216039--3/17/2008--GRUBB_&_ELLIS

related topics

{investment, property, distribution}

{loan, real, estate}

{stock, price, share}

{acquisition, growth, future}

{provision, law, control}

{financial, litigation, operation}

{interest, director, officer}

{debt, indebtedness, cash}

{capital, credit, financial}

{system, service, information}

{regulation, government, change}

{cost, operation, labor}

{customer, product, revenue}

{operation, international, foreign}

{tax, income, asset}

{stock, price, operating}

{control, financial, internal}

{cost, regulation, environmental}

If the Company fails to meet its payment or other obligations under its senior secured credit facility, then the lenders under the secured credit facility could foreclose on, and acquire control of, substantially all of its assets. Although the Company intends to declare quarterly dividends, there can be no assurances when or whether the Company will declare future dividends or the amount of any dividends that may be declared in the future. The Company plans to expand its business to include international operations that could subject it to social, political and economic risks of doing business in foreign countries. Delaware law and provisions of the Company s amended and restated certificate of incorporation and restated bylaws contain provisions that could delay, deter or prevent a change of control. The Company has the ability to issue blank check preferred stock, which could adversely affect the voting power and other rights of the holders of its common stock. The Company has registration rights outstanding, which could have a negative impact on its share price if exercised. Future sales of the Company s common stock could adversely affect its stock price. As a consequence of the Merger and the amendments to the Company s amended and restated certificate of incorporation, the Company has a staggered board, which may entrench management and discourage unsolicited stockholder proposals that may be in the best interests of stockholders. Failure to manage future growth effectively may have a material adverse effect on the Company s financial condition and results of operations. The Company may not be able to obtain additional financing when the Company needs it or on acceptable terms, and any such financing, or the failure to obtain financing, may adversely affect the market price of the Company s common stock. The NYSE may delist the Company s common stock from quotation on its exchange which could limit stockholders ability to make transactions in its common stock and subject it to additional trading restrictions. The Company will not be required to furnish an auditor s report on its internal control over financial reporting until December 2008. Risks Related to the Merger The Company may be unable to successfully integrate its operations with the operations of NNN or to realize the anticipated benefits of the Merger which could have a material adverse effect on the business and results of operations and result in a decline in value of the Company s common stock. Charges to earnings resulting from the application of the purchase method of accounting may adversely affect the market value of the Company s common stock. The Company incurred significant transaction and merger-related costs in connection with the Merger. Risks Related to the Company s Transaction Services and Management Services Business GERA, the special purpose acquisition company sponsored by and an affiliate of the Company, must liquidate and dissolve, which could damage the Company s reputation, and will cause the Company to lose its investment and potential revenue. The Company s quarterly operating results are likely to fluctuate due to the seasonal nature of its business and may fail to meet expectations, which may cause the price of its securities to decline. If the properties that the Company manages fail to perform, then its business and results of operations could be harmed. If the Company fails to comply with laws and regulations applicable to real estate brokerage and mortgage transactions and other business lines, then it may incur significant financial penalties. The Company may have liabilities in connection with real estate brokerage and property and facilities management activities. Environmental regulations may adversely impact the Company s business and/or cause the Company to incur costs for cleanup of hazardous substances or wastes or other environmental liabilities. Risks Related to the Company s Asset Management and Broker-Dealer Business The Company currently provides its transaction and management services primarily to its programs. Its revenue depends on the number of its programs, on the price of the properties acquired or disposed of by these programs, and on the revenue generated by the properties under its management. The Company may be unable to grow its programs, which would cause it to fail to satisfy its business strategy. The inability to access investors for the Company programs through broker-dealers or other intermediaries could have a material adverse effect on its business. The termination of any of the Company s broker-dealer relationships, especially given the limited number of key broker-dealers, could have a material adverse effect on its business. Misconduct by third-party selling broker-dealers or the Company s sales force, could have a material adverse effect on its business. A significant amount of the Company s revenue is derived from fees earned through the transaction structuring and property management of its TIC programs, which programs rely primarily on Section 1031 of the Internal Revenue Code to provide for deferral of capital gains taxes to make these programs attractive. A change in this tax code section or a complete revocation of this section as it relates specifically to TICs could result in a loss of a significant part of the Company s business, and as a result, a significant amount of revenue. A significant amount of the Company s programs are structured to provide favorable tax treatment to investors or REITs. If a program fails to satisfy the requirements necessary to permit this favorable tax treatment, the Company could be subject to claims by investors and its reputation for structuring these transactions would be negatively affected, which would have an adverse effect on its financial condition and results of operations. Any future co-investment activities the Company undertakes could subject it to real estate investment risks which could lead to the need for substantial capital contributions, which may impact its cash flows and financial condition and, if it is unable to make them, could damage its reputation and result in adverse consequences to its holdings. Geographic concentration of program properties may expose the Company s programs to regional economic downturns that could adversely impact their operations and, as a result, the fees the Company is able to generate from them, including fees on disposition of the properties as the Company may be limited in its ability to dispose of properties in a challenging real estate market. The failure of Triple Net Properties, LLC, recently renamed Grubb Ellis Realty Investors, LLC ( GERI ) and Triple Net Properties Realty, Inc. ( Realty ), subsidiaries of the Company acquired in the Merger, to hold certain required real estate licenses may subject Realty and the Company to penalties, such as fines, restitution payments and termination of management agreements, and to the suspension or revocation of certain broker licenses. If third-party managers providing property management services for the Company s programs office, healthcare office, retail and multi-family properties are negligent in their performance of, or default on, their management obligations, the tenants may not renew their leases or the Company may become subject to unforeseen liabilities. If this occurs, it could have an adverse effect on the Company s financial condition and operating results. The Company or its new programs may be required to incur future indebtedness to raise sufficient funds to purchase properties. The Company may be required to repay loans the Company guaranteed that were used to finance properties acquired by the Company s programs. The revenue streams from the Company s management services may be subject to limitation or cancellation. The Company s revenue is subject to volatility in capital raising efforts by it. Future pressures to lower, waive or credit back the Company s fees could reduce the Company s revenue and profitability. Regulatory uncertainties related to the Company s broker-dealer services could harm the Company s business. The Company depends upon its programs tenants to pay rent, and their inability to pay rent may substantially reduce the fees the Company receives which are based on gross rental amounts. Conflicts of interest inherent in transactions between the Company s programs and the Company, and among its programs, could create liability for the Company that could have a material adverse effect on its results of operations and financial condition. The ongoing SEC investigation of Triple Net Properties and its affiliates could adversely impact the Company s ability to conduct its real estate investment programs. The offerings conducted to raise capital for the Company s TIC programs are done in reliance on exemptions from the registration requirements of the Securities Act. A failure to satisfy the requirements for the appropriate exemption could void the offering or, if it is already completed, provide the investors with rescission rights, either of which would have a material adverse effect on the Company s reputation and as a result its business and results of operations. An increase in interest rates may negatively affect the equity value of the Company s programs or cause the Company to lose potential investors to alternative investments, causing the fees the Company receives for transaction and management services to be reduced. Increasing competition for the acquisition of real estate may impede the Company s ability to make future acquisitions which would reduce the fees the Company generates from these programs and could adversely affect the Company s operating results and financial condition. Illiquidity of real estate investments could significantly impede the Company s ability to respond to adverse changes in the performance of the Company s programs properties and harm the Company s financial condition.

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216039--3/17/2008--GRUBB_&_ELLIS_CO