefit (provision)		25,712			(2,281	)		35,267			(11,651	)
Loss from discontinued operations		(383	)		(232	)		(419	)		(88	)

Net (loss) income	$	(56,282	)	$	4,416		$	(67,960	)	$	18,265

Reconciliation of segment assets to consolidated balance sheets:


(In thousands)	September 30, 2008		December 31, 2007
	Restated

Segment assets	$	442,067	$	635,972
Corporate assets		318,059		352,570

Total assets	$	760,126	$	988,542


15.	PROPERTIES HELD FOR SALE INCLUDING INVESTMENTS IN UNCONSOLIDATED ENTITIES AND DISCONTINUED OPERATIONS

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


(In thousands)	September 30, 2008		December 31, 2007

Restricted cash	$	116	$	13,223
Properties held for sale including investments in unconsolidated entities-net		17,570		98,206
Identified intangible assets and other assets held for sale-net		2,155		23,569
Other assets		137		606

Total assets	$	19,978	$	135,604

Notes payable of properties held for sale including investments in unconsolidated entities	$	10,656	$	91,020
Liabilities of properties held for sale-net		72		907
Other liabilities		1,870		4,850

Total liabilities	$	12,598	$	96,777

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 SFAS No. 66,

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Accounting for Sales of Real Estate, and Emerging Issues Task Force 98-8, the Company treats the disposition of these interests similar to the disposition of real estate it holds directly.

During the nine months ended September 30, 2008, the Company sold interests in certain real estate properties that it holds through various consolidated LLCs resulting in the deconsolidation of the LLCs and a decrease of approximately $185.0 million in properties held for sale including investments in unconsolidated entities. These non-cash transactions concurrently resulted in a decrease in restricted cash of approximately $20.4 million, a decrease in identified intangible assets and other assets held for sale of approximately $38.0 million, a decrease in accounts payable and accrued expenses of $8.8 million, a decrease in notes payable of properties held for sale including investments in unconsolidated entities of approximately $161.6 million, a decrease in minority interest liability of approximately $26.7 million, a decrease in other liabilities of approximately $1.3 million and an increase in proceeds from related parties of approximately $45.0 million.

During the nine months ended September 30, 2007, the Company sold interests in certain real estate properties that it holds through various consolidated LLCs resulting in the deconsolidation of the LLCs and an increase of approximately $2.5 million in investments in unconsolidated entities. These non-cash transactions concurrently resulted in a decrease in properties held for sale including investments in unconsolidated entities of approximately $137.7 million, a decrease in identified intangible assets and other assets held for sale of approximately $14.5 million, a decrease in notes payable of properties held for sale including investments in unconsolidated entities of approximately $98.2 million, a decrease in minority interest liability of approximately $7.4 million, a decrease in other liabilities of approximately $2.5 million and an increase in proceeds from related parties of approximately $41.6 million.

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, 2008, 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, 2008 and 2007:


	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2008			2007			2008			2007

Rental income	$	149		$	1,864		$	2,275		$	7,273
Rental expense		(211	)		(624	)		(1,456	)		(3,067	)
Interest expense (including amortization of deferred financing costs)		(136	)		(1,813	)		(1,419	)		(5,004	)
Tax benefit		—			157			—			320

Loss from discontinued operations-net of taxes		(198	)		(416	)		(600	)		(478	)
(Loss) gain on disposal of discontinued operations-net of taxes		(185	)		184			181			390

Total loss from discontinued operations	$	(383	)	$	(232	)	$	(419	)	$	(88	)

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)


16.	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 $5.8 million and $758,000 for the three months ended September 30, 2008 and 2007, respectively, and approximately $17.4 million and $2.5 million for the nine months ended September 30, 2008 and 2007, 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 $2.4 million and $3.1 million for three months ended September 30, 2008 and 2007, respectively, and approximately $7.0 million and $5.5 million for the nine months ended September 30, 2008 and 2007, respectively.

The Company subleases these multifamily spaces to third parties. Rental income from these subleases was approximately $4.2 million and $6.2 million for the three months ended September 30, 2008 and 2007, respectively, and approximately $12.4 million and $10.7 million for the nine months ended September 30, 2008 and 2007, 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.

The Company is also a 50% joint venture partner of four multi-family 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 and $1.1 million, for the three months ended September 30, 2008 and 2007, respectively, and approximately $3.4 million and $3.2 million, for the nine months ended September 30, 2008 and 2007, respectively.

The Company subleases these multifamily spaces to third parties. Rental income from these subleases was approximately $2.3 million and $2.1 million, for the three months ended September 30, 2008 and 2007, respectively, and approximately $6.8 million and $6.2 million, for the nine months ended September 30, 2008 and 2007, 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.

Capital Lease Obligations — The Company leases computers, copiers and postage equipment that are accounted for as capital leases (see Note 11 of the Notes to Consolidated Financial Statements for additional information).

Securities and Exchange Commission (“SEC”) Investigation — On June 2, 2008, the Company announced that the staff of the SEC Los Angeles Enforcement Division informed the Company that the SEC was closing the previously disclosed September 16, 2004 investigation referred to as “In the matter of Triple Net Properties, LLC,” without any enforcement action against Triple Net Properties, LLC (currently known as Grubb & Ellis Realty Investors, LLC) or NNN Capital Corp. (currently known as Grubb & Ellis Securities, Inc.), each of which became a subsidiary of the Company as part of the merger with NNN.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

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.

TIC Program Exchange Provisions — 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. The Company deferred revenues relating to these agreements of $246,000 and $52,000 for the three months ended September 30, 2008 and 2007, respectively. The Company deferred revenues relating to these agreements of $738,000 and $156,000 for the nine months ended September 30, 2008 and 2007, respectively. Additional losses of $11.7 million related to these agreements were recorded in 2008 to reflect the impairment in value of properties underlying the agreements with investors. As of September 30, 2008 the Company had recorded liabilities totaling $15.2 million related to such agreements, consisting of $3.5 million of cumulative deferred revenues and $11.7 million of additional losses related to these agreements.

Guarantees — From time to time the Company provides guarantees of loans for properties under management. As of September 30, 2008, there were 149 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 $4.7 billion as of September 30, 2008. As of December 31, 2007, there were 143 properties under management with loan guarantees of approximately $3.4 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.6 billion as of December 31, 2007.

The Company’s guarantees consisted of the following as of September 30, 2008 and December 31, 2007:


(In thousands)	September 30, 2008		December 31, 2007
	Restated

Non-recourse/carve-out guarantees of debt of properties under management(1)	$	3,379,421	$	3,167,447
Non-recourse/carve-out guarantees of the Company’s debt(1)		107,000		221,430
Guarantees of the Company’s mezzanine debt		—		48,790
Recourse guarantees of debt of properties under management		40,219		47,399
Recourse guarantees of the Company’s debt		11,000		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.

Management evaluates these guarantees to determine if the guarantee meets the criteria required to record a liability in accordance with FASB Interpretation No. 45. During the third quarter of 2008, the Company recorded a $5.3 million charge as a result of an expected loss on the sale of a property under management for which the Company has a recourse obligation. Any other such liabilities were insignificant as of September 30, 2008 and December 31, 2007.

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

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

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.

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, 2008, the Company has invested $500,000 in seed capital into the open and closed end real estate funds that Alesco launched during 2008.


17.	EARNINGS (LOSS) PER SHARE

The Company computes earnings (loss) per share in accordance with SFAS No. 128, Earnings Per Share (“SFAS No. 128”). Under the provisions of SFAS No. 128, 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.

On December 7, 2007, pursuant to the Merger Agreement (i) each issued and outstanding share of common stock of NNN was automatically converted into 0.88 of a share of common stock of the Company, and (ii) each issued and outstanding stock option of NNN, exercisable for common stock of NNN, was automatically converted into the right to receive a stock option exercisable for common stock of the Company based on the same 0.88 share conversion ratio.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Unless otherwise indicated, all pre-merger NNN share data has been adjusted to reflect the 0.88 conversion as a result of the Merger.

The following is a reconciliation between weighted-average shares used in the basic and diluted earnings per share calculations:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2008			2007			2008			2007
	Restated			Restated			Restated			Restated

Denominator:
Denominator for basic earnings (loss) per share:
Weighted-average number of common shares outstanding		63,601			41,943	(1)		63,574			41,943	(1)
Effect of dilutive securities:
Non-vested restricted stock and stock options		—	(2)		184	(1)		—	(2)		114	(1)

Denominator for diluted net income per share:
Weighted-average number of common and common equivalent shares outstanding		63,601			42,127			63,574			42,057


(1)		Shares of NNN’s common stock as of September 30, 2007, are converted to the Company’s common shares outstanding by applying December 7, 2007 merger exchange ratio for earnings per share disclosure purposes.

(2)		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 2.5 million as of September 30, 2008. These shares were not included in the computation of diluted earnings per share because an operating loss was reported.


18.	COMPREHENSIVE (LOSS) INCOME

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2008			2007			2008			2007
	Restated			Restated			Restated			Restated

Net (loss) income	$	(56,282	)	$	4,416		$	(67,960	)	$	18,265
Other comprehensive (loss) income:
Net unrealized gain (loss) on investments, net of taxes		66			(151	)		706			(394	)
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) income	$	(56,096	)	$	4,265		$	(66,911	)	$	17,871

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

19. 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, and Grubb & Ellis Healthcare REIT Advisor, LLC, bears certain general and administrative expenses in its capacity as advisor of Apartment REIT and Healthcare REIT, respectively, and is reimbursed for these expenses. However, Apartment REIT and Healthcare REIT 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 pays for the organizational, offering and related expenses on behalf of Apartment REIT and Healthcare REIT. 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 offerings. These expenses only become the liability of Apartment REIT and Healthcare REIT to the extent selling commissions, the marketing support fee and due diligence expense reimbursements and other organizational and offering expenses do not exceed 11.5% of the gross proceeds of the offering. As of September 30, 2008, the Company has incurred expenses of $3.5 million and $0, in excess of 11.5% of the gross proceeds of the Apartment REIT and Healthcare REIT offerings, respectively. As of September 30, 2008, the Company has recorded an allowance for bad debt of approximately $2.8 million related to the Apartment REIT offering costs incurred as the Company believes that such amounts will not be reimbursed.

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 $2.1 million and $5.6 million for the three and nine months ended September 30, 2008, respectively. No such services were rendered in the nine months ended September 30, 2007.

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, 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. As of December 31, 2007, each of Scott D. Peters, the Company’s former Chief Executive Officer and President, and Andrea R. Biller 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. Peters. 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, 2008 and December 31, 2007, Stanley J. Olander, the Company’s Executive Vice President — Multifamily, owned an equity interest of 33.3% of ROC REIT Advisors, LLC.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

GERI owns a 75.0% managing member interest in 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, 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. As of December 31, 2007, each of Mr. Peters, Ms. Biller and Mr. Hanson owned an equity interest of 18.0% in 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.

Anthony W. Thompson, former Chairman of the Company and NNN, as a special member, was entitled to receive up to $175,000 annually in compensation from each of Grubb & Ellis Apartment Management, LLC and Grubb & Ellis Healthcare Management, LLC. Effective February 8, 2008, upon his resignation as Chairman, he was no longer a special member. As part of his resignation, the Company has agreed to continue to pay him up to an aggregate of $569,000 through the initial offering periods related to Apartment REIT, Inc. and Healthcare REIT, Inc., of which $394,000 remains outstanding as of as of September 30, 2008.

In connection with his resignation on July 10, 2008, Mr. Peters is no longer a member of Grubb & Ellis Apartment Management, LLC and Grubb & Ellis Healthcare Management, LLC.

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 and $131,000, respectively, earned by Mr. Thompson, $85,000 and $64,000, respectively, earned by Mr. Peters and $122,000 and $64,000, respectively, earned by Ms. Biller for the nine months ended September 30, 2008 and 2007, respectively. Compensation expense related to this profit sharing arrangement associated with Grubb & Ellis Healthcare Management, LLC includes distributions of $131,000 and $131,000, respectively, earned by Mr. Thompson, $387,000 and $263,000, respectively, earned by Mr. Peters and $491,000 and $263,000, respectively, earned by each of Ms. Biller and Mr. Hanson for the nine months ended September 30, 2008 and 2007, respectively.

As of September 30, 2008 and December 31, 2007, the remaining 82.0% and 64.0%, respectively, equity interest in Grubb & Ellis Apartment Management, LLC and the remaining 64.0% and 46.0%, respectively, 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. Grubb & Ellis Apartment Management, LLC incurred expenses of $338,000 and $227,000 for the nine months ended September 30, 2008 and 2007, respectively, and Grubb & Ellis Healthcare Management, LLC incurred expenses of $1,227,000 and $672,000 for the nine months ended September 30, 2008 and 2007, respectively, to other Company employees, which was included in compensation expense in the consolidated statement of operations.

G REIT, Inc. agreed to pay Mr. Peters and Ms. Biller, retention bonuses in connection with its stockholder approved liquidation of $50,000 and $25,000, respectively, upon the filing of each of G REIT’s annual and quarterly reports with the SEC during the period of the liquidation process, beginning with the annual report

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

for the year ending December 31, 2005. These retention bonuses were agreed to by the independent directors of G REIT and approved by the stockholders of G REIT in connection with G REIT’s stockholder approved liquidation. As of December 31, 2007, Mr. Peters and Ms. Biller received retention bonuses of $200,000 and $100,000 from G REIT, respectively. No amounts were paid during 2008. On January 28, 2008, G REIT’s remaining assets and liabilities were transferred to G REIT Liquidating Trust. Effective January 30, 2008, and March 4, 2008, respectively, Mr. Peters and Ms. Biller irrevocably waived their rights to receive all future retention bonuses from G REIT Liquidating Trust. Additionally, Mr. Peters and Ms. Biller each earned in fiscal 2006 a performance-based bonus of $100,000 from GERI upon the receipt by GERI of net commissions aggregating $5,000,000 or more from the sale of G REIT properties in 2006. The performance based-bonus was paid in March 2007.

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.

20. INCOME TAXES

The components of income tax (benefit) provision from continuing operations for the three and nine months ended September 30, 2008 and 2007 consisted of the following:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2008			2007			2008			2007
	Restated			Restated			Restated			Restated

Current:
Federal	$	1,496		$	3,652		$	(4,227	)	$	12,648
State		(282	)		1,113			(958	)		3,129

		1,214			4,765			(5,185	)		15,777


Deferred:
Federal		(21,952	)		(1,898	)		(24,272	)		(3,315	)
State		(4,974	)		(586	)		(5,810	)		(811	)

		(26,926	)		(2,484	)		(30,082	)		(4,126	)

	$	(25,712	)	$	2,281		$	(35,267	)	$	11,651

The Company recorded net prepaid taxes totaling approximately $10.5 million as of September 30, 2008, comprised primarily of prepaid tax estimates.

The Company generated a federal net operating loss (“NOL”) of approximately $9.5 million for the taxable period of the acquired entity ending on the Merger date. The Company carried back $6.6 million of this NOL to 2006 and claimed a refund of taxes paid of $1.7 million. The remaining NOL carryforward is subject to an annual limitation under IRC section 382 because the Merger caused a change of ownership of the Company of greater than 50.0%. The annual limitation is approximately $7.3 million. As of September 30, 2008, federal net operating loss carryforwards were available to the Company in the amount of approximately $3.5 million which expire from 2008 to 2027.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

In evaluating the need for a valuation allowance as of September 30, 2008, the Company evaluated both positive and negative evidence in accordance with the requirements of SFAS No. 109, Accounting for Income Taxes. Given the historical earnings of the Company, management believes that it is more likely than not that the entire federal net operating loss of $3.5 million will be used in the foreseeable near future, and therefore has recorded no valuation allowance against the related deferred tax asset. The additional deferred tax asset generated by impairment reserves recorded in the three months ended September 30, 2008 will be offset by future taxable income as the deferred tax liabilities reverse in the foreseeable near future; and therefore, no valuation allowance has been recorded against this deferred tax asset. As of the date of the Merger, the Company also had state net operating loss carryforwards totaling $3.0 million, although a substantial portion of these deferred assets were offset by a valuation allowance as the future utilization of these state NOLs is uncertain.

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 35.0% for the three and nine months ended September 30, 2008 and 2007 were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2008			2007			2008			2007
	Restated			Restated			Restated			Restated

Federal income taxes at the statutory rate	$	(24,492	)	$	2,154		$	(31,883	)	$	10,067
State income taxes net of federal benefit		(3,388	)		211			(4,485	)		1,725
Credits		(402	)		(57	)		(177	)		(191	)
Non-deductible expenses		2,490			(21	)		1,346			44
Other		80			(6	)		(68	)		6

(Benefit) provision for income taxes	$	(25,712	)	$	2,281		$	(35,267	)	$	11,651


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 for the fiscal year ended December 31, 2007, filed on March 17, 2008.

Overview and Background

In certain instances throughout this Interim Report phrases such as “legacy Grubb & Ellis” or similar descriptions are used to reference, when appropriate, the Company prior to the stock merger on December 7, 2007, of Grubb & Ellis Company (the “Company”) with NNN Realty Advisors, Inc. (“NNN”) (the “Merger”). Similarly, in certain instances throughout this Interim Report the term NNN, “legacy NNN”, or similar phrases are used to reference, when appropriate, NNN Realty Advisors, Inc. prior to the Merger.

Upon the closing of the Merger, a change of control of the Company occurred, as the former stockholders of legacy NNN acquired approximately 60% of the Company’s issued and outstanding common stock. Pursuant to the Merger, each issued and outstanding share of legacy NNN automatically converted into a 0.88 of a share of common stock of the Company. Based on accounting principles generally accepted in the United States of America (“GAAP”), the Merger was accounted for using the purchase method of accounting. The Merger was structured as a reverse merger, therefore legacy NNN is considered the accounting acquirer of legacy Grubb & Ellis. As a consequence, the operating results for the three and nine months ended September 30, 2008 reflect the consolidated results of the newly merged company while the three and nine months ended September 30, 2007 include solely the operating results of legacy NNN.

Unless otherwise indicated, all pre-merger NNN share data have been adjusted to reflect the conversion as a result of the Merger.

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 for the year ended December 31, 2007. There have been no material changes to these policies in 2008.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 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 issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (the “FSP”). The FSP amends SFAS No. 157 to delay the effective date of SFAS No. 157 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 SFAS No. 157 as of January 1, 2008 as it relates to financial assets and financial liabilities. For items within its scope, the FSP defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company will adopt SFAS No. 157 as it relates to non-financial assets and non-financial liabilities in the first quarter of 2009 and does not believe adoption will have a material effect on its consolidated financial statements.

In December 2007, the FASB issued revised SFAS No. 141, “Business Combinations,” (“SFAS No. 141R”). SFAS No. 141R will change the accounting for business combinations and will require an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-

date fair value with limited exceptions. SFAS No. 141R will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS No. 141R 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. SFAS No. 141R will have an impact on accounting for business combinations once adopted but the effect is dependent upon acquisitions at that time.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51,” (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the impact of adopting SFAS No. 160 on its consolidated financial statements.

RESULTS OF OPERATIONS

Overview

The Company reported revenue of approximately $484.7 million for the nine months ended September 30, 2008, compared with revenue of $128.6 million for the same period in 2007. Approximately $374.8 million of the increase was attributed to revenue from the Transaction Services and Management Services businesses and the operations of the assets previously warehoused for Grubb & Ellis Realty Advisors (“GERA”). The remaining increase was attributed to $7.7 million of rental related revenue primarily due to two assets held for investment, offset by a net decrease of $26.5 million in Investment Management revenue. The decrease in revenue as compared to the prior year period can be attributed to lower acquisition fees as a result of less tenant-in-common equity raise and lower disposition fees, only partially offset by an increase in acquisition fees related to our public non-traded REITs as a result of a significant increase in equity raise. Additionally, $5.6 million of property management fees related to captive management programs were recorded in management services revenue as the property management related to those programs was transferred subsequent to the Merger. The Company completed a total of 51 acquisitions and 11 dispositions on behalf of the investment programs it sponsors at values of approximately $1.1 billion and $233.9 million, respectively, during the nine months ended September 30, 2008. The net acquisitions from the Investment Management business allowed the Company to grow its captive assets under management by approximately 15% from $5.8 billion as of December 31, 2007 to $6.7 billion as of September 30, 2008.

The net loss for the first nine months of 2008 was $68.0 million, or $1.07 per diluted share, and included a third quarter non-cash charge of $57.5 million for real estate related impairments, a third quarter $16.3 million charge, $11.0 million of which is non-cash, which includes an allowance for bad debt on related party receivables and advances and an expected loss on the sale of a property under management for which the Company has a recourse obligation, a second quarter non-cash charge of $8.9 million for depreciation and amortization related to the reclassification of five assets held for sale to assets held for investment, a first quarter net write-off of its investment in GERA of $5.8 million and $10.2 million of merger and integration related costs. In addition, the year-to-date results included approximately $8.5 million of stock-based compensation, $3.8 million for amortization of contract rights and other identified intangible assets and $1.8 million of recognized loss on marketable equity securities. These charges were offset by $14.9 million of rental related operations.

As a result of the Merger in December 2007, the newly combined Company’s operating segments were evaluated for reportable segments. The legacy NNN reportable segments were realigned into a single operating and reportable segment called Investment Management. This realignment had no impact on the Company’s consolidated balance sheet, results of operations or cash flows.

The Company reports its revenue by three business segments in accordance with the provisions of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS No. 131”). 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 14 of Notes to Consolidated Financial Statements in Item 1 of this Report.

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

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


	Three Months Ended
	September 30,						Change
(In thousands)	2008			2007(1)			$			%
	Restated			Restated

Revenue
Transaction services	$	57,502		$	—		$	57,502			—	%
Investment management		24,116			40,742			(16,626	)		(40.8	)
Management services		63,479			—			63,479			—
Rental related		13,220			9,565			3,655			38.2

Total revenue		158,317			50,307			108,010			214.7

Operating Expense
Compensation costs		120,765			17,142			103,623			604.5
General and administrative		40,263			10,049			30,214			300.7
Depreciation and amortization		7,019			5,012			2,007			40.0
Rental related		7,643			7,687			(44	)		(0.6	)
Interest		4,410			3,199			1,211			37.9
Merger related costs		2,657			140			2,517			1,797.9
Real estate related impairments		57,485			—			57,485			—

Total operating expense		240,242			43,229			197,013			455.7

Operating (Loss) Income		(81,925	)		7,078			(89,003	)		(1,257.5	)

Other (Expense) Income
Equity in (losses) earnings of unconsolidated real estate		(5,855	)		395			(6,250	)		(1,582.3	)
Interest income		234			915			(681	)		(74.4	)
Other		(509	)		(699	)		190			27.2

Total other (expense) income		(6,130	)		611			(6,741	)		(1,103.3	)

(Loss) income from continuing operations before minority interest and income tax benefit (provision)		(88,055	)		7,689			(95,744	)		(1,245.2	)
Minority interest in loss (income) of consolidated entities		6,444			(760	)		7,204			947.9

(Loss) income from continuing operations before income tax benefit (provision)		(81,611	)		6,929			(88,540	)		(1,277.8	)
Income tax benefit (provision)		25,712			(2,281	)		27,993			1,227.2

(Loss) income from continuing operations		(55,899	)		4,648			(60,547	)		(1,302.6	)

Discontinued Operations
Loss from discontinued operations — net of taxes		(198	)		(416	)		218			52.4
(Loss) gain on disposal of discontinued operations — net of taxes		(185	)		184			(369	)		(200.5	)

Total loss from discontinued operations		(383	)		(232	)		(151	)		(65.1	)

Net (Loss) Income	$	(56,282	)	$	4,416		$	(60,698	)		(1,374.5	)


(1)		Based on Generally Accepted Accounting Principles (“GAAP”), the operating results for the three months ended September 30, 2007 represents legacy NNN business.

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. Following the close of the Merger, Grubb & Ellis Management Services assumed management of nearly 25.8 million square feet of GERI’s 46.4 million-square-foot captive investment management portfolio. As of September 30, 2008, the Company managed approximately 226.5 million square feet of property.

Transaction Services revenue, including brokerage commission, valuation and consulting revenue, was $57.5 million for the three months ended September 30, 2008. 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.

Management Services revenue of $63.5 million for the three months ended September 30, 2008 includes revenue from the transfer of management of a significant portion of GERI’s captive property portfolio to Grubb & Ellis Managements Services.

Investment Management Revenue

Investment Management revenue of $24.1 million for the three months ended September 30, 2008 reflected the revenue generated through the fee structure of the various investment products, which included acquisition and disposition fees of approximately $6.7 million and captive management fees of $9.4 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, $245.0 million in equity was raised for the Company’s investment programs for the three months ended September 30, 2008, compared with $182.1 million in the same period in 2007. The increase was driven by an increase in equity raised by the Company’s public non-traded REITs, partially offset by a decrease in TIC equity raise. During the three months ended September 30, 2008, the Company’s public non-traded REIT programs raised $183.3 million, 180.7% higher than the $65.3 million equity raised in the same period in 2007. The Company’s TIC 1031 exchange programs raised $46.2 million in equity during the third quarter of 2008, compared with $116.8 million in the same period in 2007. The lower TIC equity raised for the three months ended September 30, 2008 reflects current market conditions.

Acquisition fees decreased approximately $7.5 million, or 55.7%, to approximately $6.0 million for the three months ended September 30, 2008, compared to approximately $13.5 million for the same period in 2007. The quarter-over-quarter decrease in acquisition fees was primarily attributed to a decrease of $1.2 million in fees earned from the Company’s non-traded REIT programs and a decrease of $6.3 million in fees from the TIC programs. During the three months ended September 30, 2008, the Company acquired 10 properties on behalf of its sponsored programs for an approximate aggregate total of $209.9 million, compared to 23 properties for an approximate aggregate total of $710.5 million during the same period in 2007.

Disposition fees decreased approximately $5.8 million, or 89.2%, to approximately $700,000 for the three months ended September 30, 2008, compared to approximately $6.5 million for the same period in 2007. The decrease reflects lower sales volume due to current market conditions. Offsetting the disposition fees during

the three months ended September 30, 2008 and 2007 was approximately $193,000 and $799,000, respectively, 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.

Captive management fees were down approximately 8.6% year-over-year and include the movement of approximately $1.9 million of revenue to the Company’s management services segment. Exclusive of this transfer of revenue, captive management fees increased approximately 9.8% year-over-year.

Rental Revenue

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

Operating Expense Overview

The Company’s operating expense of $240.2 million for the three months ended September 30, 2008 increased approximately $197.0 million, or 455.7%, for the three months ended September 30, 2008, compared to the same period in 2007, which included approximately $143.4 million due to the legacy Grubb & Ellis business, $57.5 million in real estate related impairments, $2.5 million due to additional merger related costs and $400,000 in additional non-cash stock based compensation.

Compensation Costs

Compensation costs increased approximately $103.6 million, or 604.5%, to $120.8 million for the three months ended September 30, 2008, compared to approximately $17.1 million for the same period in 2007 due to approximately $107.2 million of compensation costs attributed to legacy Grubb & Ellis’ operations. Compensation costs related to the investment management business decreased approximately 20.5% to $13.7 million, for the three months ended September 30, 2008, compared to $17.1 million for the same period in 2007. Included in the compensation costs were non-cash stock compensation expense which increased by approximately $400,000 to $2.8 million for the three months ended September 30, 2008 compared to $2.4 million for the same period in 2007.

General and Administrative

General and administrative expense increased approximately $30.2 million, or 300.7%, to $40.3 million for the three months ended September 30, 2008, compared to approximately $10.1 million for the same period in 2007 due to approximately $13.2 million of general and administration expenses attributed to legacy Grubb & Ellis and an increase of $16.3 million related to the investment management business, primarily due to an increase in allowances for bad debt on related party receivables and advances.

General and administrative expense was 25.4% of total revenue for the three months ended September 30, 2008, compared with 20.0% for the same period in 2007.

Depreciation and Amortization

Depreciation and amortization increased approximately $2.0 million, or 40.0%, to $7.0 million for the three months ended September 30, 2008, compared to approximately $5.0 million for the same period in 2007. Included in depreciation and amortization expense was $869,000 for amortization of other identified intangible assets. The remaining $6.1 million of depreciation and amortization is primarily related to five properties held for investment.

Rental Expense

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

Interest Expense

Interest expense increased approximately $1.2 million, or 37.9%, to $4.4 million for the three months ended September 30, 2008, compared to $3.2 million for the same period in 2007. Interest expense is primarily comprised of interest expense related to the Company’s Line of Credit (as defined below) and interest expense on the notes payable related to five properties held for investment.

Real Estate Related Impairments

The Company recognized an impairment charge of approximately $57.5 million during the three months ended September 30, 2008. During October 2008, the Company initiated a plan to sell the properties it classified as held for investment in its financial statements as of September 30, 2008. The Company has a covenant within its credit agreement which requires the sale of certain of these assets before March 31, 2009, and 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 SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), this resulted in an assessment of the value of the assets given this reduced potential ownership hold period. The impairment charge was recognized against the carrying value of the properties as of September 30, 2008.

Income Tax

The Company recognized a tax benefit of approximately $25.7 million for the three months ended September 30, 2008, compared to a tax provision of $2.3 million for the same period in 2007. The net $28.0 million decrease in tax expense was primarily a result of the tax benefit due to real estate impairments recognized during the three months ended September 30, 2008 as compared to the same period in 2007. In addition, the Company is subject to the highest federal income tax rate of 35.0% for the three months ended 2008, compared to a 34.0% statutory tax rate for the three months ended September 30, 2007. (See Note 20 of Notes to Consolidated Financial Statements in Item 1 of this Report for additional information.)

Net (Loss) Income

As a result of the above items, the Company recognized a net loss of $56.3 million, or $0.88 per diluted share for the three months ended September 30, 2008, compared to net income of $4.4 million, or $0.10 per diluted share, for the same period in 2007.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

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


	Nine Months Ended
	September 30,						Change
(In thousands)	2008			2007(1)			$			%
	Restated			Restated

Revenue
Transaction services	$	173,191		$	—		$	173,191			—	%
Investment management		84,479			110,988			(26,509	)		(23.9	)
Management services		185,855			—			185,855			—
Rental related		41,146			17,625			23,521			133.5

Total revenue		484,671			128,613			356,058			276.8

Operating Expense
Compensation costs		365,488			45,043			320,445			711.4
General and administrative		84,399			29,770			54,629			183.5
Depreciation and amortization		21,750			6,018			15,732			261.4
Rental related		26,258			13,743			12,515			91.1
Interest		14,534			7,036			7,498			106.6
Merger related costs		10,217			201			10,016			4,983.1
Real estate related impairment		57,485			—			57,485			—

Total operating expense		580,131			101,811			478,320			469.8

Operating (Loss) Income		(95,460	)		26,802			(122,262	)		(456.2	)

Other (Expense) Income
Equity in (losses) earnings of unconsolidated real estate		(10,602	)		1,870			(12,472	)		(667.0	)
Interest income		757			2,184			(1,427	)		(65.3	)
Other		(3,801	)		413			(4,214	)		(1,020.3	)

Total other (expense) income		(13,646	)		4,467			(18,113	)		(405.5	)

(Loss) income from continuing operations before minority interest and income tax benefit (provision)		(109,106	)		31,269			(140,375	)		(448.9	)
Minority interest in loss (income) of consolidated entities		6,298			(1,265	)		7,563			597.9

(Loss) income from continuing operations before income tax benefit (provision)		(102,808	)		30,004			(132,812	)		(442.6	)
Income tax benefit (provision)		35,267			(11,651	)		46,918			402.7

(Loss) income from continuing operations		(67,541	)		18,353			(85,894	)		(468.0	)

Discontinued Operations
Loss from discontinued operations — net of taxes		(600	)		(478	)		(122	)		(25.5	)
Gain on disposal of discontinued operations — net of taxes		181			390			(209	)		(53.6	)

Total loss from discontinued operations		(419	)		(88	)		(331	)		(376.1	)

Net (Loss) Income	$	(67,960	)	$	18,265		$	(86,225	)		(472.1	)


(1)		Based on GAAP, the operating results for the nine months ended September 30, 2007 represents legacy NNN business.

Revenue

Transaction and Management Services Revenue

For the nine months ended September 30, 2008, Transaction Services generated revenue of $173.2 million.

Management Services revenue was approximately $185.9 million for the nine months ended September 30, 2008, which includes the transfer of management of a significant portion of GERI’s captive property portfolio to Grubb & Ellis Managements Services.

Investment Management Revenue

Investment Management revenue of approximately $84.5 million for the nine months ended September 30, 2008 reflected the revenue generated through the fee structure of the various investment products, which included acquisition and disposition fees of $35.5 million and captive management fees of $27.0 million.

In total, approximately $760.5 million in equity was raised for the Company’s investment programs for the nine months ended September 30, 2008, compared with $547.4 million in the same period in 2007. This was driven by an increase in equity raised by the Company’s non-traded public REITs of approximately $396.1 million, compared to $206.1 million equity raised in the same period in 2007, as well as by the Company’s new wealth management platform with $193.3 million raised for real estate investments on behalf of investors. The Company’s TIC 1031 exchange programs raised approximately $152.9 million in equity during the nine months ended September 30, 2008, compared with $341.3 million in the same period in 2007. The lower TIC equity raised for the nine months ended September 30, 2008 reflects current market conditions.

Acquisition fees were down approximately 12.6% to $29.7 million for the nine months ended September 30, 2008, compared to approximately $34.0 million for the same period in 2007. The year-over-year decrease in acquisition fees was primarily attributed to a decrease of approximately $14.0 million in fees earned from the Company’s TIC programs, partially offset by an increase of $5.3 million from the non-traded REIT programs and $4.4 million from the wealth management platform. During the nine months ended September 30, 2008, the Company acquired 51 properties on behalf of its sponsored programs for an approximate aggregate total of $1.1 billion, compared to 58 properties for an approximate aggregate total of $1.6 billion during the same period in 2007.

Disposition fees decreased approximately $12.9 million, or 69.0%, to approximately $5.8 million for the nine months ended September 30, 2008, compared to approximately $18.7 million for the same period in 2007. The decrease reflects lower sales volume due to current market conditions. Offsetting the disposition fees during the nine months ended September 30, 2008 and 2007 was $1.2 million and $2.6 million, respectively, 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.

Captive management fees were down approximately 2.1% year-over-year and include the movement of approximately $5.6 million of revenue to the Company’s management services segment. Exclusive of this transfer of revenue, captive management fees increased approximately 18.1% year-over-year.

Rental Revenue

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

Operating Expense Overview

The total increase in operating expense of approximately $478.3 million, or 469.8%, for the nine months ended September 30, 2008, compared to the same period in 2007, which included approximately $390.2 million due to the legacy Grubb & Ellis business, $57.5 million in real estate related impairments, a $16.3 million charge which includes an allowance for bad debt on related party receivables and advances and an expected loss on the sale of a property under management for which the Company has a recourse obligation, $10.0 million due to additional merger related costs and $3.5 million in additional non-cash stock based compensation.

Compensation Costs

Compensation costs increased approximately $320.4 million, or 711.4%, to $365.5 million for the nine months ended September 30, 2008, compared to $45.0 million for the same period in 2007 due to approximately $323.3 million of compensation costs attributed to legacy Grubb & Ellis’ operations. Compensation costs related to the investment management business decreased approximately 6.4% to $42.1 million, for the nine months ended September 30, 2008, compared to $45.0 million for the same period in 2007. Included in the compensation cost was non-cash stock compensation expense which increased by $3.5 million to $8.5 million for the nine months ended September 30, 2008 compared to $5.0 million for the same period in 2007.

General and Administrative

General and administrative expense increased approximately $54.6 million, or 183.5%, to $84.4 million for the nine months ended September 30, 2008, compared to $29.8 million for the same period in 2007 due to approximately $40.4 million of general and administration expenses attributed to legacy Grubb & Ellis operations and an increase of $14.2 million related to the investment management business, primarily due to an increase in allowances for bad debt on related party receivables and advances.

General and administrative expense was 17.4% of total revenue for the nine months ended September 30, 2008, compared with 23.1% for the same period in 2007.

Depreciation and Amortization

Depreciation and amortization increased approximately $15.7 million, or 261.4%, to $21.8 million for the nine months ended September 30, 2008, compared to $6.0 million for the same period in 2007. Included in depreciation and amortization expense was approximately $2.6 million for amortization of other identified intangible assets. The remaining $19.2 million of depreciation and amortization is primarily related to five properties held for investment.

Rental Expense

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

Interest Expense

Interest expense increased approximately $7.5 million, or 106.6%, to $14.5 million for the nine months ended September 30, 2008, compared to $7.0 million for the same period in 2007. Interest expense is primarily comprised of interest expense related to the Company’s Line of Credit and interest expense on the notes payable related to five properties held for investment.

Equity in Earnings (Losses) of Unconsolidated Real Estate

In the first quarter of 2008, the Company wrote off its investment in GERA, which resulted in a net impact of approximately $5.8 million, including $4.5 million related to stock and warrant purchases and $1.3 million related to operating advances and third party costs. Equity in losses also includes $8.5 million in equity in earnings related to seven LLCs that are consolidated pursuant to FIN No. 46(R). The consolidated LLCs record equity in earnings based on the LLCs pro rata ownership interest in the underlying unconsolidated properties.

Minority Interests

Minority interest in loss increased by $7.6 million, or 597.9%, to $6.3 million during the nine months ended September 30, 2008, compared to minority interest in income of $1.3 million for the same period in 2007. Minority interest in loss includes $6.4 million in real estate related impairments recorded at the underlying properties during the nine months ended September 30, 2008.

Real Estate Related Impairments

The Company recognized an impairment charge of approximately $57.5 million during the three months ended September 30, 2008. During October 2008, the Company initiated a plan to sell the properties it classified as held for investment in its financial statements as of September 30, 2008. The Company has a covenant within its credit agreement which requires the sale of certain of these assets before March 31, 2009, and 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 SFAS No. 144, this resulted in an assessment of the value of the assets given this reduced potential ownership hold period. The impairment charge was recognized against the carrying value of the properties as of September 30, 2008.

Income Tax

The Company recognized a tax benefit of approximately $35.3 million for the nine months ended September 30, 2008, compared to a tax provision of $11.7 million for the same period in 2007. The net $46.9 million decrease in tax expense was primarily a result of the tax benefits due to the write-off of the GERA investment, the cumulative charge of depreciation expense for the special purpose acquisition companies (“SPAC”) properties and real estate impairments recognized during the nine months ended September 30, 2008 as compared to the same period in 2007. In addition, the Company is subject to the highest federal income tax rate of 35.0% for the nine months ended September 30, 2008, compared to a 34.0% statutory tax rate for the nine months ended September 30, 2007. (See Note 20 of the Notes to Consolidated Financial Statements in Item 1 of this Report for additional information.)

Net (Loss) Income

As a result of the above items, the Company recognized a net loss of approximately $68.0 million, or $1.07 per diluted share for the nine months ended September 30, 2008, compared to net income of $18.3 million, or $0.43 per diluted share, for the same period in 2007.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2008, cash and cash equivalents decreased by approximately $14.9 million, from a cash balance of $49.3 million as of December 31, 2007. The Company’s operating activities used net cash of $34.1 million, as the Company repaid net operating liabilities totaling $22.5 million primarily related to incentive compensation and deferred commission paid during the first quarter, which attained peak levels

during the quarter ended December 31, 2007. Other operating activities used net cash totaling $11.6 million. Investing activities used net cash of $66.7 million primarily for acquisition funding of Company sponsored real estate programs. Financing activities provided net cash of $85.9 million primarily through borrowings including $55.0 million under the Company’s Line of Credit and mortgage financing of Company sponsored real estate programs. Financing activities for the nine months ended September 30, 2008 also included dividend payments of $15.1 million related to the dividends declared by the Company in December 2007 and the first and second quarters of 2008, $30.0 million for repayment of mezzanine financing on two of the assets held for investment and $13.0 million for repayment of mortgage debt in connection with the restructuring of the financing related to two of the assets held for investment. 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 short-term liquidity needs, which may include principal repayments of debt obligations and capital expenditures, through current and retained earnings. As of September 30, 2008, the Company had $63.0 million outstanding under the credit facility.

On November 4, 2008, the Company amended (the “Second Letter Amendment”) its $75 million senior secured revolving credit facility revising certain terms of the Company’s Second Amended and Restated Credit Agreement dated as of December 7, 2007, as amended (the “Credit Facility” or “Line of Credit”). 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. See Exhibit 10.2 in Part II for additional information.)

and December 31, 2008 were amended from 2.25:1.00 to 4.25:1.00, while the Recourse Debt/Core EBITDA Ratio for the quarters thereafter remained unchanged at 2.25:1.00. The Core EBITDA to be maintained by the Company at all times was reduced from $60.0 million to $30.0 million and the Minimum Liquidity to be maintained by the Company at all times was reduced from $25.0 million to $15.0 million. As a result of the Second Letter Amendment the Company is in compliance with all debt covenants as of September 30, 2008. However, due to the current economic and business environment, the Company has limited visibility to future performance and there is uncertainty as to the Company’s ability to meet the covenants over the next twelve months. Therefore, the Line of Credit has been classified as a current liability as of September 30, 2008. See “Risk Factors” set forth in Item 1A. of Part II below.

The Company expects to meet its long-term liquidity requirements, which may include investments in various real estate investor programs and institutional funds, through retained cash flow, additional long-term secured and unsecured borrowings and proceeds from the potential issuance of debt or equity securities.

As part of the Company’s strategic plan, management has identified more than $20.0 million of expense synergies, a portion of which has been invested in enhancing the management team with the addition of several executives in key operational and management roles. 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 fourth calendar quarter of 2007 and 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. As of September 30, 2008, the Company has repurchased 532,000 shares of its common stock for $1.8 million.

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, 2007.

Off-Balance Sheet Arrangements — From time to time the Company provides guarantees of loans for properties under management. As of September 30, 2008, there were 149 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 $4.7 billion as of September 30, 2008. As of December 31, 2007, there were 143 properties under management with loan

guarantees of approximately $3.4 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.6 billion.

The Company’s guarantees consisted of the following as of September 30, 2008 and December 31, 2007:


(In thousands)	September 30, 2008		December 31, 2007

Non-recourse/carve-out guarantees of debt of properties under management(1)	$	3,379,421	$	3,167,447
Non-recourse/carve-out guarantees of the Company’s debt(1)		107,000		221,430
Guarantees of the Company’s mezzanine debt		—		48,790
Recourse guarantees of debt of properties under management		40,219		47,399
Recourse guarantees of the Company’s debt		11,000		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.


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, 2008, the outstanding principal balance on the credit facility totaled $63.0 million and on the mortgage loan debt obligations totaled $225.5 million. 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 Credit Facility 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 holds 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. 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 Line of Credit.

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 investment. As of September 30, 2008, the outstanding principal balance on these debt obligations was $107.5 million, with a weighted average interest rate of 5.47% per annum. 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, 2008, for example, a 0.53% increase in

interest rates would have increased the Company’s overall annual interest expense by approximately $566,000, or 8.76%. 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 the acquisition of 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.

The Company has established controls and procedures to ensure that material information relating to the Company is made known to the officers who certify the Company’s financial reports and to the members of senior management and the Board of Directors.

Based on management’s evaluation as September 30, 2008, the Principal Executive Officer and the Principal Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed by the Company is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Controls over Financial Reporting

There were no changes to the Company’s controls over financial reporting during the third quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II

OTHER INFORMATION¹


Item 1.	Legal Proceedings.

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.


¹		Items 2, 3, 4 and 5 are not applicable for the nine months ended September 30, 2008.


Item 1A.	Risk Factors.

In addition to those previously disclosed in the Company’s 2007 Annual Report on Form 10-K, as filed with the SEC, the Company has identified the following additional risk factors:

The ongoing decline in the commercial real estate and credit markets and the overall economy has negatively affected our revenues, expenses and operating results and may continue to do so.

Our business is sensitive to trends in the general economy, as well as the commercial real estate and credit markets. The current macroeconomic environment and accompanying credit crisis has negatively impacted the value of commercial real estate assets, contributing to a general slow down in our industry, which we anticipate will continue through 2009. A prolonged and pronounced recession could continue or accelerate the reduction in overall transaction volume and size of sales and leasing activities that we have already experienced, and would continue to put downward pressure on our revenues and operating results. Factors that are affecting and could further affect the commercial real estate industry include:


	•	periods of economic slowdown or recession globally, in the United States or locally;

	•	inflation;

	•	flows of capital into or out of real estate investment in the United States or various regions of the United States;

	•	interest rates;

	•	the availability and cost of capital; or

	•	concerns about any of the foregoing.

The tightening of the credit markets has made it more difficult for commercial real estate transactions to occur, which has already negatively affected our revenues, expenses and operating results and may continue to do so.

The recent decline in real estate values and the inability to obtain financing has either eliminated or severely reduced the availability of our historical funding sources for our tenant-in-common programs, and to the extent credit remains available for these programs, it is currently more expensive. We may not be able to continue to access sources of funding for our tenant-in-common programs or, if available to us, we may not be able to do so on favorable terms. Any decision by lenders to make additional funds available to us in the future for our tenant-in-common programs will depend upon a number of factors, such as industry and market trends in our business, the lenders’ own resources and policies concerning loans and investments, and the relative attractiveness of alternative investment or lending opportunities. In addition, the recent tightening in credit markets has also negatively affected our business by making it more difficult for parties in general to obtain the necessary financing to effect transactions, and moreover, any transaction for which financing is available has typically been more costly and at lower asset values. Fewer transactions at reduced prices represents a dual negative impact on our revenues and operating results.

We may not have appropriate financial covenants with respect to, and we currently do not have any further borrowing capacity under, our current credit facility as recently amended.

Our existing credit facility contains restrictive covenants that require us to maintain specified financial ratios. We recently amended some of these financial ratios to give us certain flexibility in these current difficult times. However, these financial ratios will be reset for the quarter ending on March 31, 2009. Our

ability to comply with these financial covenants may be affected by many events beyond our control and our future operating results may not allow us to comply with the covenants, or in the event of a default, to remedy that default. As a consequence, our credit facility has been classified as a current liability as of September 30, 2008. Unless we further amend or replace our existing credit facility, or increase our performance, we may not be able to comply with certain financial covenants. Our failure to comply with those financial covenants, certain nonfinancial covenants or to comply with the other restrictions contained in our existing credit facility could result in a default, which could cause such indebtedness under our existing credit facility to become immediately due and payable. In the event that we are in default of our existing credit facility, we may not be able to access alternative funding sources, or, if available to us, we may not be able to do so on favorable terms and conditions. In addition, we do not have any further ability to borrow under our existing credit facility at the present time, as we currently have approximately $63,000,000 million outstanding under the credit facility, and pursuant to the recent amendments to our credit facility we may only borrow again once our existing revolving credit commitments go below $50,000,000, at which time we will be able to borrow under our existing credit facility up to the maximum revolving credit commitment of $50,000,000.


Item 5.	Other Information.

(a) On November 4, 2008, the Company amended its $75 million senior secured revolving credit facility, effective as of September 30, 2008, revising certain terms of the Company’s Secured Amended and Restated Credit Agreement dated as of December 7, 2007, as amended. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources in Item 2 of Part I of this Quarterly Report on Form 10Q.


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.


Exhibit

(4)		Instruments Defining the Rights of Security Holders, including Indentures
		4.1 Second Letter Amendment to the Company’s senior secured revolving credit facility, executed on November 4, 2008, and dated as of September 30, 2008.
(10)		Material Contract
		10.1 Purchase Agreement to sell Danbury Corporate Center dated October 31, 2008, incorporated herein by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed on November 5, 2008.
		10.2† Second Letter Amendment to the Company’s senior secured revolving credit facility executed on November 4, 2008, and dated as of September 30, 2008.
(31†)		Section 302 Certifications
(32†)		Section 906 Certification


	Page
EXPLANATORY NOTE		3
Part I — FINANCIAL INFORMATION		4
Item 1. Financial Statements.		4
CONSOLIDATED BALANCE SHEETS		4
CONSOLIDATED STATEMENTS OF OPERATIONS		5
CONSOLIDATED STATEMENTS OF CASH FLOWS		6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		37
Forward-Looking Statements		37
Overview and Background		37
Critical Accounting Policies		38
Recently Issued Accounting Pronouncements		38
RESULTS OF OPERATIONS		40
LIQUIDITY AND CAPITAL RESOURCES		48
Commitments, Contingencies and Other Contractual Obligations		50
Item 3. Quantitative and Qualitative Disclosures About Market Risk		51
Interest Rate Risk		51
Item 4. Controls and Procedures		52
Changes in Internal Controls over Financial Reporting		52
PART II OTHER INFORMATION		52
Item 1. Legal Proceedings.		52
Item 1A. Risk Factors.		53
Item 5. Other Information.		54
Item 6. Exhibits.		54
SIGNATURES		55
EXHIBIT INDEX		56
EX-10.2
EX-31.1
EX-31.2
EX-32