2 Brokers Said to Be Discussing a Merger

Two of the nation’s largest commercial real estate brokerage firms, Los Angeles-based CB Richard Ellis Services Inc. and Grubb & Ellis Co. of New York, reportedly are in merger negotiations as the industry struggles to deal with a slump in commercial property leasing and sales.

Talk of a potential merger emerged last week after Grubb & Ellis announced that a group, headed by board member C. Michael Kojaian, would inject $15.2million into the business in return for about a 20% stake in the publicly traded company.

In documents filed with the Securities and Exchange Commission, Grubb & Ellis said “a change in control of the company” could “reasonably” be expected as a result of the deal with Kojaian, a Detroit-area real estate developer.

The New York Post last week reported that a merger between CB Richard Ellis--which was acquired last summer by a group led by San Francisco-based Blum Capital Partners--was imminent.

Thursday, a Grubb & Ellis official confirmed the negotiations with several senior brokers in Los Angeles, according to a Grubb & Ellis employee.

Spokesmen for Grubb & Ellis and CB Richard Ellis declined to comment.

On the New York Stock Exchange, Grubb & Ellis shares rose 10 cents to close at $4.

The potential combination of the two companies is part of a continuing industry consolidation. Brokers have come under greater financial and competitive pressure in the last year as a slowdown in commercial real estate transactions has eaten into revenues and profits.

Last year, for example, Los Angeles-based Cushman Realty folded into New York-based Cushman & Wakefield Inc., and CB Richard Ellis cut its headquarters and administrative staff by 13%.

Grubb & Ellis has tried several times in recent years to merge with other companies in an effort to stay competitive with diversified industry giants such as CB Richard Ellis, Insignia/ESG and Cushman & Wakefield.

During the company’s recent fiscal third quarter, the company reported a loss of $5.2 million before one-time charges.

“Combining with Grubb & Ellis is combining with a money-losing company,” said securities analyst Sheldon Grodsky. Any buyer would have to be “willing to withstand losses for a while.”