S-4 1 a31475orsv4.htm FORM S-4 Grubb & Ellis Company
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As filed with the Securities and Exchange Commission on July 3, 2007
Registration No.      
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
GRUBB & ELLIS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
         
Delaware   6531   94-1424307
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
 
500 West Monroe Street, Suite 2800
Chicago, IL 60661
(312) 698-6700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
Mark E. Rose
Chief Executive Officer and Director
Grubb & Ellis Company
500 West Monroe Street, Suite 2800
Chicago, IL 60661
(312) 698-6700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
 
Copies to:
 
             
C. Michael Kojaian
Chairman of the Board
Grubb & Ellis Company
500 West Monroe Street, Suite 2800
Chicago, IL 60661
(312) 698-6700
  Clifford A. Brandeis, Esq.
Zukerman Gore & Brandeis, LLP
875 Third Avenue
New York, NY 10022
(212) 223-6700
  Anthony W. Thompson
Chairman of the Board
Scott D. Peters
Chief Executive Officer and President
NNN Realty Advisors, Inc.
1551 North Tustin Avenue, Suite 300
Santa Ana, CA 92705
(714) 667-8252
  Rosemarie Thurston, Esq.
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
(404) 881-7000
 
 
 
 
Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this registration statement and the effective time of the merger of B/C Corporate Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Grubb & Ellis Company, a Delaware corporation, with and into NNN Realty Advisors, Inc., a Delaware corporation, as described in the Agreement and Plan of Merger, dated as of May 22, 2007, attached as Annex A to the joint proxy statement/prospectus forming part of this registration statement.
 
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o
 
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
CALCULATION OF REGISTRATION FEE
 
                         
            Proposed Maximum
    Proposed Maximum
    Amount of
Title of Each Class of
    Amount to be
    Offering
    Aggregate
    Registration
Securities to be Registered     Registered(1)     Price per Unit     Offering Price(2)     Fee(2)
Common Stock, par value $0.01 per share
    38,533,094     N/A     $446,024,130     $13,693
                         
 
(1) Represents the maximum number of shares of common stock, with par value $0.01 per share, of Grubb & Ellis Company (“Grubb & Ellis Common Stock”) estimated to be issuable upon completion of the merger, based on the exchange ratio of 0.88 of a share of Grubb & Ellis Common Stock for each share of common stock, par value $0.01 per share, of NNN Realty Advisors, Inc. (“NNN Realty Advisors Common Stock”).
 
(2) Estimated solely for the purpose of calculating the amount of the registration fee required by Section 6(b) of the Securities Act of 1933 (the “Securities Act”), and calculated pursuant to Rule 457(f)(2) under the Securities Act, the proposed maximum aggregate offering price of the registrant’s common stock was calculated based upon the aggregate book value of shares of NNN Realty Advisors Common Stock (the securities to be cancelled in the merger) in accordance with Rule 457(f)(2) under the Securities Act, as follows: the product of (1) $10.00, the book value of NNN Realty Advisors Common Stock, multiplied by (2) 44,602,413, representing the sum of (a) the maximum number of shares of NNN Realty Advisors Common Stock expected to be outstanding immediately prior to the effective time of the merger, and (b) the maximum number of shares of NNN Realty Advisors Common Stock issuable upon exercise of the maximum number of NNN Realty Advisors options expected to be outstanding immediately prior to the effective time of the merger.
 
 
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


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The information in this joint proxy statement/prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary joint proxy statement/prospectus is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
PRELIMINARY — SUBJECT TO COMPLETION, DATED JULY 3, 2007
     
  (NNN REALTY ADVISORS LOGO)
 
MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT
 
The boards of directors of Grubb & Ellis Company and NNN Realty Advisors, Inc. have each approved a merger agreement which provides for the combination of the two companies, with NNN Realty Advisors continuing as a wholly owned subsidiary of Grubb & Ellis. The boards of directors of Grubb & Ellis and NNN Realty Advisors believe that the combined company will be able to create substantially more long-term stockholder value than either company could individually achieve.
 
If the merger is completed, NNN Realty Advisors’ stockholders will have the right to receive 0.88 of a share of common stock of Grubb & Ellis for each share of NNN Realty Advisors common stock that they own immediately before the effective time of the merger. NNN Realty Advisors stockholders will receive cash for any fractional shares which they would otherwise receive in the merger. Grubb & Ellis stockholders will continue to own their existing shares after the merger. Upon the completion of the merger, it is expected that NNN Realty Advisors stockholders will own approximately 59% of the outstanding common stock of Grubb & Ellis and current Grubb & Ellis stockholders will own approximately 41% of the outstanding common stock of Grubb & Ellis.
 
The shares of Grubb & Ellis common stock will continue to be traded on the New York Stock Exchange, or the NYSE, under the symbol “GBE”. On          , 2007, the last practicable day before the mailing of this document, the closing price per share of Grubb & Ellis common stock as reported by the NYSE was $     .          .
 
Entities affiliated with the Chairman of the Board of Grubb & Ellis, which collectively own approximately 39% of the outstanding common stock of Grubb & Ellis, have agreed to vote their shares in favor of the amendment to the Grubb & Ellis Amended and Restated Certificate of Incorporation, or the Grubb & Ellis charter, the proposal to issue Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger, the election of the proposed board of directors, and, if necessary, the proposal to adjourn or postpone the special meeting in order to solicit additional proxies. Similarly, certain members of management and the board of directors of NNN Realty Advisors, who collectively own approximately 28% of the outstanding common stock of NNN Realty Advisors, have agreed to vote their shares of common stock in favor of the adoption of the merger agreement.
 
YOUR VOTE IS IMPORTANT.  The merger cannot be completed unless, among other things, holders of NNN Realty Advisors common stock vote to adopt the merger agreement and holders of Grubb & Ellis common stock vote to approve the amendment to the Grubb & Ellis charter, approve the issuance of Grubb & Ellis common stock to the NNN Realty Advisors stockholders in the merger and elect the proposed board of directors of Grubb & Ellis.
 
The Grubb & Ellis Board of Directors, by unanimous vote of the directors voting on the matter, recommends that Grubb & Ellis stockholders vote “FOR” the amendment to the Grubb & Ellis charter to increase the authorized number of shares and to provide for a classified Board of Directors, “FOR” the issuance of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger and “FOR” the election of the proposed Board of Directors.
 
The NNN Realty Advisors Board of Directors, by unanimous vote of the directors voting on the matter, recommends that NNN Realty Advisors stockholders vote “FOR” the adoption of the merger agreement.
 
Grubb & Ellis and NNN Realty Advisors will each hold a special meeting of their respective stockholders to vote on these proposals. Whether or not you plan to attend your company’s special meeting, please take the time to vote by completing and mailing the enclosed proxy card, by submitting your proxy by telephone, or, if you are a Grubb & Ellis stockholder, by submitting your proxy through the Internet, using the procedures in the proxy voting instructions included with your proxy card. Even if you return the proxy, you may attend the special meeting and vote your shares in person.
 
This document describes the proposed merger and related transactions in more detail. Grubb & Ellis and NNN Realty Advisors encourage you to read this entire document carefully, including the merger agreement, which is included as Annex A to this document, and the section entitled “Risk Factors” beginning on page 16.
 
Grubb & Ellis and NNN Realty Advisors look forward to the successful combination of the two companies.
 
     
     
 
C. Michael Kojaian   Anthony W. Thompson
Chairman of the Board   Chairman of the Board
Grubb & Ellis Company   NNN Realty Advisors, Inc.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger described in this joint proxy statement/prospectus or the Grubb & Ellis common stock to be issued pursuant to the merger or determined if this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.
 
This joint proxy statement/prospectus is dated          , 2007 and, together with the accompanying proxy card, is first being mailed or otherwise delivered to stockholders of Grubb & Ellis and NNN Realty Advisors on or about          , 2007.


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THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES ADDITIONAL INFORMATION
 
This document incorporates by reference important business and financial information about Grubb & Ellis from other documents filed with the Securities and Exchange Commission, or the SEC, that are not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your written or oral request. For a list of the documents incorporated by reference into this joint proxy statement/prospectus, see “Where You Can Find More Information” beginning on page 211. You can obtain electronic or hardcopy versions of the documents that are incorporated by reference into this document, without charge, from the Investor Relations section of the Grubb & Ellis website or by requesting them in writing or by telephone as set forth below:
 
Electronic:           www.grubb-ellis.com
(please see the “Information Request” page in the Investor Relations portion of the site)
 
By Mail:            Grubb & Ellis Company
500 West Monroe Street, Suite 2800
Chicago, IL 60661
Attention: Investor Relations
E-mail Address: Janice.McDill@grubb-ellis.com
 
By Telephone:     (312)-698-6700
 
TO OBTAIN TIMELY DELIVERY OF YOUR REQUESTED DOCUMENTS, YOU MUST DELIVER YOUR REQUEST NO LATER THAN FIVE (5) BUSINESS DAYS BEFORE THE SPECIAL MEETING. THE LATEST DATE YOU MAY DELIVER YOUR REQUEST IS          , 2007.
 
VOTING ELECTRONICALLY, BY TELEPHONE OR BY MAIL
 
Grubb & Ellis stockholders of record on          , 2007 may submit their proxies:
 
  •  through the Internet, by visiting the website established for that purpose at           and following the instructions; or
 
  •  by telephone, by calling the toll-free number           in the United States, Canada or Puerto Rico on a touch-tone phone and following the recorded instructions; or
 
  •  by mail, by marking, signing, and dating the enclosed WHITE proxy card and returning it in the postage-paid envelope provided or pursuant to the instructions set out in the proxy card.
 
NNN Realty Advisors stockholders of record on          , 2007 may submit their proxies:
 
  •  by mail, by marking, signing, and dating the enclosed WHITE proxy card and returning it in the postage-paid envelope provided or returning it pursuant to the instructions set out in the proxy card; or
 
  •  by telephone, by calling the toll-free number           in the United States, Canada or Puerto Rico on a touch-tone phone and following the recorded instructions.
 
If you are a beneficial owner, please refer to your proxy card or the information forwarded by your bank, broker or other holder of record to see which options are available to you.


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(GRUBB <DATA,ampersand> ELLIS
    LOGO)
 
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On          , 2007
 
Dear Stockholder:
 
A special meeting of stockholders of Grubb & Ellis Company will be held on          , 2007 at    a.m., Central Time, at           , Chicago, Illinois           .
 
The purpose of the Grubb & Ellis special meeting is to consider and to vote upon the proposals to:
 
  1.  approve the amendment to the Grubb & Ellis Amended and Restated Certificate of Incorporation, or the Grubb & Ellis charter, effective upon completion of the merger, to (i) increase the authorized number of shares of Grubb & Ellis common stock from 50 million to 100 million, (ii) increase the authorized number of shares of Grubb & Ellis preferred stock from one million to 10 million, and (iii) provide for a classified board of directors comprising three classes of directors;
 
  2.  approve the issuance of shares of Grubb & Ellis common stock to stockholders of NNN Realty Advisors, Inc. on the terms and conditions set out in the Agreement and Plan of Merger, dated as of May 22, 2007, by and among Grubb & Ellis, NNN Realty Advisors and B/C Corporate Holdings, Inc., a wholly owned subsidiary of Grubb & Ellis;
 
  3.  elect the proposed director nominees to the board of directors, which includes six nominees from NNN Realty Advisors and three nominees from Grubb & Ellis; and
 
  4.  approve an adjournment or postponement of the special meeting, including, if necessary, to solicit additional proxies in favor of the foregoing proposals if there are not sufficient votes for the proposals.
 
The Grubb & Ellis Board of Directors has determined, by unanimous vote of the directors voting on the matter, that the amendment to the Grubb & Ellis charter, the share issuance and the election of the proposed board of directors are advisable and in the best interests of Grubb & Ellis and its stockholders and recommends that Grubb & Ellis stockholders vote “FOR” the amendment to the Grubb & Ellis charter, “FOR” the issuance of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger, “FOR” the election of the proposed board of directors and “FOR” the adjournment or postponement of the special meeting, including, if necessary, to solicit additional proxies in favor of the proposals.
 
Entities affiliated with the Chairman of the Board of Grubb & Ellis, which collectively own approximately 39% of the outstanding shares of Grubb & Ellis common stock, have agreed to vote their shares in favor of the amendment to the Grubb & Ellis charter, the issuance of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger, the election of the proposed board of directors and the adjournment or postponement of the special meeting to solicit additional proxies in favor of the amendment and the stock issuance.
 
Your failure to vote will have the same effect as a vote against the approval of the Grubb & Ellis charter amendment and will make it more difficult to obtain (a) the necessary quorum and the NYSE vote cast threshold for purposes of approving the share issuance, and (b) the necessary quorum for purposes of electing the proposed board of directors. Therefore, your vote is very important.
 
The close of business on          , 2007 has been fixed as the record date, which is referred to as the Grubb & Ellis record date, for the determination of Grubb & Ellis stockholders entitled to notice of, and to vote at, the Grubb & Ellis special meeting or any adjournments or postponements of the Grubb & Ellis special meeting. Only holders of Grubb & Ellis common stock of record at the close of business on          , 2007 are entitled to notice of, and to vote at, the Grubb & Ellis special meeting or any adjournments or postponements of the Grubb & Ellis special meeting. A list of the holders of Grubb & Ellis common stock entitled to vote at the Grubb & Ellis special meeting will be available for examination by any Grubb & Ellis stockholder, for any purpose pertaining to the Grubb & Ellis special meeting, at Grubb & Ellis’ principal executive offices at 500 West Monroe Street, Suite 2800, Chicago, Illinois 60661, for a period of ten (10) days


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before the Grubb & Ellis special meeting, between the hours of 9:00 a.m. and 3:00 p.m., and at the Grubb & Ellis special meeting during the entire time of the meeting.
 
We direct your attention to the joint proxy statement/prospectus accompanying this notice for a more complete statement regarding the matters proposed to be acted upon at the meeting. We encourage you to read the entire joint proxy statement/prospectus carefully, including the merger agreement, which is included as Annex A to the joint proxy statement/prospectus, and the section entitled “Risk Factors” beginning on page 16 of the joint proxy statement/prospectus.
 
SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR NOT YOU ATTEND THE GRUBB & ELLIS SPECIAL MEETING, PLEASE VOTE AS SOON AS POSSIBLE BY MAIL, BY TELEPHONE OR THROUGH THE INTERNET. INSTRUCTIONS ON THESE DIFFERENT WAYS TO VOTE YOUR PROXY ARE FOUND ON THE ENCLOSED WHITE PROXY CARD. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE GRUBB & ELLIS SPECIAL MEETING. REMEMBER, YOUR VOTE IS IMPORTANT, SO PLEASE ACT TODAY!
 
By Order of the Board of Directors,
 
C. Michael Kojaian
Chairman of the Board
 
          , 2007


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(NNN REALTY ADVISORS LOGO)
 
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On          , 2007
 
Dear NNN Realty Advisors Stockholder:
 
NNN Realty Advisors is pleased to invite you to attend a special meeting of the stockholders of NNN Realty Advisors, Inc. which will be held on          , 2007 at    a.m., Pacific Time, at the corporate headquarters at 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705.
 
The purpose of the NNN Realty Advisors special meeting is to consider and to vote upon the proposals to:
 
  1.  adopt the Agreement and Plan of Merger, or the merger agreement, dated as of May 22, 2007, by and among Grubb & Ellis Company, NNN Realty Advisors and B/C Corporate Holdings, Inc., a wholly owned subsidiary of Grubb & Ellis, a copy of which is attached as Annex A to the joint proxy statement/prospectus, pursuant to which NNN Realty Advisors will become a wholly owned subsidiary of Grubb & Ellis; and
 
  2.  approve an adjournment or postponement of the NNN Realty Advisors special meeting, including, if necessary, to solicit additional proxies in favor of the adoption of the merger agreement if there are not sufficient votes for that proposal.
 
The NNN Realty Advisors Board of Directors has determined, by a unanimous vote of the directors voting on the matter, that the merger agreement and the transactions contemplated by it, including the merger, are advisable and in the best interests of NNN Realty Advisors and its stockholders, unanimously approved and adopted the merger agreement and the transactions contemplated by it, including the merger, and recommends that the NNN Realty Advisors stockholders vote “FOR” the adoption of the merger agreement and “FOR” the adjournment or postponement of the NNN Realty Advisors special meeting, including if necessary, to solicit additional proxies in favor of such adoption.
 
Certain members of management and the board of directors of NNN Realty Advisors, who collectively own approximately 28% of the outstanding shares of NNN Realty Advisors common stock, have agreed to vote their shares in favor of the adoption of the merger agreement.
 
Grubb & Ellis and NNN Realty Advisors cannot complete the merger unless the proposal to adopt the merger agreement is approved by holders of a majority of the outstanding shares of NNN Realty Advisors common stock entitled to vote at the NNN Realty Advisors special meeting.
 
Your failure to vote will have the same effect as a vote against the adoption of the merger agreement. Therefore, your vote is very important.
 
The close of business on          , 2007 has been fixed as the record date, which is referred to as the NNN Realty Advisors record date, for the determination of NNN Realty Advisors stockholders entitled to notice of, and to vote at, the NNN Realty Advisors special meeting or any adjournments or postponements of the NNN Realty Advisors special meeting. Only holders of record of NNN Realty Advisors common stock at the close of business on the NNN Realty Advisors record date are entitled to notice of, and to vote at, the NNN Realty Advisors special meeting. A complete list of stockholders entitled to vote at the NNN Realty Advisors special meeting will be available for examination by any of NNN Realty Advisors’ stockholders at NNN Realty Advisors’ headquarters at 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705 for purposes pertaining to the NNN Realty Advisors special meeting, during normal business hours, for a period of ten (10) days before the NNN Realty Advisors special meeting, and at the time and place of the NNN Realty Advisors special meeting.


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We direct your attention to the joint proxy statement/prospectus accompanying this notice for more detailed information regarding the matters proposed to be acted upon at the NNN Realty Advisors special meeting. You are encouraged to read the entire joint proxy statement/prospectus carefully, including the merger agreement, which is included as Annex A to the joint proxy statement/prospectus, and the section entitled “Risk Factors” beginning on page 16 of the joint proxy statement/prospectus.
 
SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR NOT YOU ATTEND THE NNN REALTY ADVISORS SPECIAL MEETING, PLEASE VOTE AS SOON AS POSSIBLE BY MAIL OR BY TELEPHONE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE NNN REALTY ADVISORS SPECIAL MEETING. INSTRUCTIONS ON THESE DIFFERENT WAYS TO VOTE YOUR PROXY ARE FOUND ON THE ENCLOSED WHITE PROXY CARD. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE NNN REALTY ADVISORS SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. REMEMBER, YOUR VOTE IS IMPORTANT, SO PLEASE ACT PROMPTLY.
 
By Order of the Board of Directors,
 
Anthony W. Thompson
Chairman of the Board
 
          , 2007


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LIST OF ANNEXES
   
   
Annex B  Grubb & Ellis Charter Amendment*
   
   
   
   
 EXHIBIT 23.1
 EXHIBIT 23.2
 EXHIBIT 23.3
 EXHIBIT 99.3
 EXHIBIT 99.4
 
* To be filed by amendment.


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QUESTIONS AND ANSWERS ABOUT THE MERGER
 
The following are some questions that you, as a stockholder of Grubb & Ellis or NNN Realty Advisors, may have regarding the merger and the other matters being considered at the stockholders’ meetings and the answers to those questions. Grubb & Ellis and NNN Realty Advisors urge you to read carefully the remainder of this document because the information in this section does not provide all the information that might be important to you with respect to the merger and the other matters being considered at the stockholders’ meetings. Additional important information is also contained in the annexes to, and the documents incorporated by reference into, this document.
 
Q: Why am I receiving this joint proxy statement/prospectus?
 
A: Grubb & Ellis and NNN Realty Advisors have agreed to combine the two companies pursuant to the terms of the Agreement and Plan of Merger, or the merger agreement, dated as of May 22, 2007, that is described in this joint proxy statement/prospectus. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.
 
Q: What will happen in the transaction?
 
A: In the merger, a wholly owned subsidiary of Grubb & Ellis will be merged with and into NNN Realty Advisors with NNN Realty Advisors surviving the merger as a wholly owned subsidiary of Grubb & Ellis. NNN Realty Advisors stockholders will have their shares of NNN Realty Advisors common stock converted into the right to receive newly issued shares of common stock of Grubb & Ellis, and Grubb & Ellis stockholders will retain their existing shares of Grubb & Ellis common stock. Grubb & Ellis and NNN Realty Advisors expect that, upon completion of the merger, approximately 59% of the outstanding common stock of Grubb & Ellis will be held by former NNN Realty Advisors stockholders, and approximately 41% of the outstanding common stock of Grubb & Ellis will be held by existing Grubb & Ellis stockholders.
 
Immediately prior to the effective time of the merger, Grubb & Ellis’ Amended and Restated Certificate of Incorporation, which is referred to as the Grubb & Ellis charter, will be amended to increase the number of authorized shares of Grubb & Ellis common stock from 50 million to 100 million, to increase the number of authorized shares of Grubb & Ellis preferred stock from one million to 10 million, and to provide for a classified board of directors. These changes are described under the section entitled “Grubb & Ellis Charter Amendment” beginning on page 199.
 
Q: What will I receive in the merger?
 
A: Grubb & Ellis Stockholders.  Each share of Grubb & Ellis common stock held by Grubb & Ellis stockholders immediately before the merger will continue to represent one share of Grubb & Ellis common stock after the effective time of the merger. In other words, Grubb & Ellis stockholders will receive no consideration in the merger.
 
NNN Realty Advisors Stockholders.  For each share of NNN Realty Advisors common stock held, NNN Realty Advisors stockholders will have the right to receive 0.88 of a share of Grubb & Ellis common stock, provided, however, in no event will Grubb & Ellis issue more than an aggregate of 38,533,094 shares of its common stock in respect of NNN Realty Advisors common stock. NNN Realty Advisors stockholders will receive cash for any fractional shares of Grubb & Ellis common stock that they would otherwise receive in the merger. The amount of cash for fractional shares will be calculated by multiplying the fraction of a share of Grubb & Ellis common stock to which the NNN Realty Advisors stockholder would be entitled to receive in the merger by the closing sale price of a share of Grubb & Ellis common stock on the first trading day immediately following the effective time of the merger. Please see “The Merger — Merger Consideration” beginning on page 89.


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Q: When and where are the Grubb & Ellis and NNN Realty Advisors special meetings?
 
A: Grubb & Ellis Special Meeting.  A special meeting of Grubb & Ellis stockholders, which is referred to as the Grubb & Ellis special meeting, will be held on          , 2007 at   a.m., Central Time, at           , Chicago, Illinois            to consider and vote on proposals related to the merger.
 
NNN Realty Advisors Special Meeting.  A special meeting of NNN Realty Advisors stockholders, which is referred to as the NNN Realty Advisors special meeting, will be held on          , 2007 at   a.m., Pacific Time, at NNN Realty Advisors’ corporate headquarters at 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705 to consider and vote on proposals related to the merger.
 
Q: What vote of the Grubb & Ellis stockholders is required?
 
A: Grubb & Ellis stockholders are being asked to approve three separate proposals that are necessary to complete the merger. The completion of the merger requires:
 
1. the approval of the amendment to the Grubb & Ellis charter by holders of Grubb & Ellis common stock representing a majority of the outstanding shares of Grubb & Ellis common stock entitled to vote at the Grubb & Ellis special meeting;
 
2. the approval of the issuance of shares of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger by holders of Grubb & Ellis common stock representing at least a majority of the votes cast in person or by proxy at such meeting, so long as the total number of votes cast on the proposal represents over 50% of the total number of votes entitled to be cast by holders of the outstanding common stock; and
 
3. the election of the proposed board of directors by holders of Grubb & Ellis common stock representing at least a plurality of the votes cast in person or by proxy at such meeting, so long as the total number of votes entitled to be cast by holders present, in person or by proxy, at such meeting represents over 50% of the total number of votes entitled to be cast by holders of the outstanding common stock.
 
The Grubb & Ellis Board of Directors recommends that Grubb & Ellis stockholders vote “FOR” the amendment to the Grubb & Ellis charter to increase the number of authorized shares of Grubb & Ellis common stock and Grubb & Ellis preferred stock and to provide for a classified board of directors, “FOR” the issuance of Grubb & Ellis common stock to NNN Realty Advisors stockholders in connection with the merger and “FOR” the election of the proposed board of directors.
 
Q: What vote of the NNN Realty Advisors stockholders is required?
 
A: NNN Realty Advisors stockholders are being asked to adopt the merger agreement, which requires the approval of the holders of a majority of the outstanding shares of NNN Realty Advisors common stock entitled to vote at the NNN Realty Advisors special meeting.
 
The NNN Realty Advisors Board of Directors recommends that NNN Realty Advisors stockholders vote “FOR” the adoption of the merger agreement.
 
Q: Why is my vote important?
 
A: In order to complete the merger, Grubb & Ellis stockholders must approve the amendment to the Grubb & Ellis charter to increase the number of authorized shares of Grubb & Ellis common stock and preferred stock and to provide for a classified board of directors, the issuance of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger, and the election of the proposed board of directors. NNN Realty Advisors stockholders must adopt the merger agreement.
 
If you are a Grubb & Ellis stockholder and you vote to “ABSTAIN” or do not vote (either in person or by proxy), or fail to direct your broker how to vote on the proxy card, it will have the following effects on each proposal:


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• Proposal to approve the amendment to the Grubb & Ellis charter:  If you vote to “ABSTAIN” or do not vote (either in person or by proxy), or fail to direct your broker how to vote, it will have the same effect as a vote “AGAINST” the proposal.
 
• Proposal to approve the issuance of shares of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger:  If you vote to “ABSTAIN” (either in person or by proxy), then your shares will be deemed cast and the abstention will have the same effect as a vote “AGAINST” the proposal. If you do not vote or fail to direct your broker how to vote, then your shares will not be deemed cast for voting purposes, and it will be more difficult to meet the New York Stock Exchange, or NYSE, requirement that the total votes cast on the proposal represent over 50% of all shares entitled to vote on the proposal.
 
• Proposal to elect the proposed board of directors:  If you vote to “ABSTAIN” (either in person or by proxy), or fail to direct your broker how to vote, then your shares will be deemed present for quorum purposes, but they will not be considered cast for voting on the election of directors. If you do not vote and do not attend the meeting, then your shares will not be deemed present at the meeting, and it will be more difficult to obtain the necessary quorum, which requires that at least a majority of all outstanding shares entitled to vote be present, in person or by proxy, at the meeting.
 
If you are a NNN Realty Advisors stockholder and you abstain from voting or do not vote (either in person or by proxy), it will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement and to approve the merger.
 
Q: Are the Grubb & Ellis charter amendment, issuance of Grubb & Ellis common stock in the merger and the election of the proposed board of directors each conditioned upon each other?
 
A: Yes. The proposal to amend the Grubb & Ellis charter, the proposal to issue shares of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger and the proposal to elect the proposed board of directors are each conditioned upon the approval of the others and the approval of each such proposal is a condition to completion of the merger. Neither the issuance of Grubb & Ellis common stock in connection with the merger, nor the amendment to the Grubb & Ellis charter, nor the election of the proposed board of directors will take place unless all three of these proposals are approved by the Grubb & Ellis stockholders and the merger is completed. Therefore, the completion of the merger cannot proceed without the approval of all three proposals.
 
Q: What do I do if I want to change my vote?
 
A: If you are a holder of record, you can change your vote at any time before your proxy is voted at your stockholders’ special meeting. You can do this in one of four ways:
 
• you can send a signed notice of revocation;
 
• you can grant a new, valid proxy bearing a later date;
 
• you can vote again by telephone;
 
• you can vote again through the Internet (provided you are a Grubb & Ellis stockholder); or
 
• if you are a holder of record, you can attend the special meeting and vote in person, but your attendance alone will not revoke any proxy that you have previously given.
 
If you choose either of the first two methods, you must send your notice of revocation or your new proxy to your company’s Corporate Secretary at the address under “The Companies” beginning on page 139 no later than the beginning of the special meeting. If you are a Grubb & Ellis stockholder, you can find further details on how to revoke your proxy in “The Grubb & Ellis Special Meeting — Revocation of Proxies” beginning on page 194. If you are a NNN Realty Advisors stockholder, you can find further details on how to revoke your proxy in “The NNN Realty Advisors Special Meeting — Revocation of Proxies” beginning on page 198.


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Q: If my Grubb & Ellis shares are held in “street name” by my broker, will my broker vote my shares for me?
 
A: No. Your broker is not permitted to decide how your shares should be voted. Your broker will only vote your shares on a proposal if you provide your broker with voting instructions on that proposal. You should instruct your broker to vote your shares by following the directions that your broker provides you. Please check the voting information form used by your broker to see if it offers telephone or Internet voting.
 
A broker non-vote occurs when a beneficial owner fails to provide voting instructions to his or her broker as to how to vote the shares held by the broker in street name and the broker does not have discretionary authority to vote without instructions. Brokers do not have discretionary authority to vote on any of the Grubb & Ellis proposals. By signing your proxy card and returning it to your broker without specific instructions as to any proposal, your shares represented by that proxy will be voted in favor of that proposal. Any shares you beneficially own not identified as represented by that proxy will be considered broker non-votes.
 
Q: What if I fail to instruct my broker with respect to those items that are necessary to consummate the merger?
 
A: If you are a Grubb & Ellis stockholder:
 
• with respect to the proposal to amend the Grubb & Ellis charter, a broker non-vote will be counted towards a quorum at the Grubb & Ellis special meeting, but will have the same effect as a vote “AGAINST” the proposal to amend the Grubb & Ellis charter;
 
• with respect to the proposal to issue shares of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger, a broker non-vote will not be considered a “vote cast” for purposes of satisfying the NYSE requirement that the total number of votes cast be more than 50% of all shares entitled to vote on the matter, making it more difficult to reach this necessary threshold. However, if the vote cast threshold is satisfied, then a broker non-vote will have no effect on the proposal to issue shares of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger; and
 
• with respect to the proposal to elect the proposed board of directors, a broker non-vote will be considered as voting power present at the meeting for purposes of satisfying the quorum requirement. If the quorum requirement is satisfied, then a broker non-vote will have no effect on the proposal to elect the proposed Grubb & Ellis Board of Directors.
 
For additional information, see “The Grubb & Ellis Special Meeting — Votes Required to Approve Grubb & Ellis Proposals” beginning on page 192 if you are a Grubb & Ellis stockholder, and “The NNN Realty Advisors Special Meeting — Votes Required to Approve NNN Realty Advisors Proposals” beginning on page 197 if you are a NNN Realty Advisors stockholder.
 
Q: What happens if I sell my shares of common stock before the special meeting?
 
A: The record date for the Grubb & Ellis special meeting is          , 2007 and the record date for the NNN Realty Advisors special meeting is          , 2007.
 
If you are a Grubb & Ellis stockholder and you transfer your shares of Grubb & Ellis common stock after the Grubb & Ellis record date but before the Grubb & Ellis special meeting, you will retain your right to vote at the special meeting.
 
If you are a NNN Realty Advisors stockholder and you transfer your shares of NNN Realty Advisors common stock after the record date but before the NNN Realty Advisors special meeting, you will retain your right to vote at the special meeting but will transfer the right to receive the merger consideration to the person to whom you transfer your shares.
 
Q: What do I do now?
 
A: Carefully read and consider the information contained in and incorporated by reference into this document, including its annexes.


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In order for your shares to be represented at your stockholders’ meeting:
 
• you can vote through the Internet by following the instructions included on your WHITE proxy card (provided you are a Grubb & Ellis stockholder);
 
• you can vote by telephone by following the instructions included on your WHITE proxy card;
 
• you can indicate on the enclosed WHITE proxy card how you would like to vote and sign and return the proxy card in the accompanying pre-addressed postage paid envelope; or
 
• you can attend your special meeting in person.
 
Q: Should I send in my stock certificates now?
 
A: No. NNN Realty Advisors stockholders should not send in their stock certificates at this time. If the merger proceeds, Grubb & Ellis’ exchange agent will send former NNN Realty Advisors stockholders a letter of transmittal explaining what they must do to exchange their NNN Realty Advisors stock certificates or transfer uncertificated shares for the merger consideration payable to them.
 
Grubb & Ellis stockholders will retain their current stock certificates after the merger and should not send in their stock certificates.
 
Q: Can I dissent and require appraisal of my shares?
 
A: Under Delaware law, NNN Realty Advisors stockholders have the right to dissent and demand an appraisal of the value of their shares in connection with the merger. To review these procedures in more detail, see “Appraisal Rights” beginning on page 132. Grubb & Ellis stockholders do not have the right to dissent and demand an appraisal of the value of their shares in connection with matters to be voted upon by Grubb & Ellis stockholders.
 
Q: Are there risks involved in undertaking the merger?
 
A: Yes. In evaluating the merger, Grubb & Ellis and NNN Realty Advisors stockholders should carefully consider the factors discussed in “Risk Factors” beginning on page 16 and other information about Grubb & Ellis included in the documents incorporated by reference into this document.
 
Q: When do you expect to complete the merger?
 
A: Grubb & Ellis and NNN Realty Advisors are working to complete the merger as quickly as practicable. However, Grubb & Ellis and NNN Realty Advisors cannot assure you when or if the merger will be completed. Completion of the merger is subject to satisfaction or waiver of the conditions specified in the merger agreement, including receipt of the necessary approvals of Grubb & Ellis’ and NNN Realty Advisors’ stockholders at their respective special meeting and any necessary regulatory approvals. It is possible that factors outside the control of both companies could result in the merger being completed later than expected. Although the exact timing of completion of the merger cannot be predicted with certainty, Grubb & Ellis and NNN Realty Advisors anticipate completing the merger in the third or fourth quarter of 2007. See “The Merger Agreement — Conditions to Completion of the Merger” beginning on page 187.
 
Q: Whom should I call with questions?
 
A: Grubb & Ellis Stockholders.  If you have additional questions about the merger, you should contact:
 
Grubb & Ellis Company
500 West Monroe Street, Suite 2800
Chicago, IL 60661
Attention: Investor Relations
Phone Number: (312) 698-6700
E-mail Address: Janice.McDill@grubb-ellis.com


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If you would like additional copies of this document, or if you have questions about the merger or need assistance voting your shares, you should contact:
 
Computershare Investor Services
2 North LaSalle Street
Chicago, Illinois
Attention: Ms. Jacqueline Lynch
Phone Number: 312-588-4764
 
NNN Realty Advisors Stockholders.  If you have additional questions about the merger, you should contact:
 
NNN Realty Advisors, Inc.
1551 North Tustin Avenue, Suite 300
Santa Ana, CA 92705
Attention: Mr. Michael Rispoli
Phone Number: (714) 667-8252
E-mail Address: MRISPOLI@1031NNN.COM
 
If you would like additional copies of this document, have questions about the merger or need assistance voting your shares, you should contact:
 
Phone Number: ­ ­


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SUMMARY
 
This summary highlights information contained elsewhere in this document. It does not contain all of the information that may be important to you. You are urged to read carefully this entire document, including the attached annexes, and the other documents to which this document refers you in order for you to fully understand the proposed merger. See “Where You Can Find More Information” beginning on page 211. Each item in this summary refers to the page of this document on which that subject is discussed in more detail. In this document, references to “Grubb & Ellis” refer to Grubb & Ellis Company, a Delaware corporation, and its subsidiaries, unless otherwise stated or the context indicates otherwise, and references to “NNN Realty Advisors” refer to NNN Realty Advisors, Inc., a Delaware corporation, and its subsidiaries, including Triple Net Properties, LLC, a Virginia limited liability company, Triple Net Properties Realty, Inc., a California corporation, and NNN Capital Corp., a California corporation, unless otherwise stated or the context indicates otherwise.
 
The Companies
 
Grubb & Ellis (see page 139)
 
500 West Monroe Street, Suite 2800
Chicago, IL 60661
(312) 698-6700
http://www.grubb-ellis.com/ 1
 
Grubb & Ellis Company, a Delaware corporation organized in 1980, is one of the most recognized full service commercial real estate services firms in the United States. Founded nearly 50 years ago in Northern California, Grubb & Ellis has grown to become one of the largest publicly traded real estate services organizations in the world as measured by revenue. Grubb & Ellis generated revenue of approximately $490.1 million and $378.0 million for the most recent fiscal year ended June 30, 2006, and for the nine months ended March 31, 2007, respectively.
 
Drawing on the resources of nearly 5,000 real estate professionals, including a brokerage sales force of approximately 1,500 brokers nationwide in Grubb & Ellis’ and its affiliates’ offices, Grubb & Ellis and its affiliates combine local market knowledge with a national service network to provide innovative, customized solutions for real estate owners, corporate occupants and investors.
 
Grubb & Ellis has one of the largest footprints in the industry, with a network of over 110 offices (including over 50 owned by Grubb & Ellis and over 60 affiliate offices), allowing it to execute locally in all primary markets and key secondary and tertiary markets throughout the United States on behalf of its clients. This strong local market presence enables Grubb & Ellis to deliver a full range of commercial real estate services to corporate and institutional clients with multiple real estate needs, including complete outsourcing solutions.
 
Grubb & Ellis has the capability to provide services at every stage of the real estate process, including, but not limited to, strategic planning, feasibility studies and site selection, leasing, property and facilities management, construction management, lease administration, acquisitions and dispositions. Grubb & Ellis’ clients include many Fortune 500 companies as well as institutional and private investors, retailers, government and academic institutions and other owners and occupiers of office and industrial space.
 
Whether executing for a client with a single location or one with facilities in multiple regions, Grubb & Ellis professionals offer local market expertise and strategic insight into real estate decisions. This advice is supported by a network of approximately 95 research professionals, who produce in-depth market research, plus additional market research generated by its affiliate offices. In addition, this advice is also supported by specialty practice groups focusing on industry segments including office, industrial, retail, private capital, institutional investment and land.
 
 
1 The information contained on Grubb & Ellis’ website is expressly not incorporated by reference into this document.


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NNN Realty Advisors (see page 141)
 
1551 North Tustin Avenue, Suite 300
Santa Ana, CA 92705
(714) 667-8252
http://www.nnnrealtyadvisors.com/ 2
 
NNN Realty Advisors is a full-service commercial real estate asset management and services firm. NNN Realty Advisors sponsors real estate investment programs to provide investors with the opportunity to engage in tax-deferred exchanges of real property and to invest in other real estate investment vehicles. NNN Realty Advisors raises capital for these programs through an extensive network of broker-dealer relationships. NNN Realty Advisors also structures, acquires, manages and disposes of real estate for these programs, earning fees for each of these services. NNN Realty Advisors is one of the largest sponsors of securitized tenant in common, or TIC, programs marketed as securities and NNN Realty Advisors also sponsors and advises public non-traded real estate investment trusts, or REITs, and real estate investment funds.
 
NNN Realty Advisors’ TIC programs are structured in reliance on Section 1031 of the Internal Revenue Code, which allows for the deferral of gain recognition on the sale of investment or business property if a number of conditions are satisfied. The tax that would otherwise be recognized in a taxable sale is deferred until the replacement property is sold in a taxable transaction. A public non-traded REIT is an SEC-registered REIT that does not list its common stock on a national securities exchange. NNN Realty Advisors registers REIT offerings with the SEC so that it can sell to a large number of investors.
 
At March 31, 2007, NNN Realty Advisors provided management services for a diverse portfolio of 162 properties, encompassing over 34 million square feet of office, healthcare office, multi-family and retail properties in 28 states that were purchased for more than $4.6 billion in the aggregate. Since its inception in 1998, NNN Realty Advisors, and its predecessor subsidiaries, raised over $2.4 billion of equity capital for its programs from approximately 25,000 investors. For the year ended December 31, 2006, NNN Realty Advisors generated pre-merger pro forma revenue of $135.4 million, pre merger pro forma income from continuing operations of $9.5 million, and pre-merger pro forma basic and diluted earnings per share of NNN Realty Advisors’ common stock of $0.35. These pre-merger pro forma earnings per diluted share reflects pre-merger pro forma historical income from continuing operations divided by shares outstanding as of December 31, 2006. For more information on the pre merger pro forma financial information of NNN Realty Advisors, see “Unaudited NNN Pro Forma Condensed Combined Consolidated Statement of Operations of NNN Realty Advisors for the Year Ended December 31, 2006,” beginning on page 62.
 
For the three months ended March 31, 2007, NNN Realty Advisors generated revenue of $31.7 million and income from continuing operations of approximately $3.8 million. The following table summarizes equity raise and acquisition, disposition and loan fee revenue for NNN Realty Advisors for the three months ended
 
 
2 The information contained on NNN Realty Advisors’ website is expressly not incorporated by reference into this document.


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March 31, 2007, the period from April 1, 2007 through June 29, 2007 and the period from January 1, 2007 through June 29, 2007 (unaudited in millions):
 
                         
                Period from
 
    Three Months
    Period from
    January 1, 2007
 
    Ended
    April 1, 2007 to
    through
 
    March 31, 2007     June 29, 2007     June 29, 2007  
 
Equity raise
                       
TIC
  $ 103.8     $ 127.8     $ 231.6  
Non-Traded REIT
    40.3       98.7       139.0  
                         
Total equity raise
  $ 144.1     $ 226.5     $ 370.6  
                         
Transaction services revenue:
                       
Acquisition fees
  $ 7.9     $ 13.1     $ 21.0  
Disposition fees(1)
    4.3       8.0       12.3  
Loan fees
    1.3       2.2       3.5  
                         
Subtotal transaction services revenue
  $ 13.5     $ 23.3     $ 36.8  
                         
 
 
(1) Excludes non-cash amortization of identified intangible contract rights associated with the acquisition of Triple Net Properties Realty, Inc. of $0.8 million and $1.0 million for the three months ended March 31, 2007 and the period from April 1, 2007 through June 29, 2007, respectively.
 
NNN Realty Advisors was organized as a corporation in the State of Delaware in September 2006 to acquire each of Triple Net Properties, LLC, Triple Net Properties Realty, Inc. and NNN Capital Corp. in order to bring the businesses conducted by these companies under one corporate umbrella. For a description of these transactions, see “The Companies — NNN Realty Advisors — Our History.”
 
In November 2006, NNN Realty Advisors completed a private placement offering of common stock pursuant to Rule 144A of the Securities Act, or the 144A private equity offering, in which it sold 16 million shares with net proceeds of $146 million. In connection with the offering, NNN Realty Advisors entered into a registration rights agreement, or the Registration Rights Agreement, whereby it agreed to register for resale the shares of common stock sold in the 144A private equity offering. Pursuant to the terms of the Registration Rights Agreement, on May 7, 2007, NNN Realty Advisors filed with the SEC a registration statement on Form S-1 to register the resale of shares of common stock. The holders of NNN Realty Advisors common stock subject to the Registration Rights Agreement will have the right to receive registered shares of Grubb & Ellis common stock in the merger and NNN Realty Advisors therefore intends to amend the Registration Rights Agreement pursuant to its terms such that upon the consummation of the merger, the Registration Rights Agreement will terminate. Upon completion of the merger, NNN Realty Advisors intends to withdraw its Form S-1 with the SEC.
 
The Merger
 
The Agreement and Plan of Merger, dated as of May 22, 2007, among Grubb & Ellis, NNN Realty Advisors and B/C Corporate Holdings, Inc., is attached as Annex A to this document. NNN Realty Advisors and Grubb & Ellis encourage you to read carefully the merger agreement in its entirety because it is the principal legal agreement that governs the merger.
 
Structure of the Merger (see page 89)
 
Grubb & Ellis and NNN Realty Advisors are proposing to combine the two companies in a merger. In the merger, B/C Corporate Holdings, Inc., a wholly owned subsidiary of Grubb & Ellis, will be merged with and into NNN Realty Advisors, with NNN Realty Advisors surviving the merger as a wholly owned subsidiary of Grubb & Ellis.


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Merger Consideration (see page 89)
 
NNN Realty Advisors Stockholders.  As a result of the merger, NNN Realty Advisors stockholders will be entitled to receive 0.88 of a share of Grubb & Ellis common stock for each share of NNN Realty Advisors common stock that they own. The number of shares of Grubb & Ellis common stock delivered in respect of each share of NNN Realty Advisors common stock in the merger is referred to as the exchange ratio. Grubb & Ellis will not issue any fractional shares of common stock in the merger. Instead, NNN Realty Advisors stockholders will receive cash for any fractional shares of Grubb & Ellis common stock that they otherwise would receive in the merger determined by aggregating all shares of a stockholder. The amount of cash for fractional shares will be calculated by multiplying the fraction of a share of Grubb & Ellis common stock to which the NNN Realty Advisors stockholder would be entitled to receive in the merger by the closing sale price of a share of Grubb & Ellis common stock on the trading day immediately prior to the effective time of the merger. The Grubb & Ellis common stock received based on the exchange ratio, together with any cash received in lieu of fractional shares, is referred to as the merger consideration. For more information about fractional share treatment, please see “The Merger Agreement — Fractional Shares” beginning on page 179.
 
Grubb & Ellis Stockholders.  Grubb & Ellis stockholders will continue to own their existing shares of Grubb & Ellis common stock after the merger. Each share of Grubb & Ellis common stock will continue to represent one share of common stock of Grubb & Ellis. Grubb & Ellis stockholders should not send in their stock certificates in connection with the merger.
 
Treatment of NNN Realty Advisors Options and Restricted Stock (see pages 179 and 180)
 
At the effective time of the merger, each outstanding option to purchase shares of NNN Realty Advisors common stock, which is referred to as a NNN Realty Advisors option, will be converted into an option to purchase shares of Grubb & Ellis common stock on the same terms and conditions as were applicable before the merger except that each option will allow the holder thereof to purchase a number of shares of Grubb & Ellis common stock equal to (x) the number of shares of NNN Realty Advisors common stock subject to the NNN Realty Advisors option prior to the effective time of the merger multiplied by (y) 0.88, rounded to the nearest whole share. At the effective time of the merger, each option to purchase shares of Grubb & Ellis common stock will have an exercise price per share equal to (x) the exercise price per share of the NNN Realty Advisors option before the completion of the merger divided by (y) 0.88, rounded up to the nearest whole cent.
 
At the effective time of the merger, restrictions on transfer and/or forfeiture with respect to certain shares of restricted NNN Realty Advisors common stock held by certain directors and members of management shall terminate and the Grubb & Ellis common stock issued in exchange for such shares of NNN Realty Advisors common stock shall be fully vested without such restrictions. Other than as described in the immediately preceding sentence, with respect to shares of NNN Realty Advisors common stock outstanding immediately prior to the effective time of the merger that are unvested or are subject to restrictions on transfer and/or forfeiture, the shares of Grubb & Ellis common stock issued upon the conversion of such shares in the merger will continue to be unvested and subject to the same risks of forfeiture or other conditions following the effective time of the merger.
 
Ownership of Grubb & Ellis After the Merger
 
Grubb & Ellis will issue up to approximately 38.5 million shares of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger. At the completion of the merger, it is expected that there will be outstanding approximately 64.4 million shares of common stock of Grubb & Ellis. The shares of Grubb & Ellis common stock issued to NNN Realty Advisors stockholders in the merger will represent approximately 59% of the outstanding common stock of Grubb & Ellis immediately after the merger. Shares of Grubb & Ellis common stock held by Grubb & Ellis stockholders will represent approximately 41% of the outstanding common stock of Grubb & Ellis immediately after the merger.


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Board of Directors and Management of Grubb & Ellis Following the Merger (see page 124)
 
Board of Directors.  At the effective time of the merger, the Grubb & Ellis Board of Directors will be increased to nine members which will include six nominees from NNN Realty Advisors and three nominees from Grubb & Ellis. Anthony W. Thompson, Founder and Chairman of the Board of NNN Realty Advisors, will join Grubb & Ellis as Chairman of the Board. C. Michael Kojaian, currently Chairman of the Board of Directors of Grubb & Ellis, will remain on the Board of Directors of Grubb & Ellis. The Grubb & Ellis Board of Directors will be divided into three classes pursuant to the Grubb & Ellis charter amendment. The director nominees, by class, are as follows:
 
                                 
     
Class A Directors
       
Class B Directors
       
Class C Directors
 
  1.     Scott D. Peters     4.     Robert J. McLaughlin     7.     C. Michael Kojaian
  2.     Harold H. Greene     5.     Gary H. Hunt     8.     Anthony W. Thompson
  3.     D. Fleet Wallace     6.     Glenn L. Carpenter     9.     Rodger D. Young
 
Management.  Scott D. Peters, President and Chief Executive Officer of NNN Realty Advisors, will join the Grubb & Ellis Board of Directors and will become Chief Executive Officer and President of Grubb & Ellis. Commencing with the first annual meeting of Grubb & Ellis stockholders after the effective time of the merger, the composition of the Grubb & Ellis Board of Directors and its committees will be determined by the nomination and election process provided for in the amended Grubb & Ellis charter, Grubb & Ellis’ bylaws and Delaware law.
 
Comparative Per Share Market Price and Dividend Information (see page 43)
 
Grubb & Ellis common stock is listed on the NYSE under the symbol “GBE”. On May 21, 2007, the last trading day before Grubb & Ellis and NNN Realty Advisors announced the transaction, the closing sale price of Grubb & Ellis common stock as reported on the NYSE was $10.76. The market price of Grubb & Ellis common stock will fluctuate before the special meetings and before the merger is completed. Therefore, you should obtain current market quotations for Grubb & Ellis common stock.
 
In November 2006, NNN Realty Advisors sold 16 million shares of common stock for $10 per share in the 144A private equity offering.
 
Recommendations to Stockholders
 
Recommendations to Grubb & Ellis Stockholders.  The Grubb & Ellis Board of Directors has determined, by unanimous vote of the directors voting on the matter, that the merger agreement and the merger and other transactions contemplated therein, including the amendment to Grubb & Ellis’ charter, the issuance of Grubb & Ellis common stock, and the election of the proposed board of directors are advisable and in the best interests of Grubb & Ellis and its stockholders. The Grubb & Ellis Board of Directors recommends that Grubb & Ellis stockholders vote:
 
  •  “FOR” the amendment to the Grubb & Ellis charter to increase the authorized number of shares of Grubb & Ellis common stock from 50 million to 100 million shares, to increase the authorized number of shares of Grubb & Ellis preferred stock from one million to 10 million shares and to provide for a classified board of directors comprising three classes of directors;
 
  •  “FOR” the issuance of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger;
 
  •  “FOR” the election of the proposed board of directors; and
 
  •  “FOR” the adjournment or postponement of the special meeting, including if necessary, to solicit additional proxies in favor of the foregoing proposals.
 
For additional information see “The Grubb & Ellis Special Meeting — Board Recommendations” beginning on page 190.


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Recommendations to NNN Realty Advisors Stockholders.  The NNN Realty Advisors Board of Directors has determined, by unanimous vote of the directors voting on the matter, that the merger agreement and the merger contemplated by the merger agreement are advisable and in the best interests of NNN Realty Advisors and its stockholders. The NNN Realty Advisors Board of Directors recommends that NNN Realty Advisors stockholders vote:
 
  •  “FOR” the adoption of the merger agreement; and
 
  •  “FOR” the adjournment or postponement of the special meeting, including if necessary, to solicit additional proxies in favor of the foregoing proposal.
 
For additional information see “The NNN Realty Advisors Special Meeting — Board Recommendations” beginning on page 196.
 
Opinions of Financial Advisors (see pages 103 and 116)
 
Grubb & Ellis.  In connection with the merger, the Grubb & Ellis Board of Directors received a written opinion on the date of the merger agreement from Grubb & Ellis’ financial advisor, JMP Securities LLC, which is referred to as JMP Securities, as to the fairness, from a financial point of view and as of the date of such opinion, of the exchange ratio provided for in the merger to Grubb & Ellis. The written opinion of JMP Securities, dated May 22, 2007, is attached to this document as Annex C. Grubb & Ellis stockholders are encouraged to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken. JMP Securities’ opinion as to the fairness, from a financial point of view, of the exchange ratio to Grubb & Ellis, was provided to the Grubb & Ellis Board of Directors in connection with its evaluation of the exchange ratio from a financial point of view, does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how to vote or act with respect to the merger.
 
NNN Realty Advisors.  In connection with the merger, Lehman Brothers Inc., which is referred to as Lehman Brothers, has provided its written opinion to the NNN Realty Advisors Board of Directors, dated May 21, 2007, that, as of that date, and subject to the qualifications and assumptions set forth in its opinion, the exchange ratio of 0.88 of a share of Grubb & Ellis common stock for every share of NNN Realty Advisors common stock to be offered to the holders of NNN Realty Advisors common stock is fair to such holders from a financial point of view. Lehman Brothers’ opinion does not address any other aspect of the merger, including the merits of the transaction, and does not constitute a recommendation to any stockholder as to how to vote or act with respect to the merger. Holders of NNN Realty Advisors common stock are encouraged to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken. The written opinion of Lehman Brothers, dated May 21, 2007, is attached to this document as Annex D.
 
Interests of Grubb & Ellis’ and NNN Realty Advisors’ Executive Officers and Directors in the Merger (see pages 113 and 123)
 
When you consider the Grubb & Ellis and NNN Realty Advisors board of directors’ respective recommendations that stockholders vote in favor of the proposals described in this document, you should be aware that some NNN Realty Advisors’ executive officers and directors and some Grubb & Ellis’ executive officers and directors may have interests that may be different from, or in addition to, the NNN Realty Advisors and Grubb & Ellis stockholders’ interests, respectively, including, but not limited to, their receipt of severance benefits under existing employment arrangements, entry into employment arrangements with Grubb & Ellis, accelerated vesting of options and restricted stock and participation in various benefit plans.
 
Entities affiliated with the Chairman of the Board of Grubb & Ellis, which collectively own approximately 39% of the outstanding shares of Grubb & Ellis common stock, have agreed to vote their shares in favor of the amendment to the Grubb & Ellis charter, the proposal to issue Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger, the election of the proposed board of directors, and the proposal to adjourn or postpone the special meeting, if necessary, in order to solicit additional proxies in favor


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of the amendment to the Grubb & Ellis charter and the issuance of Grubb & Ellis stock in the merger. Similarly, members of management and the board of directors of NNN Realty Advisors, who collectively own approximately 28% of the outstanding shares of NNN Realty Advisors common stock, have agreed to vote their shares in favor of the merger agreement.
 
At the effective time of the merger, the Grubb & Ellis Board of Directors will be increased to nine members which will include six nominees from NNN Realty Advisors and three nominees from Grubb & Ellis. Anthony W. Thompson, Founder and Chairman of the Board of NNN Realty Advisors, will join Grubb & Ellis as Chairman of the Board. C. Michael Kojaian, currently Chairman of the board of directors of Grubb & Ellis, will remain on the board of directors of Grubb & Ellis. Scott D. Peters, President and Chief Executive Officer of NNN Realty Advisors, will join the Grubb & Ellis Board of Directors and will become Chief Executive Officer and President of Grubb & Ellis at the effective time of the merger.
 
Appraisal or Dissenters’ Rights (see page 132)
 
Under Delaware law, NNN Realty Advisors stockholders who dissent to the merger have the right to dissent and demand an appraisal of the value of their shares in connection with the merger. Grubb & Ellis stockholders do not have the right to an appraisal of the value of their shares in connection with the merger.
 
Material Federal Income Tax Consequences of the Merger (see page 136)
 
A NNN Realty Advisors stockholder’s receipt of Grubb & Ellis common stock in the merger will generally be tax-free for U.S. federal income tax purposes, except for taxes that may result from any receipt of cash in lieu of a fractional share of Grubb & Ellis common stock. There will be no U.S. federal income tax consequences to a holder of Grubb & Ellis common stock as a result of the merger.
 
The U.S. federal income tax consequences described above may not apply to some holders of NNN Realty Advisors common stock, including some types of holders specifically referred to on page 137. Accordingly, please consult your tax advisor for a full understanding of the particular tax consequences of the merger to you.
 
Accounting Treatment (see page 124)
 
In accordance with accounting principles generally accepted in the U.S., which is referred to as U.S. GAAP, NNN Realty Advisors will be considered the acquiror of Grubb & Ellis for accounting purposes and NNN Realty Advisors will account for the merger under the purchase method of accounting for business transactions. Following the merger, Grubb & Ellis intends to change its fiscal year end from June 30 to December 31.
 
Regulatory Approvals (see page 138)
 
The merger is subject to review by the U.S. Federal Trade Commission, the U.S. Department of Justice and state antitrust authorities pursuant to applicable federal and state antitrust laws. Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder, which is referred to as the HSR Act, the merger cannot be completed until the companies have made required notifications, given certain information and materials to the Federal Trade Commission and to the Antitrust Division of the U.S. Department of Justice and a required waiting period has expired or been terminated. Grubb & Ellis, NNN Realty Advisors and Anthony W. Thompson, Chairman of the Board of NNN Realty Advisors, filed the required notification and report forms with the Antitrust Division and the Federal Trade Commission on July 2, 2007.
 
Listing of Grubb & Ellis Common Stock (see page 180)
 
Grubb & Ellis has agreed to use its reasonable best efforts to cause the shares of Grubb & Ellis common stock to be issued in the merger and the shares of Grubb & Ellis common stock to be reserved for issuance


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upon exercise of the NNN Realty Advisors stock options and restricted stock to be approved for listing on the NYSE.
 
Conditions to Completion of the Merger (see page 187)
 
The obligations of each of Grubb & Ellis and NNN Realty Advisors to consummate the merger are subject to the satisfaction or waiver at or before the effective time of the merger of a number of conditions, including the following:
 
  •  approval by the Grubb & Ellis and NNN Realty Advisors stockholders of the proposals required to consummate the merger (as further described in this document);
 
  •  expiration or termination of the HSR Act waiting period; and
 
  •  no change, event or circumstance has occurred that has resulted in a “material adverse effect” as to the other party.
 
The obligations of NNN Realty Advisors to consummate the merger are subject to the satisfaction or waiver at or before the effective time of the merger of the following additional conditions:
 
  •  completion of any actions necessary to cause the Grubb & Ellis Board of Directors to be composed as agreed to by Grubb & Ellis and NNN Realty Advisors (as further described in this document); and
 
  •  receipt by NNN Realty Advisors of an opinion of counsel that the merger will qualify as a tax-free reorganization.
 
Termination of the Merger Agreement (see page 187)
 
Grubb & Ellis and NNN Realty Advisors can jointly agree to terminate the merger agreement at any given time. Either company may also terminate the merger agreement if the merger is not completed by December 31, 2007, subject to certain limitations, which date may be extended to March 31, 2008, and under other circumstances described in this joint proxy statement/prospectus. If the merger agreement is validly terminated, the agreement will become void without any liability on the part of any party unless the party is in willful breach of its obligations. However, the provisions of the merger agreement relating to fees and expenses will continue in effect notwithstanding termination of the merger agreement to the extent described below.
 
Termination Fees (see page 188)
 
Termination Fees Payable by Grubb & Ellis.  Grubb & Ellis has agreed to pay a termination fee of $15.0 million under any of the following circumstances:
 
  •  the Grubb & Ellis Board of Directors makes an adverse recommendation change (as further described in this document); or
 
  •  Grubb & Ellis or NNN Realty Advisors terminates the merger agreement after Grubb & Ellis’ stockholders fail to approve the amendment to the Grubb & Ellis charter, the issuance of the Grubb & Ellis common stock to the NNN Realty Advisor stockholders or the election of the proposed board of directors as contemplated by the merger agreement at a meeting of stockholders held to vote on such matters, a competing proposal with respect to Grubb & Ellis has been made or announced before such meeting and Grubb & Ellis consummates a transaction within twelve (12) months of termination of the merger agreement with the third party that submitted or announced the competing proposal prior to Grubb & Ellis’ stockholders’ meeting.
 
Additionally, Grubb & Ellis has agreed to pay a fee of $25.0 million in the event that NNN Realty Advisors terminates the merger agreement based upon a breach by Grubb & Ellis of any representation, warranty, agreement or covenant contained in the merger agreement that would result in a failure of a condition to NNN Realty Advisors’ obligation to complete the merger and such breach is not curable or not cured within the cure period provided by the merger agreement.


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Termination Fees Payable by NNN Realty Advisors.  NNN Realty Advisors has agreed to pay a termination fee of $15.0 million in any of the following circumstances:
 
  •  the NNN Realty Advisors Board of Directors makes an adverse recommendation change (as further described in this document); or
 
  •  Grubb & Ellis or NNN Realty Advisors terminates the merger agreement after NNN Realty Advisors’ stockholders fail to adopt the merger agreement at a meeting of NNN Realty Advisors’ stockholders held to vote on such matters, a competing proposal with respect to NNN Realty Advisors has been made or announced before such meeting and NNN Realty Advisors consummates a transaction within twelve (12) months of termination of the merger agreement with the third party that submitted or announced the competing proposal prior to NNN Realty Advisors stockholders’ meeting.
 
Additionally, NNN Realty Advisors has agreed to pay a fee of $25.0 million in the event that Grubb & Ellis terminates the merger agreement based upon a breach by NNN Realty Advisors of any representation, warranty, agreement or covenant contained in the merger agreement that would result in a failure of a condition to Grubb & Ellis’ obligation to complete the merger and such breach is not curable or not cured within the cure period provided by the merger agreement.
 
Pursuant to an escrow agreement entered into in accordance with the merger agreement, NNN Realty Advisors has deposited $25.0 million with Wilmington Trust Corporation, as escrow agent, to be held in an interest bearing account. In the event that NNN Realty Advisors is obligated to pay any fees as discussed above, the escrow agent will deliver such termination fees to Grubb & Ellis from the amounts in the escrow account in accordance with the escrow agreement and the merger agreement.
 
Voting Agreements (see pages 191 and 197)
 
Entities affiliated with the Chairman of the Board of Grubb & Ellis, which collectively own approximately 39% of the outstanding shares of Grubb & Ellis common stock, have agreed to vote their shares in favor of the amendment to the Grubb & Ellis charter, the proposal to issue Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger, the election of the proposed board of directors, and the proposal to adjourn or postpone the special meeting in order to solicit additional proxies in favor of the amendment to the Grubb & Ellis charter and the issuance of Grubb & Ellis stock in the merger. Similarly, certain members of management and the board of directors of NNN Realty Advisors, who collectively own approximately 28% of the outstanding shares of NNN Realty Advisors common stock, have agreed to vote their shares in favor of the adoption of the merger agreement.
 
Headquarters (see page 180)
 
Upon completion of the merger, Grubb & Ellis will be headquartered in Santa Ana, CA.
 
Special Meetings of Grubb & Ellis and NNN Realty Advisors Stockholders
 
Grubb & Ellis Special Meeting (see page 190)
 
Meeting.  The Grubb & Ellis special meeting will be held on          , 2007, at      a.m., Central Time, at          . At the Grubb & Ellis special meeting, Grubb & Ellis stockholders will be asked:
 
  •  to approve the amendment to the Grubb & Ellis charter, effective upon completion of the merger, to increase the authorized number of shares of Grubb & Ellis common stock from 50 million to 100 million shares, to increase the authorized number of shares of Grubb & Ellis preferred stock from one million to 10 million shares and to provide for a classified board of directors with three classes of directors;
 
  •  to approve the issuance of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger;
 
  •  to elect the proposed board of directors; and


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  •  to approve an adjournment or postponement of the special meeting, including if necessary, to solicit additional proxies in favor of the foregoing proposals.
 
Record Date; Votes.  Grubb & Ellis has fixed the close of business on          , 2007, as the record date for determining the Grubb & Ellis stockholders entitled to receive notice of and to vote at the Grubb & Ellis special meeting. Only holders of record of Grubb & Ellis common stock on the Grubb & Ellis record date are entitled to receive notice of and vote at the Grubb & Ellis special meeting, and any adjournment or postponement thereof.
 
Each share of Grubb & Ellis common stock is entitled to one vote. On the Grubb & Ellis record date, there were approximately            shares of Grubb & Ellis common stock entitled to vote at the Grubb & Ellis special meeting.
 
Required Vote.  The Grubb & Ellis proposals require different percentages of votes for approval:
 
  •  the approval of the amendment to the Grubb & Ellis charter requires the affirmative vote by holders of Grubb & Ellis common stock representing a majority of the outstanding shares of Grubb & Ellis common stock entitled to vote at the Grubb & Ellis special meeting;
 
  •  the approval of the issuance of shares of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger requires the affirmative vote by holders of Grubb & Ellis common stock representing a majority of the votes cast in person or by proxy at such meeting, so long as the total number of votes cast on the proposal represents over 50% of the total number of votes entitled to be cast by all holders of the outstanding common stock;
 
  •  the election of the proposed board of directors requires the affirmative vote by holders of Grubb & Ellis common stock representing at least a plurality of the votes cast in person or by proxy at such meeting, so long as the total number of votes entitled to be cast on the proposal and present at the meeting (in person or represented by proxy) represents over 50% of the total number of votes entitled to be cast by all holders of the outstanding common stock; and
 
  •  the approval of an adjournment or postponement of the Grubb & Ellis special meeting, including, if necessary, to solicit additional proxies if there are not sufficient votes for each of the foregoing proposals, requires the affirmative vote of holders of Grubb & Ellis common stock representing a majority of the votes present in person or represented by proxy at the Grubb & Ellis special meeting and entitled to vote on the proposal.
 
Each of the first three proposals listed above relating to the merger (i.e., the amendment to the Grubb & Ellis charter, the Grubb & Ellis common stock issuance and the election of the proposed board of directors) are conditioned on one another and the approval of each of these proposals is a condition to completion of the merger. Neither the amendment to the Grubb & Ellis charter nor the issuance of Grubb & Ellis common stock in the merger nor the election of the proposed board of directors will take place unless all three of these proposals are approved by the Grubb & Ellis stockholders and the merger is completed. Therefore, the completion of the merger cannot proceed without the approval of all three proposals.
 
Stock Ownership of Grubb & Ellis Directors and Executive Officers.  On the Grubb & Ellis record date, directors and executive officers of Grubb & Ellis and their respective affiliates owned and were entitled to vote an aggregate of            shares of Grubb & Ellis common stock, or approximately           % of the shares of Grubb & Ellis common stock outstanding on that date, including approximately 39% of the outstanding Grubb & Ellis common stock subject to the voting agreement with entities affiliated with the Chairman of the Board of Grubb & Ellis. To Grubb & Ellis’ knowledge, the directors and executive officers of Grubb & Ellis and their respective affiliates intend to vote their shares of Grubb & Ellis common stock in favor of all Grubb & Ellis proposals at the Grubb & Ellis special meeting.


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NNN Realty Advisors Special Meeting (see page 196)
 
Meeting.  The NNN Realty Advisors special meeting will be held on          , 2007, at   a.m., Pacific Time, at 1551 N. Tustin Avenue, Suite 300, Santa Ana, CA 92705. At the NNN Realty Advisors special meeting, NNN Realty Advisors stockholders will be asked:
 
  •  to adopt the merger agreement, pursuant to which NNN Realty Advisors will become a wholly owned subsidiary of Grubb & Ellis; and
 
  •  to approve an adjournment or postponement of the NNN Realty Advisors special meeting, including if necessary, to solicit additional proxies in favor of the adoption of the merger agreement if there are not sufficient votes for such proposal.
 
Record Date; Votes.  NNN Realty Advisors has fixed the close of business on          , 2007, as the record date for determining the NNN Realty Advisors stockholders entitled to receive notice of and to vote at the NNN Realty Advisors special meeting. Only holders of record of NNN Realty Advisors common stock on the NNN Realty Advisors record date are entitled to receive notice of and vote at the NNN Realty Advisors special meeting, and any adjournment or postponement thereof.
 
Each share of NNN Realty Advisors common stock is entitled to one vote. On the NNN Realty Advisors record date, there were            shares of NNN Realty Advisors common stock entitled to vote at the NNN Realty Advisors special meeting.
 
Required Vote.  The proposals require different percentages of votes in order to approve them:
 
  •  the adoption of the merger agreement requires the affirmative vote of a majority of the outstanding shares of NNN Realty Advisors common stock entitled to vote at the NNN Realty Advisors special meeting; and
 
  •  the approval of an adjournment or postponement of the NNN Realty Advisors special meeting, including, if necessary, to solicit additional proxies in favor of such adoption, requires the affirmative vote of holders of NNN Realty Advisors common stock representing a majority of the voting power of such shares present in person or represented by proxy at the NNN Realty Advisors special meeting and entitled to vote on the proposal.
 
Adoption of the merger agreement by NNN Realty Advisors’ stockholders is a condition to completion of the merger.
 
Stock Ownership of Directors and Executive Officers.  On the NNN Realty Advisors record date, directors and executive officers of NNN Realty Advisors and their respective affiliates owned and were entitled to vote an aggregate of            shares of NNN Realty Advisors common stock, or approximately      % of the shares of NNN Realty Advisors common stock outstanding on that date, including approximately 28% of the outstanding NNN Realty Advisors common stock subject to voting agreements with certain directors and members of management of NNN Realty Advisors. To NNN Realty Advisors’ knowledge, the directors and executive officers of NNN Realty Advisors and their respective affiliates intend to vote their shares of NNN Realty Advisors common stock in favor of both NNN Realty Advisors proposals at the NNN Realty Advisors special meeting.


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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF GRUBB & ELLIS
 
The following tables set forth the selected historical consolidated financial data for Grubb & Ellis. The selected consolidated financial data as of and for the fiscal years ended June 30, 2006, 2005, 2004, 2003 and 2002 have been derived from Grubb & Ellis’ consolidated financial statements. You should not take historical results as necessarily indicative of the results that may be expected for any future period. The selected consolidated financial data as of and for the nine months ended March 31, 2007 and 2006 have been derived from Grubb & Ellis’ unaudited consolidated condensed financial statements. The results for the nine months ended March 31, 2007 are not necessarily indicative of results that may be expected for the entire fiscal year.
 
                                                         
    Nine Months Ended
       
    March 31,     For the Years Ended June 30,  
    2007     2006     2006     2005     2004     2003     2002  
(In thousands, except share data)
  (Unaudited)                                        
                                                         
Total services revenue
  $ 378,036     $ 370,551     $ 490,127     $ 463,535     $ 440,554     $ 425,946     $ 431,446  
Net income (loss) to common stockholders
    (103,264 )     4,418       4,911       12,378       12,576       (17,902 )     (15,477 )
Benefit (provision) for income taxes
    (1,959 )     (594 )     (2,487 )     152       2,821       (2,432 )     1,187  
(Increase) decrease in deferred tax asset valuation allowance
    (657 )     1,864       1,688       5,208       7,853       (7,707 )     (5,214 )
Net income (loss)(1)
    2,003       4,418       4,911       13,267       14,194       (16,772 )     (15,477 )
Net income (loss) per common share(1)
                                                       
— Basic
    (4.06 )     0.35       0.41       0.82       0.83       (1.19 )     (1.09 )
— Diluted
    (4.06 )     0.34       0.40       0.81       0.83       (1.19 )     (1.09 )
Weighted average common shares
                                                       
— Basic
    25,436,651       12,758,619       11,965,899       15,111,898       15,097,371       15,101,625       14,147,618  
— Diluted
    25,436,651       13,095,665       12,314,242       15,221,982       15,101,183       15,101,625       14,147,618  
 
 
(1) Income and per share data reported on the above table reflect special charges in the amount of $3.2 million, $9.5 million, and $1.75 million for the fiscal years ended June 30, 2004, 2003 and 2002, respectively
 
                                                 
    March 31,     June 30,  
    2007     2006     2005     2004     2003     2002  
(In thousands, except share data)
    (Unaudited )                                        
Consolidated Balance Sheet Data (at end of period):
                                               
Total assets
  $ 135,442     $ 94,223     $ 84,620     $ 73,715     $ 75,102     $ 90,377  
Working capital
    6,341       9,993       18,094       8,622       (2,723 )     4,251  
Long-term debt
    3,954       40,000       25,000       25,000             36,660  
Long-term debt — affiliate
                            31,300        
Other long-term liabilities
    11,224       9,826       6,628       7,551       10,323       10,396  
Stockholders’ equity
    45,986       11,526       24,497       14,623       255       5,866  
Book value per common share
    1.78       1.22       1.62       0.97       0.02       0.39  
Common shares outstanding
    25,906,870       9,579,025       15,114,871       15,097,371       15,097,371       15,028,839  


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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF NNN REALTY ADVISORS
 
The following tables set forth the selected historical consolidated financial data for NNN Realty Advisors, Inc., and its subsidiaries, as of and for the years ended, December 31, 2006, 2005, 2004, 2003 and 2002 and as of and for the three months ended March 31, 2007 and 2006. Triple Net Properties was the predecessor to NNN Realty Advisors prior to November 16, 2006. The selected historical consolidated financial data as of and for the years ended December 31, 2006, 2005 and 2004 have been derived from the audited financial statements included in this joint proxy statement/prospectus. The selected consolidated financial and operating data as of and for the three months ended March 31, 2007 and 2006 have been derived from NNN Realty Advisors’ unaudited consolidated financial statements included in this joint proxy statement/prospectus. The selected historical financial data as of and for the years ended December 31, 2003 and 2002 have been derived from the audited consolidated financial statements not included in this joint proxy statement/prospectus. You should not take historical results as necessarily indicative of the results that may be expected for any future period. The results for the three months ended March 31, 2007 are not necessarily indicative of results that may be expected for the entire fiscal year.
 
                                                         
    Three Months Ended
       
    March 31,     Year Ended December 31,  
    2007     2006(2)     2006(1)     2005(2)     2004(2)     2003(2)     2002(2)  
    (Unaudited)                                
(In thousands, except per share data)                                          
 
Consolidated Statement of Operations Data:
                                                       
Total services revenue
  $ 28,497     $ 25,546     $ 96,251     $ 87,125     $ 64,900     $ 34,426     $ 14,547  
Total revenue
    31,748       28,679       108,306       92,859       67,211       36,700       15,514  
Total compensation costs
    13,592       8,015       49,449       29,873       19,717       9,964       5,740  
Total operating expense
    26,303       18,158       97,334       74,215       51,082       28,681       11,788  
Operating income
    5,445       10,521       10,972       18,644       16,129       8,019       3,726  
Income from continuing operations
    3,797       10,617       16,098       18,124       16,247       8,543 (3)     3,903  
Net income to stockholders
    3,637       10,617       16,094       18,124       16,247       8,291       3,872  
Basic earnings per share:
                                                       
Income from continuing operations
  $ .09     $ 0.54     $ 0.72     $ 0.93     $ 0.82     $ 0.45     $ 0.23  
Net income
  $ .09     $ 0.54     $ 0.72     $ 0.93     $ 0.82     $ 0.43     $ 0.23  
Diluted earnings per share:
                                                       
Income from continuing operations
  $ .09     $ 0.54     $ 0.72     $ 0.93     $ 0.82     $ 0.45     $ 0.23  
Net income
  $ .09     $ 0.54     $ 0.72     $ 0.93     $ 0.82     $ 0.43     $ 0.23  
Shares used in computing basic earnings per share(1)
    41,943       19,546       22,365       19,546       19,781       19,081       17,143  
Shares used in computing diluted earnings per share(1)
    41,988       19,546       22,379       19,546       19,781       19,081       17,143  
Dividends declared per share
  $ .045           $ 0.09                          
Consolidated Statement of Cash Flow Data:
                                                       
Net cash (used in) provided by operating activities
    (6,879 )     8,358     $ 15,201     $ 23,536     $ 17,214     $ 10,941     $ 3,411  
Net cash (used in) provided by investing activities
    (158,726 )     11,420       (57,112 )     (35,183 )     (13,046 )     (1,851 )     (4,071 )
Net cash provided by (used in) financing activities
    133,217       (19,082 )   $ 143,589     $ 10,251     $ (7,647 )   $ (4,662 )   $ 1,381  
 


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    March 31,
    December 31,  
    2007     2006     2005     2004     2003     2002  
    (Unaudited)                                
 
Consolidated Balance Sheet Data (at end of period):
                                               
Total assets
  $ 472,316     $ 328,043     $ 86,336     $ 42,911     $ 31,380     $ 22,674  
Line of credit
                8,500       3,545       2,535       1,150  
Notes payable
    503       4,933       17,242             19       991  
Participating notes
    16,277       10,263       2,300       4,845       6,345       7,300  
Redeemable preferred liability
                6,077       5,717       5,564        
Members’ and stockholders’ equity
  $ 225,065     $ 221,944     $ 28,777     $ 16,783     $ 7,154     $ 5,024  
 
 
(1) Includes a full year of operating results of Triple Net Properties, LLC, or Triple Net Properties, and one and one-half months of Triple Net Properties Realty Inc., or Realty (each acquired on November 16, 2006), and one-half month of NNN Capital Corp., or Capital Corp. (acquired on December 14, 2006). Triple Net Properties was treated as the acquiror in connection with these transactions.
 
(2) Includes operating results of Triple Net Properties as predecessor to NNN Realty Advisors.
 
(3) Income from continuing operations before cumulative effect of change in accounting principle of $18,000 related to adoption of SFAS No. 150.

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SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
 
The following summary unaudited pro forma condensed combined consolidated statements of operations data for the year ended December 31, 2006 and the three months ended March 31, 2007 reflects the merger of Grubb & Ellis and NNN Realty Advisors, or the merger, as if it had occurred on January 1, 2006. The following unaudited pro forma balance sheet data at March 31, 2007 reflects the merger as if it had occurred on that date. NNN Realty Advisors is the acquiror for purposes of accounting for the merger. Such pro forma financial data is based on the historical financial statements of Grubb & Ellis and NNN Realty Advisors and gives effect to the merger under the purchase method of accounting for business combinations. The Grubb & Ellis historical financials for the twelve months ended December 31, 2006 are compiled from interim financial reports and information filed with the Securities and Exchange Commission. Following the merger, Grubb & Ellis intends to change its fiscal year from June 30 to December 31.
 
The accompanying unaudited pro forma condensed combined financial statements are presented for information purposes only and are subject to a number of estimates, assumptions and other uncertainties, and do not purport to represent what the results of operations or financial position actually would have been for the combined company had the merger in fact occurred on the dates specified, nor purport to project the results of operations or financial position for the combined company for any future period or at any future date. All pro forma adjustments are based on preliminary estimates and assumptions and are subject to revision upon finalization of the purchase accounting for the acquisitions and the related transactions. In management’s opinion, all adjustments necessary to reflect the transactions have been made. The summary unaudited pro forma financial data are derived from and should be read in conjunction with the unaudited pro forma condensed combined consolidated financial information and the notes thereto beginning on page 47.
 
                         
    Three Months
    Twelve Months
       
    Ended
    Ended
    As of
 
(In thousands, except share and per share data)   March 31, 2007     December 31, 2006     March 31, 2007  
Pro Forma Statement of Operations Data:
                       
Net revenues
  $ 146,562     $ 623,337          
Income (loss) from continuing operations
  $ (235 )   $ 6,890          
Income (loss) from continuing operations per share basic and diluted
  $ (0.00 )   $ 0.17          
Shares used in computing basic earnings per share
    63,036,733       41,418,783          
Shares used in computing diluted earnings per share
    63,036,733       41,681,983          
Pro Forma Balance Sheet Information:
                       
Cash, cash equivalents and investments in marketable securities
                  $ 110,733  
Total assets
                  $ 809,399  
Total liabilities
                  $ 276,740  
Shareholders’ Equity
                  $ 531,664  


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RISK FACTORS
 
In addition to the other information included and incorporated by reference into this document, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risk factors before deciding whether to vote for the adoption of the merger agreement, in the case of NNN Realty Advisors stockholders, or for the issuance of shares of Grubb & Ellis common stock, the amendment to the Grubb & Ellis charter and the election of the proposed board of directors, in the case of Grubb & Ellis stockholders. In addition to the risk factors set forth below, you should read and consider other risk factors specific to each of the Grubb & Ellis and NNN Realty Advisors businesses that will also affect the combined company after the merger.
 
Risks Related to the Merger
 
The exchange ratio is fixed and will not be adjusted. If the market price of shares of Grubb & Ellis common stock declines, NNN Realty Advisors stockholders will receive less value for their shares upon the completion of the merger than the value calculated pursuant to the exchange ratio on the date the merger agreement was signed or on the date of the NNN Realty Advisors special meeting.
 
Upon completion of the merger, each share of NNN Realty Advisors common stock outstanding immediately prior to the merger will be converted into the right to receive 0.88 of a share of Grubb & Ellis common stock. The exchange ratio is fixed at 0.88 of a share of Grubb & Ellis common stock for each share of NNN Realty Advisors common stock, and will not be adjusted due to any increases or decreases in the price of Grubb & Ellis common stock. If the price of Grubb & Ellis common stock declines, NNN Realty Advisors stockholders will receive less value for their shares upon completion of the merger than the value calculated pursuant to the exchange ratio on the date the merger agreement was signed or on the date of the NNN Realty Advisors special meeting.
 
The merger may not be completed until a significant period of time has passed after the merger agreement was executed by Grubb & Ellis and NNN Realty Advisors, during which time the market value of Grubb & Ellis common stock will fluctuate. At the time of their respective special meetings, Grubb & Ellis and NNN Realty Advisors stockholders will not know the exact market value of Grubb & Ellis common stock that will be issued in connection with the merger. The market price of a share of Grubb & Ellis common stock at the time the merger is completed is likely to be different, and may be lower, than it was at the time the merger agreement was signed and at the time of the special meetings. The closing price of Grubb & Ellis common stock on the NYSE on July 2, 2007 was $11.73 per share. From May 23, 2007 through the date of this document, the trading price of Grubb & Ellis common stock ranged from a high of $13.22 per share to a low of $11.47 per share. For Grubb & Ellis historical market prices, see “Comparative Per Share Market Price and Dividend Information” beginning on page 43.
 
The Grubb & Ellis stock price may fluctuate as a result of a variety of factors, including, but not limited to:
 
  •  government, litigation and/or regulatory developments or considerations;
 
  •  general market and economic conditions;
 
  •  market assessments as to whether and when the merger will be consummated and market assessments of the condition, results or prospects of either company’s business;
 
  •  governmental actions or legislative developments affecting the real estate industry generally; and
 
  •  catastrophic events, both natural and man-made.
 
Stockholders of Grubb & Ellis and NNN Realty Advisors are urged to obtain market quotations for Grubb & Ellis common stock when they consider whether to approve the proposals required to complete the merger at the respective special meetings.


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The combined company may be unable to successfully integrate Grubb & Ellis’ and NNN Realty Advisors’ operations 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 Grubb & Ellis common stock.
 
Currently, each company operates as an independent company. Achieving the anticipated benefits of the merger will depend in part upon the success of the two companies integrating their businesses in an efficient and effective manner. The companies may not be able to accomplish this integration process smoothly or successfully and integration may result in additional and unforeseen expenses. The necessity of coordinating geographically separated organizations, systems and facilities and addressing possible differences in business backgrounds, corporate cultures and management philosophies may increase the difficulties of integration. The companies operate numerous systems, including those involving management information, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance.
 
Due to legal restrictions, NNN Realty Advisors and Grubb & Ellis have been able to conduct only limited planning regarding the integration of the two companies following the merger and have not yet determined the exact nature of how the businesses and operations of the two companies will be combined after the merger. The integration of certain operations following the merger will require the dedication of significant management resources, which may temporarily distract management’s attention from the day-to-day business of the combined company. Employee uncertainty and lack of focus during the integration process may also disrupt the business of the combined company. The companies may not be able to achieve the anticipated long-term strategic benefits of the merger. An inability to realize the full extent of, or any of, the anticipated benefits of the merger, as well as any delays encountered, or additional costs incurred, in the integration process, could have a material adverse effect on the business and results of operations of the combined company, which may affect the value of the shares of Grubb & Ellis common stock after the completion of the merger.
 
Failure to complete the merger could negatively impact the stock prices and the future business and financial results of Grubb & Ellis and NNN Realty Advisors.
 
Grubb & Ellis or NNN Realty Advisors may be adversely affected and subject to certain risks if the merger is not completed. These risks include the following:
 
  •  the obligation, under certain circumstances under the merger agreement, to pay a termination fee of $15.0 million or a fee of $25.0 million for certain breaches of the merger agreement (see “The Merger Agreement — Termination Fees” beginning on page 188);
 
  •  the incurrence of unreimbursable costs relating to the merger;
 
  •  the attention of management of Grubb & Ellis and NNN Realty Advisors will have been diverted to the merger instead of on such company’s own operations and pursuit of other opportunities that could have been beneficial to such company; and
 
  •  customer perception may be negatively impacted which could affect the ability of Grubb & Ellis and NNN Realty Advisors to compete for, or to win, new and renewal business in the marketplace.
 
The failure to complete the merger and the occurrence of some, or all, of the above risks could have a material adverse effect on the business and results of operations of each of Grubb & Ellis and NNN Realty Advisors.
 
Charges to earnings resulting from the application of the purchase method of accounting may adversely affect the market value of Grubb & Ellis common stock following the merger.
 
In accordance with U.S. GAAP, NNN Realty Advisors will be considered the acquiror of Grubb & Ellis for accounting purposes. NNN Realty Advisors will account for the merger using the purchase method of accounting, which will result in charges to Grubb & Ellis’ earnings that could adversely affect the market value of Grubb & Ellis common stock following the completion of the merger. Under the purchase method of


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accounting, NNN Realty Advisors will allocate the total purchase price to the assets acquired and liabilities assumed from Grubb & Ellis based on their fair values as of the date of the completion of the merger, and record any excess of the purchase price over those fair values as goodwill. For certain tangible and intangible assets, reevaluating their fair values as of the completion date of the merger will result in NNN Realty Advisors’ incurring additional depreciation and/or amortization expense that exceeds the combined amounts recorded by NNN Realty Advisors and Grubb & Ellis prior to the merger. This increased expense will be recorded by Grubb & Ellis over the useful lives of the underlying assets. In addition, to the extent the value of goodwill or intangible assets were to become impaired, Grubb & Ellis may be required to incur charges relating to the impairment of those assets. See “The Merger — Accounting Treatment” beginning on page 124.
 
Grubb & Ellis and NNN Realty Advisors must obtain governmental and regulatory consents to complete the merger, which, if delayed, not granted or granted with unacceptable conditions, may jeopardize or delay the completion of the merger, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the merger.
 
Completion of the merger is conditioned on the receipt of all material governmental authorizations, consents, orders and approvals, including the expiration or termination of the applicable waiting periods under the HSR Act. Grubb & Ellis and NNN Realty Advisors intend to pursue all required approvals in accordance with the merger agreement. If the companies do not receive these approvals, or do not receive them on terms that satisfy the conditions set forth in the merger agreement, then neither company will be obligated to complete the merger.
 
The governmental agencies from which the companies will seek these approvals have broad discretion in administering the governing regulations. As a condition to approval of the merger, agencies may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of the combined company’s business. These requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the completion of the merger or may reduce the anticipated benefits of the merger. Further, no assurance can be given that the required consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all required consents and approvals are obtained and the conditions to the completion of the merger are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals. If Grubb & Ellis and NNN Realty Advisors agree to any material requirements, limitations, costs, divestitures or restrictions in order to obtain any approvals required to complete the merger, these requirements, limitations, additional costs or restrictions could adversely affect the two companies’ ability to integrate their operations or reduce the anticipated benefits of the merger. This could result in a failure to complete the merger or have a material adverse effect on the business and results of operations of the combined company. See “The Merger Agreement — Conditions to Completion of the Merger” beginning on page 187 for a discussion of the conditions to the completion of the merger and “Regulatory and Other Approvals Required for the Merger” beginning on page 138 for a description of the regulatory approvals necessary in connection with the merger.
 
The combined company will incur significant transaction and merger-related costs in connection with the merger.
 
Grubb & Ellis and NNN Realty Advisors expect to incur a number of non-recurring costs associated with combining the operations of the two companies, the substantial majority of which are the transaction costs related to the merger, facilities and systems consolidation costs and employment-related costs. Grubb & Ellis and NNN Realty Advisors will also incur transaction fees and costs related to formulating integration plans. Additional unanticipated costs may be incurred in the integration of the two companies’ businesses. Due to legal restrictions, NNN Realty Advisors and Grubb & Ellis have been able to conduct only limited planning regarding the integration of the two companies and have not yet been able to formulate detailed integration plans to deliver anticipated synergies. Although Grubb & Ellis and NNN Realty Advisors expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses should allow them to offset incremental transaction and merger-related costs over time, this net


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benefit may not be achieved in the near term, or at all, which could have a material adverse effect on the business and results of operations of the combined company.
 
Whether or not the merger is completed, the announcement and pendency of the merger could impact or cause disruptions in NNN Realty Advisors’ and Grubb & Ellis’ businesses, which could have a material adverse effect on their results of operations and financial condition.
 
Whether or not the merger is completed, the announcement and pendency of the merger could impact or cause disruption in NNN Realty Advisors’ and Grubb & Ellis’ businesses. Specifically:
 
  •  current and prospective clients of Grubb & Ellis and of NNN Realty Advisors may experience uncertainty associated with the merger, including with respect to current or future business relationships with Grubb & Ellis, NNN Realty Advisors or the combined company, and may attempt to negotiate changes in, or terminate, existing business relationships or consider entering into business relationships with parties other than Grubb & Ellis, NNN Realty Advisors or the combined company, either before or after completion of the merger;
 
  •  NNN Realty Advisors and Grubb & Ellis employees may experience uncertainty about their future roles with the combined company, which might adversely affect NNN Realty Advisors’ and Grubb & Ellis’ ability to retain and hire key managers and other employees;
 
  •  if the merger is completed, the accelerated vesting of stock options and availability of certain other “change in control” benefits to Grubb & Ellis’ officers and employees on completion of the merger could result in increased difficulty or cost in retaining Grubb & Ellis officers and employees; and
 
  •  the attention of management of each of NNN Realty Advisors and Grubb & Ellis may be directed toward the completion of the merger and transaction-related considerations and may be diverted from the day-to-day business operations of their respective companies.
 
NNN Realty Advisors and Grubb & Ellis may face additional challenges in competing for new business and retaining or renewing business. These disruptions could be exacerbated by a delay in the completion of the merger or termination of the merger agreement and could have an adverse effect on the businesses and results of operations or prospects of NNN Realty Advisors and Grubb & Ellis if the merger is not completed or of the combined company if the merger is completed.
 
The pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger.
 
The pro forma financial statements contained in this joint proxy statement/prospectus are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger for several reasons. For example, the pro forma financial statements have been derived from the historical financial statements of Grubb & Ellis and NNN Realty Advisors and certain adjustments and assumptions have been made regarding the combined company after giving effect to the merger. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with complete accuracy. Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the merger. For example, the impact of any incremental costs incurred in integrating the two companies is not reflected in the pro forma financial statements. As a result, the actual financial condition and results of operations of the combined company following the merger may not be consistent with, or evident from, these pro forma financial statements.
 
In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition or results of operations following the merger. Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the stock price of the combined company. See the section entitled “Unaudited Pro Forma Condensed Combined Consolidated Financial Information” beginning on page 47.


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Certain directors and executive officers of Grubb & Ellis and NNN Realty Advisors have interests that are different from, or in addition to, interests of Grubb & Ellis and NNN Realty Advisors stockholders generally.
 
Some of the directors of NNN Realty Advisors and Grubb & Ellis who recommended that the NNN Realty Advisors stockholders and the Grubb & Ellis stockholders, respectively, vote in favor of all of the proposals set forth in this joint proxy statement/prospectus and certain of the executive officers of NNN Realty Advisors and Grubb & Ellis who provided information to the NNN Realty Advisors Board of Directors and Grubb & Ellis Board of Directors, respectively, relating to the merger, have employment, indemnification and severance benefit arrangements, rights to acceleration of stock options, restricted stock and other benefits on a change in control and rights to ongoing indemnification and insurance that provide them with interests in the merger that may differ from NNN Realty Advisors’ and Grubb & Ellis’ stockholders, generally. The receipt of compensation or other benefits, including the rights to acceleration of stock options and restricted stock referred to above by Grubb & Ellis’ and NNN Realty Advisors’ executive officers in connection with the merger, may make it more difficult for the combined company to retain their services after the merger, or require the combined company to expend additional sums to continue to retain their services. Each NNN Realty Advisors stockholder and Grubb & Ellis stockholder should be aware of these interests when considering the recommendations of the respective boards of directors.
 
Risks Related to Grubb & Ellis
 
A downturn in the general economy or the real estate market would harm Grubb & Ellis’ business.
 
Grubb & Ellis’ business is negatively impacted by periods of economic slowdown or recession, rising interest rates and declining demand for real estate. These economic conditions could have a number of effects, including the following:
 
  •  a decline in acquisition, disposition and leasing activity;
 
  •  a decline in the supply of capital invested in commercial real estate;
 
  •  a decline in the value of real estate and in rental rates, which would cause Grubb & Ellis to realize lower revenue from:
 
  •  property management fees, which in certain cases are calculated as a percentage of the revenue of the property under management; and
 
  •  commissions or fees derived from property valuation, sales and leasing, which are typically based on the value, sale price or lease revenue commitment, respectively.
 
The real estate market tends to be cyclical and related to the condition of the economy overall and to the perceptions of investors and users as to the economic outlook. A downturn in the economy or the real estate markets could have a material adverse effect on Grubb & Ellis’ business and results of operations.
 
Grubb & Ellis is in a highly competitive business with numerous competitors, some of which may have greater financial and operational resources than it does.
 
Grubb & Ellis competes in a variety of service disciplines within the commercial real estate industry. Each of these business areas is highly competitive on a national as well as on a regional and local level. Grubb & Ellis faces competition not only from other national real estate service providers, but also from global real estate service providers, boutique real estate advisory firms, consulting and appraisal firms. Depending on the product or service, Grubb & Ellis also faces competition from other real estate service providers, institutional lenders, insurance companies, investment banking firms, investment managers and accounting firms, some of which may have greater financial resources than Grubb & Ellis does. Grubb & Ellis is also subject to competition from other large national firms and from multi-national firms that have similar service competencies to it. Although many of Grubb & Ellis’ competitors are local or regional firms that are substantially smaller than it, some of its competitors are substantially larger than it on a local, regional, national or international basis. In general, there can be no assurance that Grubb & Ellis will be able to


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continue to compete effectively, to maintain current fee levels or margins, or maintain or increase its market share.
 
As a service-oriented company, Grubb & Ellis depends on key personnel, and the loss of its current personnel or its failure to hire and retain additional personnel could harm its business.
 
Grubb & Ellis depends on its ability to attract and retain highly skilled personnel. Grubb & Ellis believes that its future success in developing its business and maintaining a competitive position will depend in large part on its ability to identify, recruit, hire, train, retain and motivate highly skilled executive, managerial, sales, marketing and customer service personnel. Competition for these personnel is intense, and Grubb & Ellis may not be able to successfully recruit, assimilate or retain sufficiently qualified personnel. Grubb & Ellis’ ability to attract new employees may be limited by certain restrictions in its senior secured credit facility, including limitations on cash bonus payments to new hires and may only make cash payments that exceed those limits if it receives approval from the administrative agent, which cannot be guaranteed. Grubb & Ellis’ failure to recruit and retain necessary executive, managerial, sales, marketing and customer service personnel could harm its business and its ability to obtain new customers.
 
If Grubb & Ellis Realty Advisors, Inc., or G&E Realty Advisors, an affiliate of Grubb & Ellis, is forced to liquidate and dissolve, then Grubb & Ellis’ reputation may be damaged, and it would lose its investment and potential revenue.
 
G&E Realty Advisors is a blank check company formed on September 7, 2005, to acquire, through a purchase, asset acquisition or other business combination, commercial real estate properties and/or assets. In March 2006, G&E Realty Advisors raised net proceeds of approximately $133.5 million from an initial public offering. Grubb & Ellis previously provided G&E Realty Advisors with its initial equity capital of $2.5 million. As of May 31, 2007, Grubb & Ellis owned approximately 19% of the common stock of G&E Realty Advisors exclusive of any shares of common stock that Grubb & Ellis has the right to acquire upon the exercise of 4,645,521 warrants that it purchased in the open market.
 
Although on June 18, 2007 (i) Grubb & Ellis entered into a definitive purchase agreement to sell to G&E Realty Advisors three commercial real estate properties that Grubb & Ellis had acquired to transfer to G&E Realty Advisors (although at the time of their acquisition, there was no agreement or understanding with G&E Realty Advisors to acquire such properties from Grubb & Ellis, and G&E Realty Advisors was under no obligation to do so), and (ii) G&E Realty Advisors filed a preliminary proxy statement seeking approval of the G&E Realty Advisors’ stockholders to (among other things) acquire such properties from Grubb & Ellis and effect the G&E Realty Advisors business combination, there can be no assurances that G&E Realty Advisors will obtain the requisite stockholders approval and effect this business combination. The failure of G&E Realty Advisors to effect this business combination would require that entity to liquidate and dissolve, which could harm Grubb & Ellis because of its association with that entity. G&E Realty Advisors is obligated to complete this proposed business combination by March 2008. In order to do so (i) G&E Realty Advisors must obtain the approval of the holders of the majority of the common stock held by its stockholders who acquired their shares of common stock in the initial public offering, or thereafter, and (ii) no more than 19.99% of its stockholders may vote against the business combination and request the return of their money from escrow. In the event G&E Realty Advisors fails to effect this or any other business combination in the timeframe mentioned above (and any business combination other than the one currently proposed with Grubb & Ellis may have to be effected in a shorter time frame), G&E Realty Advisors will automatically liquidate and dissolve. Some of the ways this could harm Grubb & Ellis are:
 
  •  It could damage Grubb & Ellis reputation, because of its close association with that entity.  The liquidation or dissolution of G&E Realty Advisors could damage Grubb & Ellis’ reputation and, as a result, may hinder its ability to retain or attract new customers and clients.
 
  •  Grubb & Ellis would lose its entire investment in that entity.  Although G&E Realty Advisors’ public stockholders will be entitled to receive any remaining amounts held in escrow as part of its initial public offering after third party claims, Grubb & Ellis would lose its initial $2.5 million equity


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  investment in G&E Realty Advisors, represented by 5,667,719 shares of common stock of G&E Realty Advisors, because of Grubb & Ellis’ agreement to forfeit its entire equity investment if G&E Realty Advisors liquidates or dissolves. In addition, in connection with G&E Realty Advisors’ initial public offering, Grubb & Ellis entered into an agreement with Deutsche Bank Securities Inc. obligating Grubb & Ellis to purchase, during the period commencing May 3, 2006 and continuing through June 28, 2006 (which was subsequently extended to August 27, 2006) and to the extent available, up to $3,500,000 of G&E Realty Advisors’ warrants in the public marketplace if the warrants are trading at $0.70 or less per warrant. Pursuant to its agreement with Deutsche Bank, Grubb & Ellis acquired an aggregate of 4,645,521 warrants for an aggregate purchase price of approximately $2,178,000, excluding aggregate commissions of approximately $186,000. Any warrants purchased by Grubb & Ellis would lose their entire value if G&E Realty Advisors liquidates or dissolves.
 
  •  Grubb & Ellis would lose the opportunity to earn revenues and fees in accordance with the terms and conditions of its agreements with G&E Realty Advisors.  Grubb & Ellis entered into various agreements with G&E Realty Advisors, pursuant to which Grubb & Ellis will serve as its exclusive provider of commercial real estate brokerage and consulting services related to real property acquisitions, dispositions, project management and agency leasing, and will also serve as the sole exclusive managing agent for all real property acquired by G&E Realty Advisors. The liquidation or dissolution of G&E Realty Advisors would prevent Grubb & Ellis from earning any fees under these agreements.
 
Grubb & Ellis has entered into certain master agreements with G&E Realty Advisors, including agreements for brokerage services, property management and project management. Grubb & Ellis’ brokerage customers may perceive that it has a conflict of interest in delivering services due to its relationship with G&E Realty Advisors and as a result its business may be harmed.
 
Grubb & Ellis has entered into a brokerage services agreement, a property management agreement and a project management agreement with G&E Realty Advisors. Pursuant to these agreements, Grubb & Ellis will serve as G&E Realty Advisors’ exclusive agent with respect to commercial real estate brokerage and property management, and will perform project management services at their request. Grubb & Ellis’ Chief Executive Officer, Chief Financial Officer and certain of Grubb & Ellis’ directors also provide services to G&E Realty Advisors in the same capacities. Due to its business agreements and overlapping management with G&E Realty Advisors, Grubb & Ellis’ brokerage customers may perceive that Grubb & Ellis has a conflict of interest in delivering services and will favor G&E Realty Advisors when presenting certain business opportunities that could be appropriate for such client. As a result, Grubb & Ellis may not retain such clients which could have a material adverse effect on its business and results of operations.
 
Grubb & Ellis’ 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.
 
Historically, the majority of Grubb & Ellis’ revenue has been derived from the transaction services that it provides. Such services are typically subject to seasonal fluctuations. Grubb & Ellis typically experiences its lowest quarterly revenue in the quarter ending March 31 of each year with higher and more consistent revenue in the quarters ending June 30 and September 30. The quarter ending December 31 has historically provided the highest quarterly level of revenue due to increased activity caused by the desire of clients to complete transactions by calendar year-end. However, Grubb & Ellis’ non-variable operating expenses, which are treated as expenses when incurred during the year, are relatively constant in total dollars on a quarterly basis. As a result, since a high proportion of these operating expenses are fixed, declines in revenue could disproportionately affect Grubb & Ellis’ operating results in a quarter. In addition, Grubb & Ellis’ quarterly operating results have fluctuated in the past and will likely continue to fluctuate in the future. If Grubb & Ellis’ quarterly operating results fail to meet expectations, the price of Grubb & Ellis securities could fluctuate or decline significantly.


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If Grubb & Ellis 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.
 
Any material downturn in Grubb & Ellis’ revenue or increase in its costs and expenses could impair its ability to meet its debt obligations. Since Grubb & Ellis’ lenders under a senior secured credit facility have a lien on substantially all of its assets, including its accounts receivable, cash, general intangibles, investment property and future acquired material property, if Grubb & Ellis fails to meet its payment or other obligations under the senior secured credit facility, the lenders under such credit facility will be entitled to foreclose on substantially all of Grubb & Ellis’ assets and liquidate these assets.
 
If the properties that Grubb & Ellis manages fail to perform, then its business and results of operations could be harmed.
 
Grubb & Ellis’ success partially depends upon the performance of the properties it manages. The revenue Grubb & Ellis generates from its property management business is generally a percentage of aggregate rent collections from the properties. The performance of these properties will depend upon the following factors, among others, many of which are partially or completely outside of Grubb & Ellis’ control:
 
  •  Grubb & Ellis’ ability to attract and retain creditworthy tenants;
 
  •  the magnitude of defaults by tenants under their respective leases;
 
  •  Grubb & Ellis’ ability to control operating expenses;
 
  •  governmental regulations, local rent control or stabilization ordinances which are in, or may be put into, effect;
 
  •  various uninsurable risks;
 
  •  financial conditions prevailing generally and in the areas in which these properties are located;
 
  •  the nature and extent of competitive properties; and
 
  •  the general real estate market.
 
These or other factors may negatively impact the properties that Grubb & Ellis manages, which could have a material adverse effect on its business and results of operations.
 
If Grubb & Ellis 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.
 
Due to the broad geographic scope of Grubb & Ellis’ operations and the numerous forms of real estate services performed, it is subject to numerous federal, state and local laws and regulations specific to the services performed. For example, the brokerage of real estate sales and leasing transactions requires Grubb & Ellis to maintain brokerage licenses in each state in which it operates. If Grubb & Ellis fails to maintain its licenses or conduct brokerage activities without a license, then it may be required to pay fines (including treble damages in certain states) or return commissions received or have licenses suspended. In addition, because the size and scope of real estate sales transactions have increased significantly during the past several years, both the difficulty of ensuring compliance with the numerous state licensing regimes and the possible loss resulting from non-compliance have increased. Furthermore, the laws and regulations applicable to Grubb & Ellis’ business, both in the United States and in foreign countries, also may change in ways that increase the costs of compliance. The failure to comply with both foreign and domestic regulations could result in significant financial penalties which could have a material adverse effect on Grubb & Ellis’ business and results of operations.


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Grubb & Ellis may have liabilities in connection with real estate brokerage and property and facilities management activities.
 
As a licensed real estate broker, Grubb & Ellis and its licensed employees and independent contractors that work for it are subject to statutory due diligence, disclosure and standard-of-care obligations. Failure to fulfill these obligations could subject Grubb & Ellis or its employees to litigation from parties who purchased, sold or leased properties that Grubb & Ellis or they brokered or managed. Grubb & Ellis could become subject to claims by participants in real estate sales claiming that Grubb & Ellis did not fulfill its statutory obligations as a broker.
 
In addition, in Grubb & Ellis’ property and facilities management businesses, it hires and supervises third-party contractors to provide construction and engineering services for its managed properties. While Grubb & Ellis’ role is limited to that of a supervisor, it may be subject to claims for construction defects or other similar actions. Adverse outcomes of property and facilities management litigation could have a material adverse effect on Grubb & Ellis’ business and results of operations.
 
Environmental regulations may adversely impact Grubb & Ellis’ business and/or cause Grubb & Ellis to incur costs for cleanup of hazardous substances or wastes or other environmental liabilities.
 
Federal, state and local laws and regulations impose various environmental zoning restrictions, use controls, and disclosure obligations which impact the management, development, use, and/or sale of real estate. Such laws and regulations tend to discourage sales and leasing activities, as well as mortgage lending availability, with respect to some properties. A decrease or delay in such transactions may adversely affect the results of operations and financial condition of Grubb & Ellis’ real estate brokerage business. In addition, a failure by Grubb & Ellis to disclose environmental concerns in connection with a real estate transaction may subject it to liability to a buyer or lessee of property.
 
In addition, in its role as a property manager, Grubb & Ellis could incur liability under environmental laws for the investigation or remediation of hazardous or toxic substances or wastes at properties it currently or formerly managed, or at off-site locations where wastes from such properties were disposed. Such liability can be imposed without regard for the lawfulness of the original disposal activity, or Grubb & Ellis’ knowledge of, or fault for, the release or contamination. Further, liability under some of these laws may be joint and several, meaning that one liable party could be held responsible for all costs related to a contaminated site. Grubb & Ellis could also be held liable for property damage or personal injury claims alleged to result from environmental contamination, or from asbestos-containing materials or lead-based paint present at the properties it manages. Insurance for such matters may not be available.
 
Certain requirements governing the removal or encapsulation of asbestos-containing materials, as well as recently enacted local ordinances obligating property managers to inspect for and remove lead-based paint in certain buildings, could increase Grubb & Ellis’ costs of legal compliance and potentially subject it to violations or claims. Although such costs have not had a material impact on its financial results or competitive position during fiscal year 2006 or 2007, the enactment of additional regulations, or more stringent enforcement of existing regulations, could cause it to incur significant costs in the future, and/or adversely impact its brokerage and management services businesses.
 
The New York Stock Exchange may delist Grubb & Ellis’ 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.
 
Grubb & Ellis cannot provide assurance that its common stock will continue to be listed on the New York Stock Exchange in the future. If the New York Stock Exchange delists Grubb & Ellis’ common stock from trading on its exchange, then Grubb & Ellis could face significant material adverse consequences, including:
 
  •  a limited availability of market quotations for Grubb & Ellis common stock;
 
  •  a more limited amount of news and analyst coverage for Grubb & Ellis;


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  •  a decreased ability to issue additional common stock, other securities or obtain additional financing in the future; and
 
  •  a decreased ability of Grubb & Ellis’ stockholders to sell their common stock in certain states.
 
Risks Related to NNN Realty Advisors
 
NNN Realty Advisors 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.
 
NNN Realty Advisors derives fees for transaction services based on a percentage of the price of the properties acquired or disposed of by its programs and for management services based on a percentage of the rental amounts of the properties in its programs. NNN Realty Advisors is responsible for the management of all of the properties owned by its programs, but as of March 31, 2007 it had subcontracted the property management of 37.2% of its programs’ office, healthcare office and retail properties (based on square footage) and all of its programs’ multi-family properties to third parties. As a result, if any of NNN Realty Advisors programs are unsuccessful, both its transaction services and management services fees will be reduced, if any are paid at all. In addition, failures of NNN Realty Advisors’ programs to provide competitive investment returns could significantly impair its ability to market future programs. NNN Realty Advisors’ inability to spread risk among a large number of programs could cause it to be over-reliant on a limited number of programs for its revenues. NNN Realty Advisors cannot make an assurance that it will maintain current levels of transaction and management services for its programs’ properties.
 
NNN Realty Advisors may be unable to grow its programs, which would cause it to fail to satisfy its business strategy.
 
A significant element of NNN Realty Advisors business strategy is the growth in the number of its programs. The consummation of any future program will be subject to raising adequate capital for the investment, identifying appropriate assets for acquisition and effectively and efficiently closing the transactions. NNN Realty Advisors cannot make an assurance that it will be able to identify and invest in additional properties or will be able to raise adequate capital for new programs in the future. If NNN Realty Advisors is unable to consummate new programs in the future, it will not be able to continue to grow the revenue it receives from either transaction or management services.
 
The inability to access investors for NNN Realty Advisors’ programs through broker-dealers or other intermediaries could have a material adverse effect on its business.
 
NNN Realty Advisors’ ability to source capital for its programs depends significantly on access to the client base of securities broker-dealers and other financial investment intermediaries that may offer competing investment products. NNN Realty Advisors believes that its future success in developing its business and maintaining a competitive position will depend in large part on its ability to continue to maintain these relationships as well as finding additional securities broker-dealers to facilitate offerings by its programs or to find investors for NNN Realty Advisors’ TIC programs. NNN Realty Advisors cannot be sure that it will continue to gain access to these channels. In addition, competition for capital is intense, and NNN Realty Advisors may not be able to obtain the capital required to complete a program. The inability to have this access could have a material adverse effect on its business and results of operations.
 
The termination of any of NNN Realty Advisors’ broker-dealer relationships, especially given the limited number of key broker-dealers, could have a material adverse effect on its business.
 
NNN Realty Advisors securities programs are sold through third-party broker-dealers who are members of its selling group. While NNN Realty Advisors has established relationships with its selling group, it is required to enter into a new agreement with each member of the selling group for each new program it offers. In addition, NNN Realty Advisors’ programs may be removed from a selling broker-dealer’s approved program list at any time for any reason. NNN Realty Advisors cannot assure you of the continued


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participation of existing members of its selling group nor can NNN Realty Advisors make an assurance that its selling group will expand. While NNN Realty Advisors continues to diversify and add new investment channels for its programs, a significant portion of the growth in recent years in the number of TIC programs it sponsors and in its REITs has been as a result of capital raised by a relatively limited number of broker-dealers. Loss of any of these key broker-dealer relationships, or the failure to develop new relationships to cover NNN Realty Advisors’ expanding business through new investment channels, could have a material adverse effect on its business and results of operations.
 
Misconduct by third-party selling broker-dealers or NNN Realty Advisors’ sales force, could have a material adverse effect on its business.
 
NNN Realty Advisors relies on selling broker-dealers and NNN Realty Advisors’ sales force to properly offer its securities programs to customers in compliance with its selling agreements and with applicable regulatory requirements. While these persons are responsible for their activities as registered broker-dealers, their actions may nonetheless result in complaints or legal or regulatory action against NNN Realty Advisors.
 
A significant amount of NNN Realty Advisors’ 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 NNN Realty Advisors business, and as a result, a significant amount of revenue.
 
Section 1031 of the Internal Revenue Code provides for the deferral of capital gains taxes which would ordinarily arise from the sale of real estate through a tax-deferred exchange of property, which defers the recognition of capital gains tax until such time as the replacement property is sold in a taxable transaction. These transactions are referred to as 1031 exchanges. In 2002, the Internal Revenue Service, or IRS, issued advance ruling guidelines outlining the requirements for properly structured TIC arrangements, which NNN Realty Advisors believes validate the TIC structure generally and as it employs it. However, as recently as May 2006, the Senate Finance Committee proposed a bill in the negotiations over the budget reconciliation tax-cutting package to modify Section 1031 treatment for TICs as a way to raise additional tax revenue. The proposal was unsuccessful, but NNN Realty Advisors cannot assure you that in the future there will not be attempts to limit or disallow the tax deferral benefits for TIC transactions. For the year ended December 31, 2006, approximately16.8% of NNN Realty Advisors’ total revenue was derived from TIC acquisition fees. If NNN Realty Advisors were no longer able to structure TIC programs as 1031 exchanges for its investors, it would lose a significant amount of revenue in the future, which would materially affect its results of operations. Moreover, any attempt to limit or disallow the tax deferral benefits of the 1031 exchange generally would have a material adverse effect on the real estate industry generally and on NNN Realty Advisors’ business and results of operations.
 
A significant amount of NNN Realty Advisors’ 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, NNN Realty Advisors 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.
 
NNN Realty Advisors structures TIC programs and public non-traded REITs to provide favorable tax treatment to investors. For example, its TIC investors are able to defer the recognition of gain on sale of investment or business property if they enter into a 1031 exchange. Similarly, qualified REITs generally are not subject to federal income tax at corporate rates, which permits REITs to make larger distributions to investors (i.e. without reduction for federal income tax imposed at the corporate level). If NNN Realty Advisors fails to properly structure a TIC transaction or if a REIT fails to satisfy the complex requirements for qualification and taxation as a REIT under the Internal Revenue Code, NNN Realty Advisors could be subject to claims by investors as a result of additional tax they may be required to pay or because they are unable to


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receive the distributions they expected at the time they made their investment. In addition, any failure to satisfy applicable tax regulations in structuring its programs would negatively affect NNN Realty Advisors’ reputation, which would in turn affect its ability to earn additional fees from new programs. Claims by investors could lead to losses and any reduction in NNN Realty Advisors’ fees would have a material adverse effect on its revenues.
 
If the properties that NNN Realty Advisors manages fail to perform, then the fees it receives from them will be reduced or may cease and its financial condition and results of operations would be harmed.
 
NNN Realty Advisors’ success depends significantly upon the performance of the properties it manages. The revenue NNN Realty Advisors generates from its management services business is generally a percentage of gross rental income from the properties. The performance of these properties will depend upon the following factors, among others, many of which are partially or completely outside of NNN Realty Advisors’ control:
 
  •  NNN Realty Advisors’ ability to attract and retain creditworthy tenants;
 
  •  the magnitude of defaults by tenants under their respective leases;
 
  •  NNN Realty Advisors’ ability to control operating expenses;
 
  •  present and future governmental regulations, local rent control or stabilization ordinances;
 
  •  various uninsurable risks, such as earthquakes and hurricanes;
 
  •  financial conditions prevailing generally and in the areas in which these properties are located;
 
  •  the nature and extent of competitive properties; and
 
  •  the real estate industry in general, including potential increases in interest rates and tenant defaults and declines in real estate values and rental and occupancy rates.
 
Any future co-investment activities NNN Realty Advisors 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.
 
NNN Realty Advisors may from time to time invest its capital in certain real estate investments with other real estate firms or with institutional investors such as pension plans. Any co-investment will generally require NNN Realty Advisors to make initial capital contributions, and some co-investment entities may request additional capital from NNN Realty Advisors and its subsidiaries holding investments in those assets. These contributions could adversely impact NNN Realty Advisors’ cash flows and financial condition. Moreover, the failure to provide these contributions could have adverse consequences to NNN Realty Advisors’ interests in these investments. These adverse consequences could include damage to NNN Realty Advisors’ reputation with its co-investment partners as well as dilution of ownership and the necessity of obtaining alternative funding from other sources that may be on disadvantageous terms, if available at all.
 
Geographic concentration of program properties may expose NNN Realty Advisors’ programs to regional economic downturns that could adversely impact their operations and, as a result, the fees NNN Realty Advisors is able to generate from them, including fees on disposition of the properties as NNN Realty Advisors may be limited in its ability to dispose of properties in a challenging real estate market.
 
NNN Realty Advisors’ programs generally focus on acquiring assets satisfying particular investment criteria, such as type or quality of tenants. There is generally no or little focus on the geographic location of a particular property. NNN Realty Advisors cannot guarantee, however, that its programs will have, or will be able to maintain, a significant amount of geographic diversity. Although NNN Realty Advisors’ property programs are located in 28 states, a majority of these properties (by square footage) are located in Texas, California, Florida and Colorado. Geographic concentration of properties exposes NNN Realty Advisors’


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programs to economic downturns in the areas where the properties are located. A regional recession or other major, localized economic disruption in a region, such as earthquakes and hurricanes, in any of these areas could adversely affect NNN Realty Advisors’ programs’ ability to generate or increase their operating revenues, attract new tenants or dispose of unproductive properties. Any reduction in program revenues would effectively reduce the fees NNN Realty Advisors generates from them, which would adversely affect NNN Realty Advisors’ results of operations and financial condition.
 
The failure of Triple Net Properties and Realty to hold the required real estate licenses may subject NNN Realty Advisors to penalties, such as fines, restitution payments and termination of management agreements, and to the suspension or revocation of Realty’s broker licenses.
 
Although Realty was required to have real estate licenses in states in which it acted as a broker for NNN Realty Advisors’ programs and received real estate commissions, Realty did not hold a license in certain of those states when it earned fees for those services. In addition, almost all of Triple Net Properties’ revenue was based on an arrangement with Realty to share fees from NNN Realty Advisors’ programs. Triple Net Properties did not hold a real estate license in any state, although most states in which properties of NNN Realty Advisors’ programs were located may have required Triple Net Properties to hold a license in order to share fees. As a result, NNN Realty Advisors 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 Realty’s real estate broker licenses.
 
If third-party managers providing property management services for NNN Realty Advisors’ 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 NNN Realty Advisors may become subject to unforeseen liabilities. If this occurs, it could have an adverse effect on NNN Realty Advisors’ financial condition and operating results.
 
NNN Realty Advisors has entered into agreements with third-party management companies to provide property management services for a significant number of NNN Realty Advisors’ programs’ properties, and NNN Realty Advisors expects to enter into similar third-party management agreements with respect to properties NNN Realty Advisors’ programs acquire in the future. NNN Realty Advisors does not supervise these third-party managers and their personnel on a day-to-day basis and NNN Realty Advisors cannot assure you that they will manage NNN Realty Advisors’ programs’ properties in a manner that is consistent with their obligations under NNN Realty Advisors’ agreements, that they will not be negligent in their performance or engage in other criminal or fraudulent activity, or that these managers will not otherwise default on their management obligations to NNN Realty Advisors. If any of the foregoing occurs, the relationships with NNN Realty Advisors’ programs’ tenants could be damaged, which may cause the tenants not to renew their leases, and NNN Realty Advisors could incur liabilities resulting from loss or injury to the properties or to persons at the properties. If NNN Realty Advisors is unable to lease the properties or NNN Realty Advisors become subject to significant liabilities as a result of third-party management performance issues, NNN Realty Advisors’ operating results and financial condition could be substantially harmed.
 
NNN Realty Advisors or its new programs may be required to incur future indebtedness to raise sufficient funds to purchase properties.
 
One of NNN Realty Advisors’ business strategies is to develop new programs. The development of a new program requires the identification and subsequent acquisition of properties when the opportunity arises. In some instances, in order to effectively and efficiently complete a program, NNN Realty Advisors may provide deposits for the acquisition of property or actually purchase the property and warehouse it temporarily for the program. If NNN Realty Advisors does not have cash on hand available to pay these deposits or fund an acquisition, NNN Realty Advisors or NNN Realty Advisors’ programs may be required to incur additional indebtedness, which indebtedness may not be available on acceptable terms. If NNN Realty Advisors incurs substantial debt, NNN Realty Advisors could lose its interests in any properties that have been provided as collateral for any secured borrowing, or NNN Realty Advisors could lose its assets if the debt is recourse to it.


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In addition, NNN Realty Advisors’ cash flow from operations may not be sufficient to repay these obligations upon their maturity, making it necessary for NNN Realty Advisors to raise additional capital or dispose of some of its assets. NNN Realty Advisors cannot assure you that it will be able to borrow additional debt on satisfactory terms, or at all.
 
NNN Realty Advisors may be required to repay loans NNN Realty Advisors guaranteed that were used to finance properties acquired by NNN Realty Advisors’ programs.
 
From time to time NNN Realty Advisors provides certain guarantees of loans for properties under management. As of March 31, 2007, there were 121 loans for properties under management that were guaranteed, with approximately $2.8 billion in total principal outstanding secured by properties with a total aggregate purchase price of approximately $3.9 billion. Of the approximate $2.8 billion total principal outstanding guaranteed approximately $30.2 million was in the form of mezzanine debt and approximately $29.0 million was other recourse guarantees. If NNN Realty Advisors is called upon to satisfy a substantial portion of these guarantees, NNN Realty Advisors’ operating results and financial condition could be materially harmed.
 
The revenue streams from NNN Realty Advisors’ management services may be subject to limitation or cancellation.
 
The agreements under which NNN Realty Advisors provide advisory and management services to public non-traded REITs may generally be terminated by each REIT following a notice period, with or without cause. NNN Realty Advisors cannot assure you that these agreements will not be terminated. In addition, if NNN Realty Advisors has a significant amount of TIC programs selling their properties or public non-traded REITs liquidating in the same period, NNN Realty Advisors’ revenues would decrease unless it is able to find replacement programs to generate new fees. NNN Realty Advisors is currently in the process of liquidating two of its public non-traded REITs and, as a result, NNN Realty Advisors’ management fees from these REITs have been reduced due to the number of properties that have been sold. Any decrease in NNN Realty Advisors’ fees, as a result of termination of a contract or customary close out or liquidation of a program, could have a material adverse effect on NNN Realty Advisors’ business, results of operations and financial condition.
 
NNN Realty Advisors’ revenue is subject to volatility in capital raising efforts by it.
 
The potential growth in revenue from NNN Realty Advisors’ transaction and management services depends in large part on future capital raising in existing or future programs, as well as on NNN Realty Advisors’ ability to make resultant acquisitions on behalf of its programs, both of which are subject to uncertainty, including uncertainty with respect to capital market and real estate market conditions. This uncertainty can create volatility in NNN Realty Advisors’ earnings because of the resulting increased volatility in transaction and management services revenues. NNN Realty Advisors’ revenue may be negatively affected by factors that include not only NNN Realty Advisors’ inability to increase its portfolio of properties under management, but also changes in valuation of those properties and sales (through planned liquidation or otherwise) of properties.
 
Prior credits of fees for certain of NNN Realty Advisors’ TIC programs could result in claims by some of the investors in those programs.
 
Historically, NNN Realty Advisors has on occasion reduced the investment cost for some, but not all, investors in the same TIC program by crediting all or a portion of NNN Realty Advisors’ fees for the real estate acquisition or financing for the TIC program, and NNN Realty Advisors may do so again in the future. NNN Realty Advisors’ purpose in doing so has been to improve projected investment returns and attract TIC investors. As a result of these credits, in some of NNN Realty Advisors’ TIC programs investors have different investment costs per percentage ownership interest in the relevant property. While NNN Realty Advisors’ offering materials for prior TIC programs disclosed the possibility that NNN Realty Advisors might offer credits for specific types of fees on a selective basis to some, but not


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all, TIC investors, they did not disclose all of the categories of fees for which NNN Realty Advisors actually provided credits. Consequently, investors in these programs who did not initially receive the credits could bring claims against NNN Realty Advisors for rescission of their investment, fee credits or otherwise. NNN Realty Advisors has modified the disclosure in its offering materials for current and future TIC programs to make clear that NNN Realty Advisors may credit any or all categories of its fees in a program on a selective basis to some, but not all, TIC investors in the same program; that these credits may be made on a disproportionate basis; and that the credit provided to a particular investor may exceed the fees allocated to that investor.
 
NNN Realty Advisors experienced weaknesses in certain internal controls over financial reporting and insufficient disclosure and real estate regulatory oversight that it will need to strengthen.
 
In 2006, NNN Realty Advisors experienced material weaknesses and significant deficiencies in its internal control over financial reporting. Specifically, (1) Realty had an absence of accounting personnel that resulted in failures by Realty to record revenues and expenses in the proper periods and in untimely reconciliations and analyses of significant accounts (Realty historically had no accounting personnel because it was a stand alone private company that did not regularly conduct audits prior to the formation transactions), (2) there was inadequate communications between Triple Net Properties’ business and accounting personnel with respect to credits selectively given to certain investors in its TIC programs and (3) NNN Realty Advisors did not timely record a stock compensation charge associated with a transfer of shares by Messrs. Thompson and Rogers, affiliates of NNN Realty Advisors, to Mr. Hanson. Ensuring that NNN Realty Advisors has adequate financial and accounting controls to produce accurate financial statements on a timely basis and sufficient legal compliance oversight are costly and time-consuming efforts that need to be evaluated frequently. Failure to achieve and maintain effective controls and procedures for financial reporting may result in NNN Realty Advisors’ inability to provide timely and accurate financial information.
 
Future pressures to lower, waive or credit back NNN Realty Advisors’ fees could reduce NNN Realty Advisors’ revenue and profitability.
 
NNN Realty Advisors has on occasion waived or credited its fees for real estate acquisitions and financings for NNN Realty Advisors’ TIC programs to improve projected investment returns and attract TIC investors. There has also been a trend toward lower fees in some segments of the third-party asset management business, and fees paid for the management of properties in NNN Realty Advisors’ TIC programs or public non-traded REITs could follow these trends. In order for NNN Realty Advisors to maintain its fee structure in a competitive environment, NNN Realty Advisors must be able to provide clients with investment returns and service that will encourage them to be willing to pay such fees. NNN Realty Advisors cannot assure you that it will be able to maintain its current fee structures. Fee reductions on existing or future new business could have a material adverse impact on NNN Realty Advisors’ revenue and profitability.
 
If NNN Realty Advisors fails to comply with laws and regulations applicable to real estate brokerage, NNN Realty Advisors may incur significant financial penalties.
 
Due to the geographic scope of NNN Realty Advisors’ operations and various real estate services NNN Realty Advisors provides, NNN Realty Advisors is subject to numerous federal, state and local laws and regulations specific to the services performed. For example, the brokerage of real estate sales and leasing transactions requires NNN Realty Advisors to maintain brokerage licenses in each state in which NNN Realty Advisors operates. If NNN Realty Advisors fails to maintain its licenses or conduct brokerage activities without a license, NNN Realty Advisors may be required to pay fines or return commissions received or have licenses suspended. In addition, because the size and scope of real estate sales transactions have increased significantly during the past several years, both the difficulty of ensuring compliance with the numerous state licensing regimes and the possible loss resulting from non-compliance have increased. Furthermore, the laws and regulations applicable to NNN Realty Advisors’ business also may change in ways that increase the costs of compliance.


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Regulatory uncertainties related to NNN Realty Advisors’ dealer-manager services could harm NNN Realty Advisors’ business.
 
The securities industry in the United States is subject to extensive regulation under both federal and state laws. Broker-dealers are subject to regulations covering all aspects of the securities business. The Securities and Exchange Commission, or SEC, the National Association of Securities Dealers, or the NASD, and other self-regulatory organizations and state securities commissions can censure, fine, issue cease-and-desist orders to, suspend or expel a broker-dealer or any of its officers or employees. The ability to comply with applicable laws and rules is largely dependent on an internal system to ensure compliance, as well as the ability to attract and retain qualified compliance personnel. NNN Realty Advisors could be subject to disciplinary or other actions in the future due to claimed noncompliance with these securities regulations, which could have a material adverse effect on NNN Realty Advisors’ operations and profitability.
 
NNN Realty Advisors depends upon its programs’ tenants to pay rent, and their inability to pay rent may substantially reduce the fees NNN Realty Advisors receives which are based on gross rental amounts.
 
NNN Realty Advisors’ programs are subject to varying degrees of risk that generally arise from the ownership of real estate. For example, the income NNN Realty Advisors is able to generate from management fees is derived from the gross rental income on the properties in its programs. The rental income depends upon the ability of the tenants of NNN Realty Advisors’ programs’ properties to generate enough income to make their lease payments to NNN Realty Advisors. Changes beyond NNN Realty Advisors’ control may adversely affect the tenants’ ability to make lease payments or could require them to terminate their leases. Either an inability to make lease payments or a termination of one or more leases could reduce the management fees NNN Realty Advisors receives. These changes include, among others, the following:
 
  •  downturns in national or regional economic conditions where NNN Realty Advisors’ programs’ properties are located, which generally will negatively impact the demand and rental rates;
 
  •  changes in local market conditions such as an oversupply of properties, including space available by sublease or new construction, or a reduction in demand for properties in NNN Realty Advisors’ programs, making it more difficult for NNN Realty Advisors’ programs to lease space at attractive rental rates or at all;
 
  •  competition from other available properties, which could cause NNN Realty Advisors’ programs to lose current or prospective tenants or cause them to reduce rental rates; and
 
  •  changes in federal, state or local regulations and controls affecting rents, prices of goods, interest rates, fuel and energy consumption.
 
Due to these changes, among others, tenants and lease guarantors, if any, may be unable to make their lease payments.
 
Defaults by tenants or the failure of any guarantors of tenants’ guarantor to fulfill their obligations, or other early termination of a lease could, depending upon the size of the leased premises and NNN Realty Advisors’ ability as property manager to successfully find a substitute tenant, have a material adverse effect on NNN Realty Advisors’ revenue.
 
Conflicts of interest inherent in transactions between NNN Realty Advisors’ programs and NNN Realty Advisors, and among its programs, could create liability for NNN Realty Advisors that could have a material adverse effect on its results of operations and financial condition.
 
These conflicts include but are not limited to the following:
 
  •  NNN Realty Advisors experiences conflicts of interests with certain of its directors, officers and affiliates from time to time with regard to any of its investments, transactions and agreements in which it holds a direct or indirect pecuniary interest;


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  •  since NNN Realty Advisors receives both management fees and acquisition and disposition fees for its programs’ properties, NNN Realty Advisors could be in conflict with its programs over whether their properties should be sold or held by the program and NNN Realty Advisors may make decisions or take actions based on factors other than in the best interest of investors of a particular sponsored investor program;
 
  •  a component of the compensation of certain of NNN Realty Advisors’ executives is based on the performance of particular programs, which could cause the executives to favor those programs over others;
 
  •  NNN Realty Advisors may face conflicts of interests as to how it allocates property acquisition opportunities or prospective tenants among competing programs;
 
  •  NNN Realty Advisors may face conflicts of interests if programs sell properties to each other or invest in each other;
 
  •  all agreements and arrangements, including those relating to compensation, among NNN Realty Advisors and its programs, are generally not the result of arm’s-length negotiations; and
 
  •  NNN Realty Advisors’ executive officers will devote only as much of their time to a program as they determine is reasonably required, which may be substantially less than their full time; during times of intense activity in other programs, these officers may devote less time and fewer resources to a program than are necessary or appropriate to manage the program’s business.
 
NNN Realty Advisors cannot assure you that one or more of these conflicts will not result in claims by investors in its programs, which could have a material adverse effect on its results of operations and financial condition.
 
Increased competition relating to the services NNN Realty Advisors provides could lead to a material adverse effect on its financial condition and results of operations.
 
NNN Realty Advisors believes there are only limited barriers to entry in its business. Current and future competitors may have more resources than NNN Realty Advisors has. In transaction services, NNN Realty Advisors faces competition with other real estate firms in the acquisition and disposition of properties, and NNN Realty Advisors also competes with other sponsors of real estate investor programs for investors to provide the capital to allow it to make these investments. NNN Realty Advisors also competes against other real estate companies who may be chosen by a broker-dealer as an investment platform instead of it. In management services, NNN Realty Advisors competes with other property managers for viable tenants for NNN Realty Advisors’ programs’ properties. NNN Realty Advisors faces competition from institutions that provide or arrange for other types of financing through private or public offerings of equity or debt and from traditional bank financings. The number and activities of NNN Realty Advisors’ competitors could have a material adverse effect on its financial condition and results of operations.
 
The ongoing SEC investigation of Triple Net Properties and its affiliates could adversely impact NNN Realty Advisors’ ability to conduct its real estate investment programs.
 
On September 16, 2004, Triple Net Properties learned that the SEC Los Angeles Enforcement Division, or the SEC Staff, is conducting an investigation referred to as “In the matter of Triple Net Properties, LLC.” The SEC requested information from Triple Net Properties relating to disclosure in public and private securities offerings sponsored by Triple Net Properties and its affiliates prior to 2005, or the Triple Net securities offerings. The SEC Staff also requested information from NNN Capital Corp., or Capital Corp., the dealer-manager for the Triple Net securities offerings. The SEC Staff requested financial and other information regarding the Triple Net securities offerings and the disclosures included in the related offering documents from each of Triple Net Properties and Capital Corp.
 
Triple Net Properties and Capital Corp. are engaged in settlement negotiations with the SEC staff regarding this matter. Based on these negotiations, NNN Realty Advisors believes that the conclusion to this


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matter will not result in a material adverse affect to its results of operations, financial condition or ability to conduct its business. The settlement negotiations are continuing, and any settlement negotiated with the SEC Staff must be approved by the Commission. Since the matter is not concluded, it remains subject to the risk that the SEC may seek additional remedies, including substantial fines and injunctive relief that, if obtained, could materially adversely affect NNN Realty Advisors’ ability to conduct its program offerings. Additionally, any resolution of this matter that reflects negatively on NNN Realty Advisors’ reputation could materially and adversely affect the willingness of NNN Realty Advisors’ existing programs to continue to use NNN Realty Advisors’ management services and of potential investors to invest in NNN Realty Advisors’ future programs. The matters that are the subject of this investigation could also give rise to claims against NNN Realty Advisors by investors in NNN Realty Advisors’ programs. At this time, NNN Realty Advisors cannot assess how or when the outcome of the matter will be ultimately determined.
 
The offerings conducted to raise capital for NNN Realty Advisors’ 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 NNN Realty Advisors’ reputation and as a result its business and results of operations.
 
The securities of NNN Realty Advisors’ TIC programs are offered and sold in reliance upon a private placement offering exemption from registration under the Securities Act and applicable state securities laws. If NNN Realty Advisors or its dealer-manager failed to comply with the requirements of the relevant exemption and an offering were in process, NNN Realty Advisors may have to terminate the offering. If an offering was completed, the investors may have the right, if they so desired, to rescind their purchase of the securities. A rescission offer could also be required under applicable state securities laws and regulations in states where any securities were offered without registration or qualification pursuant to a private offering or other exemption. If a number of holders sought rescission at one time, the applicable program would be required to make significant payments which could adversely affect its business and as a result, the fees generated by NNN Realty Advisors from such program. If one of NNN Realty Advisors’ programs was forced to terminate an offering before it was completed or to make a rescission offer, NNN Realty Advisors’ reputation would also likely be significantly harmed. Any reduction in fees as a result of a rescission offer or a loss of reputation would have a material adverse effect on NNN Realty Advisors’ business and results of operations.
 
A downturn in the general economy or the real estate market would harm NNN Realty Advisors’ business.
 
NNN Realty Advisors’ business is negatively impacted by periods of economic slowdown or recession, rising interest rates and declining demand for real estate. These economic conditions could have a number of effects, which could have a material adverse impact on certain segments of NNN Realty Advisors’ business, including a decline in:
 
  •  acquisition and disposition activity, with a corresponding reduction in fees from these services;
 
  •  the supply of capital invested in commercial real estate or in commercial real estate investor programs;
 
  •  the value of real estate, which would cause NNN Realty Advisors to realize lower revenue from property management fees, which in certain cases are calculated as a percentage of the revenue of the property under management; and
 
  •  rental or occupancy rates or increase in tenant defaults.
 
The real estate market tends to be cyclical and related to the condition of the economy and to the perceptions of investors and users as to the economic outlook. A downturn in the economy or the real estate market could have a material adverse effect on NNN Realty Advisors’ business, financial condition or results of operations.


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In November and December 2006, NNN Realty Advisors executed various transactions, referred to as the formation transactions, to acquire Triple Net Properties, Realty and Capital Corp. The transactions were between affiliates of NNN Realty Advisors and were not necessarily negotiated at arm’s length. If NNN Realty Advisors is subject to liability as a result of any of the formation transactions, its business and results of operation could be adversely affected.
 
In November and December 2006, NNN Realty Advisors acquired Triple Net Properties, Realty and Capital Corp. Two of the transactions were accomplished by a contribution of shares to NNN Realty Advisors, but the merger of Triple Net Properties required the vote of a majority of the membership interests. This approval was obtained in November 2006, but NNN Realty Advisors can provide no assurance that minority investors in Triple Net Properties are satisfied with the value they received or that they will not bring future claims in connection with the formation transactions.
 
The formation transactions were negotiated between NNN Realty Advisors and its affiliates and, as a result, do not represent arm’s length transactions. NNN Realty Advisors did not obtain any representations or indemnities from any of the owners of Triple Net Properties other than Mr. Thompson and Mr. Rogers, for liabilities associated with Triple Net Properties arising from events or circumstances occurring or existing prior to the formation transactions. Additionally, NNN Realty Advisors obtained very limited representations and indemnities from the owners of Realty and Capital Corp. for the operations of, and liabilities associated with, those companies arising from events or circumstances occurring or existing prior to the formation transactions. NNN Realty Advisors has no assurance that any contributing party providing these limited representations or indemnities will have adequate capital to fulfill its indemnity obligations. NNN Realty Advisors therefore may have very limited or no recourse to those prior owners if it suffers harm due to any of the prior operations or liabilities of Triple Net Properties, Realty or Capital Corp. relating to periods prior to the formation transactions.
 
Claims from minority investors or any inherited liabilities as a result of these transactions could have an adverse effect on the business and results of operation of NNN Realty Advisors.
 
An increase in interest rates may negatively affect the equity value of NNN Realty Advisors’ programs or cause NNN Realty Advisors to lose potential investors to alternative investments, causing the fees NNN Realty Advisors receives for transaction and management services to be reduced.
 
In the last two years, interest rates in the United States have generally increased. If interest rates were to continue to rise, NNN Realty Advisors’ financing costs would likely rise and NNN Realty Advisors’ net yield to investors may decline. This downward pressure on net yields to investors in NNN Realty Advisors’ programs could compare poorly to rising yields on alternative investments. Additionally, as interest rates rise, valuations of commercial real estate properties typically decline. A decrease in both the attractiveness of NNN Realty Advisors’ programs and the value of assets held by these programs could cause a decrease in both transaction and management services revenues, which would have an adverse effect on NNN Realty Advisors’ results of operations.
 
Increasing competition for the acquisition of real estate may impede NNN Realty Advisors’ ability to make future acquisitions which would reduce the fees NNN Realty Advisors generates from these programs and could adversely affect NNN Realty Advisors’ operating results and financial condition.
 
The commercial real estate industry is highly competitive on an international, national and regional level. NNN Realty Advisors’ programs face competition from REITs, institutional pension plans, and other public and private real estate companies and private real estate investors for the acquisition of properties and for raising capital to create programs to make these acquisitions. Competition may prevent NNN Realty Advisors’ programs from acquiring desirable properties or increase the price they must pay for real estate. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase, resulting in increased demand and increased prices paid for these properties. If NNN Realty Advisors’ programs pay higher prices for properties, investors may experience a lower return on investment and be less inclined to invest in NNN Realty Advisors’ next program which may decrease NNN Realty Advisors’


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profitability. Increased competition for properties may also preclude NNN Realty Advisors’ programs from acquiring properties that would generate the most attractive returns to investors or may reduce the number of properties NNN Realty Advisors’ programs could acquire, which could have an adverse effect on NNN Realty Advisors’ business.
 
Illiquidity of real estate investments could significantly impede NNN Realty Advisors’ ability to respond to adverse changes in the performance of NNN Realty Advisors’ programs’ properties and harm NNN Realty Advisors’ financial condition.
 
Because real estate investments are relatively illiquid, NNN Realty Advisors’ ability to promptly facilitate a sale of one or more properties or investments in NNN Realty Advisors’ programs in response to changing economic, financial and investment conditions may be limited. In particular, these risks could arise from weakness in the market for a property, changes in the financial condition or prospects of prospective purchasers, changes in regional, national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located. Fees from the disposition of properties would be materially affected if NNN Realty Advisors were unable to facilitate a significant number of property dispositions for NNN Realty Advisors’ programs.
 
Uninsured and underinsured losses may adversely affect operations.
 
NNN Realty Advisors carries commercial general liability, fire and extended coverage insurance with respect to NNN Realty Advisors’ programs’ properties. NNN Realty Advisors obtains coverage that has policy specifications and insured limits that NNN Realty Advisors believes are customarily carried for similar properties. NNN Realty Advisors cannot assure you, however, that particular risks that are currently insurable will continue to be insurable on an economic basis or that current levels of coverage will continue to be available. In addition, NNN Realty Advisors generally does not obtain insurance against certain risks, such as floods.
 
Should a property sustain damage or an occupant sustain an injury, NNN Realty Advisors may incur losses due to insurance deductibles, co-payments on insured losses or uninsured losses. In the event of a substantial property loss or personal injury, the insurance coverage may not be sufficient to pay the full damages. In the event of an uninsured loss, NNN Realty Advisors could lose some or all of its capital investment, cash flow and anticipated profits related to one or more properties. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it not feasible to use insurance proceeds to replace a property after it has been damaged or destroyed. Under these circumstances, the insurance proceeds NNN Realty Advisors receives, if any, might not be adequate to restore NNN Realty Advisors’ economic position with respect to the property. In the event of a significant loss at one or more of the properties in NNN Realty Advisors’ programs, the remaining insurance under the applicable policy, if any, could be insufficient to adequately insure the remaining properties. In this event, securing additional insurance, if possible, could be significantly more expensive than the current policy. A loss at any of these properties or an increase in premium as a result of a loss could decrease the income from or value of properties under management in NNN Realty Advisors’ programs, which in turn would reduce the fees NNN Realty Advisors receives from these programs. Any decrease or loss in fees could have a material adverse effect on NNN Realty Advisors’ financial condition or results of operations.
 
Environmental regulations may adversely impact NNN Realty Advisors’ business or cause NNN Realty Advisors to incur costs for cleanup of hazardous substances or wastes or other environmental liabilities.
 
Federal, state and local laws and regulations impose various environmental zoning restrictions, use controls, and disclosure obligations which impact the management, development, use, and/or sale of real estate. These laws and regulations tend to discourage sales activities with respect to some properties, and by decreasing or delaying those transactions may adversely affect the results of operations and financial condition of NNN Realty Advisors’ business. In addition, a failure by NNN Realty Advisors or one of NNN Realty Advisors’ programs to disclose environmental concerns in connection with a real estate disposition may subject NNN Realty Advisors to liability to a buyer or lessee of property.


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In addition, in NNN Realty Advisors’ role as a property manager, NNN Realty Advisors could incur liability under environmental laws for the investigation or remediation of hazardous or toxic substances or wastes at properties NNN Realty Advisors currently or formerly managed, or at off-site locations where wastes from such properties were disposed. This liability can be imposed without regard for the lawfulness of the original disposal activity, or NNN Realty Advisors’ knowledge of, or fault for, the release or contamination. Further, liability under some of these laws may be joint and several, meaning that one liable party could be held responsible for all costs related to a contaminated site. NNN Realty Advisors could also be held liable for property damage or personal injury claims alleged to result from environmental contamination, or from asbestos-containing materials, mold or lead-based paint present at the properties we manage. Similarly, NNN Realty Advisors is obliged, under the debt financing arrangements on the properties owned by NNN Realty Advisors’ TIC programs, to provide an indemnity to the lenders for environmental liabilities and to remediate any environmental problems that might arise. Insurance for these matters may not be available.
 
Certain requirements governing the removal or encapsulation of asbestos-containing materials, as well as recently enacted local ordinances obligating property managers to inspect for and remove lead-based paint in certain buildings, could increase NNN Realty Advisors’ costs of legal compliance and potentially subject NNN Realty Advisors to violations or claims. Further, mold contamination has been linked to a number of health problems, which has resulted in litigation from tenants seeking various remedies. There can be no assurance that NNN Realty Advisors’ programs will not be subject to litigation relating to asbestos mold contamination or that any claims would be covered by NNN Realty Advisors’ insurance policy.
 
NNN Realty Advisors may not be able to obtain additional financing when NNN Realty Advisors needs it or on acceptable terms, and any such financing, or the failure to obtain financing, may adversely affect the market price of Grubb & Ellis’ common stock.
 
There can be no assurance that the anticipated cash flow from operations will be sufficient to meet all of NNN Realty Advisors’ cash requirements. NNN Realty Advisors intends to continue to make investments to support NNN Realty Advisors’ business growth and may require additional funds to respond to business challenges. Accordingly, NNN Realty Advisors may need to complete additional equity or debt financings to secure additional funds. NNN Realty Advisors cannot assure you that further equity or debt financing will be available on acceptable terms, if at all. In addition, the terms of any debt financing may restrict NNN Realty Advisors’ financial and operating flexibility. NNN Realty Advisors’ inability to obtain any needed financing, or the terms on which it may be available, could have a material adverse effect on NNN Realty Advisors’ business.
 
Risks Related to the Combined Company
 
Loss of key personnel could have a material adverse effect on the business and results of operations of the combined company.
 
The success of the combined company after the merger will depend in part upon the ability of Grubb & Ellis and NNN Realty Advisors to retain key employees of both companies. Competition for qualified personnel can be very intense. In addition, key employees may depart because of issues relating to the uncertainty or difficulty of integration or a desire not to remain with the combined company. Accordingly, no assurance can be given that Grubb & Ellis or NNN Realty Advisors will be able to retain key employees. Loss of key personnel could have a material adverse effect on the business and results of operations of the combined company.
 
The common stock of the combined company may be affected by factors different from those affecting the price of NNN Realty Advisors common stock or Grubb & Ellis common stock.
 
On completion of the merger, holders of NNN Realty Advisors common stock and Grubb & Ellis common stock will be holders of common stock of the combined company. As the business of Grubb & Ellis and the business of NNN Realty Advisors are different, the results of operations as well as the price of common stock on completion of the merger may be affected by factors different than those factors affecting


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Grubb & Ellis and NNN Realty Advisors as independent stand-alone entities. The combined company will face additional risks and uncertainties not otherwise facing each independent company in the merger. For a discussion of the business of Grubb & Ellis and NNN Realty Advisors and of factors to consider in connection with those businesses, see the documents incorporated by reference into this joint proxy statement/prospectus and referred to under the sections entitled “Where You Can Find More Information,” “Risks Related to Grubb & Ellis” and “Risks Related to NNN Realty Advisors” above.
 
Following the merger, the combined 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.
 
Although Grubb & Ellis and NNN Realty Advisors do not currently conduct significant business outside the United States, the combined company intends to expand its business to include international operations. Circumstances and developments related to international operations that could negatively affect the combined company’s business or results of operations include, but are not limited to, the following factors:
 
  •  difficulties and costs of staffing and managing international operations;
 
  •  currency restrictions, which may prevent the transfer of capital and profits to the United States;
 
  •  adverse foreign currency fluctuations;
 
  •  changes in regulatory requirements;
 
  •  potentially adverse tax consequences;
 
  •  the responsibility of complying with multiple and potentially conflicting laws;
 
  •  the impact of regional or country-specific business cycles and economic instability;
 
  •  the geographic, time zone, language and cultural differences among personnel in different areas of the world;
 
  •  political instability; and
 
  •  foreign ownership restrictions with respect to operations in certain countries.
 
Additionally, the combined company may establish joint ventures with foreign entities for the provision of brokerage services abroad, which may involve the purchase or sale of the combined company’s equity securities or the equity securities of the joint venture participant(s). In these joint ventures, the combined company may not have the right or power to direct the management and policies of the joint venture and other participants may take action contrary to the combined company’s instructions or requests and against the combined company’s policies and objectives. In addition, the other participants may become bankrupt or have economic or other business interests or goals that are inconsistent with the combined company. If a joint venture participant acts contrary to the combined company’s interest, then it could have a material adverse effect on the combined company’s business and results of operations.
 
Delaware law and provisions of the combined company’s amended and restated certificate of incorporation and restated bylaws contain provisions that could delay, deter or prevent a change of control.
 
The anti-takeover provisions of Delaware law impose various impediments on the ability or desire of a third party to acquire control of the combined company, even if a change of control would be beneficial to its existing stockholders, and the combined company will be subject to these Delaware anti-takeover provisions. Additionally, the combined company’s amended and restated certificate of incorporation and its restated bylaws contain provisions that might enable its management to resist a proposed takeover of the combined company. These provisions could discourage, delay or prevent a change of control of the combined company or an acquisition of the combined company at a price that its stockholders may find attractive. These provisions also may discourage proxy contests and make it more difficult for the combined company’s


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stockholders to elect directors and take other corporate actions. The existence of these provisions could limit the price that investors might be willing to pay in the future for shares of the combined company’s common stock. The provisions include:
 
  •  the authority of the combined company’s board to issue, without stockholder approval, preferred stock with such terms as the combined company’s board may determine (see risk factor directly below);
 
  •  the authority of the combined company’s board to adopt, amend or repeal the combined company’s bylaws; and
 
  •  a prohibition on holders of less than a majority of the combined company’s outstanding shares of capital stock calling a special meeting of the combined company’s stockholders.
 
The combined company will have 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.
 
Even though the combined company will not initially have any preferred stock issued and outstanding, it will have the right to issue so-called “blank check” preferred stock, which may affect the voting rights of holders of common stock and could deter or delay an attempt to obtain control of the combined company. The combined company’s board of directors will be authorized, without any further stockholder approval, to issue one or more additional series of preferred stock. The combined company will be authorized to fix and state the voting rights, powers, designations, preferences and relative participation or other special rights of each such series of preferred stock and any qualifications, limitations and restrictions thereon. Preferred stock typically ranks prior to the common stock with respect to dividend rights, liquidation preferences, or both, and may have full, limited, or expanded voting rights. Accordingly, additional issuances of preferred stock could further adversely affect the voting power and other rights of the holders of common stock.
 
Grubb & Ellis has registration rights outstanding, which could have a negative impact on its share price if exercised.
 
Pursuant to Grubb & Ellis’ registration rights agreement with Kojaian Ventures, L.L.C. and Kojaian Holdings, LLC, these entities could, in the future, cause the combined company to file additional registration statements with respect to its shares of common stock, which could have a negative impact on the combined company’s share price.
 
Future sales of the combined company’s common stock could adversely affect its stock price.
 
Upon the closing of the merger, an aggregate of            shares of the combined company’s common stock will be “restricted securities” as that term is defined by Rule 144 of the Securities Act, and may be sold only in compliance with Rule 144 of the Securities Act or pursuant to an effective registration statement. Such restricted securities will be held by the combined company’s directors, officers, and their affiliates and           are currently eligible for sale in accordance with Rule 144. Ordinarily, under Rule 144, a person who is an “affiliate” (as that term is defined in Rule 144) and has beneficially owned restricted securities for a period of one year may, every three months, sell in brokerage transactions an amount that does not exceed the greater of (1) one percent of the outstanding class of such securities, or (2) the average weekly trading volume in such securities on all national exchanges and/or reported through the automated quotation system of a registered securities association during the four weeks prior to the filing of a notice of sale by a securities holder. A person who is not a combined company affiliate who beneficially owns restricted securities is also subject to the foregoing volume limitations but may, after the expiration of two years, sell unlimited amounts of such securities under certain circumstances. Possible or actual sales of its outstanding common stock by its stockholders under Rule 144 could cause the price of its common stock to decline.
 
In addition, as of the closing of the merger, there will be an aggregate of           combined company shares subject to issuance upon the exercise of outstanding options. Accordingly, these shares will be available for sale in the open market, subject to vesting restrictions, and, in the case of affiliates, certain volume limitations. The sale of shares either present to the exercise of outstanding options or as a consequence of the


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application of the vesting of certain restricted stock could also cause the price of the combined company’s common stock to decline.
 
Upon completion of the merger and the amendment to the Grubb & Ellis charter, the combined company will have a staggered board, which may entrench management and discourage unsolicited stockholder proposals that may be in the best interests of stockholders.
 
The combined company’s charter, once amended, will provide that its board of directors be divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. As a result, at any annual meeting, only a minority of the board of directors will be considered for election. Since the combined company’s “staggered board” would prevent its stockholders from replacing a majority of its board of directors at any annual meeting, it 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 combined company’s financial condition and results of operations.
 
In the event that the combined company experiences rapid growth in its operations, a significant strain may be placed upon management, administrative, operational and financial infrastructure. Its success will depend in part upon the ability of the executive officers to manage growth effectively. The combined company’s ability to grow also depends upon its ability to successfully hire, train, supervise and manage new employees, obtain financing for its capital needs, expand its systems effectively, allocate its human resources optimally, maintain clear lines of communication between its transactional and management functions and its finance and accounting functions, and manage the pressures on its management and administrative, operational and financial infrastructure. There can be no assurance that the combined company will be able to accurately anticipate and respond to the changing demands it will face as it integrates and continues to expand its operations, and it may not be able to manage growth effectively or to achieve growth at all. Any failure to manage the future growth effectively could have a material adverse effect on the combined company’s business, financial condition and results of operations.
 
Although the combined company intends to declare quarterly dividends following the merger, there can be no assurances when or whether the combined company will declare future dividends or the amount of any dividends that may be declared in the future.
 
Although the combined company intends to declare quarterly dividends, future cash dividends will depend upon the combined company’s results of operations, financial condition, capital requirements, general business conditions and other factors that the combined company’s board of directors may deem relevant. Also, there can be no assurance the combined company will pay dividends even if the necessary financial conditions are met and sufficient cash is available for distribution.
 
The combined company will not be required to furnish a report on its internal control over financial reporting until December 2008.
 
Grubb & Ellis is currently required to furnish a report on its internal control over financial reporting pursuant to the SEC’s rules under Section 404 of the Sarbanes-Oxley Act of 2002 as part of the Annual Reports that it files on Form 10-K. However, these rules will not apply to the combined company until it files its Annual Report on Form 10-K for its fiscal year ending December 31, 2008. As a result, the combined company’s stockholders may have less information available to them about the effectiveness of the combined company’s internal control over financial reporting than Grubb & Ellis’ stockholders currently have available to them about the effectiveness of Grubb & Ellis’ internal control over financial reporting.


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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
 
This document contains certain forward-looking information about Grubb & Ellis and NNN Realty Advisors that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this document or may be incorporated into this document by reference to other documents and may include statements for the period following the completion of the merger. Representatives of Grubb & Ellis and NNN Realty Advisors may also make forward-looking statements. Forward-looking statements are statements that are not historical facts. Words such as “expect,” “believe,” “will,” “may,” “anticipate,” “plan,” “estimate,” “intend,” “should,” “can,” “likely,” “could” and similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to, statements about the expected benefits of the merger, information about the combined company, including expected synergies and projected revenues and cash flows, combined operating and financial data, including future financial and operating results, the combined company’s objectives, plans and expectations, the likelihood of satisfaction of certain conditions to the completion of the merger and whether and when the merger will be consummated. These statements are subject to risks and uncertainties, including the risks described in this document under the section entitled “Risk Factors”, and those that are incorporated by reference into this document that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.
 
Forward-looking statements are not guarantees of performance. These statements are based upon the current beliefs and expectations of management of Grubb & Ellis and NNN Realty Advisors and are subject to a number of factors that could cause actual outcomes and results to be materially different from those projected or anticipated. These forward-looking statements are subject to numerous risks and uncertainties.
 
The following factors, among other things, could cause actual results to differ from the forward-looking statements in this document or those made by representatives of Grubb & Ellis and NNN Realty Advisors in connection with the combined company’s business upon the consummation of the merger:
 
  •  risks and uncertainties discussed and identified in public filings with the SEC made by Grubb & Ellis;
 
  •  Grubb & Ellis and NNN Realty Advisors may be unable to obtain stockholder or regulatory approvals relating to the merger in a timely manner, if at all;
 
  •  the businesses of Grubb & Ellis and NNN Realty Advisors may not be integrated successfully or as quickly as expected;
 
  •  the revenues and synergies and other benefits from the merger may not be realized or may take longer to realize than expected;
 
  •  the merger may involve unexpected costs;
 
  •  limitations that may be imposed on the combined company’s operations that may be necessary to obtain governmental approvals required for the merger;
 
  •  the businesses and results of operations of Grubb & Ellis and NNN Realty Advisors may suffer as a result of uncertainty surrounding the merger;
 
  •  the strength of the economy in general or in the markets served by Grubb & Ellis and NNN Realty Advisors, including markets in Texas and California;
 
  •  risks relating to compliance with, or changes in, government regulation and legislation, including, but not limited to, changes in the applicable tax code;
 
  •  risks relating to identification of, and competition for, growth and expansion opportunities;
 
  •  risks related to Grubb & Ellis’ and NNN Realty Advisors’ ability to attract new customers and retain existing customers;
 
  •  risks relating to exposure to liabilities in excess of insurance;


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  •  risks relating to adverse developments in the industry generally, including, but not limited to, developments in any investigation related to the industry that may be conducted by governmental authorities;
 
  •  risks relating to adverse resolution of existing or future lawsuits or investigations or regulatory developments;
 
  •  other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements of the combined company; and
 
  •  those factors listed in “Risk Factors” beginning on page 16.
 
The following factors, among other things, could cause actual results to differ from the forward-looking statements in this document relating to the business of Grubb & Ellis:
 
  •  decline in the volume of real estate transactions and prices of real estate;
 
  •  general economic slowdown or recession in the real estate markets;
 
  •  Grubb & Ellis’ ability to attract and retain qualified personnel;
 
  •  liquidation and dissolution of G&E Realty Advisors, an affiliate of Grubb & Ellis;
 
  •  limitations imposed by Grubb & Ellis’ senior secured credit facility;
 
  •  risks associated with strategic alliances and acquisitions;
 
  •  social, political and economic risks of doing business in foreign countries;
 
  •  industry competition;
 
  •  seasonal revenue; and
 
  •  liabilities arising from environmental laws and regulations.
 
The following factors, among other things, could cause actual results to differ from the forward-looking statements in this document relating to the business of NNN Realty Advisors:
 
  •  dependence on the success of real estate investment programs for generating revenue and raising new capital;
 
  •  dependence on third-party securities broker-dealers to raise the capital to fund NNN Realty Advisors’ programs;
 
  •  a change or revocation of the applicable tax code which provides for the current TIC structure and benefits;
 
  •  a failure to satisfy requirements for favorable tax treatment of NNN Realty Advisors’ programs;
 
  •  fluctuation in cash flow or earnings as a result of any co-investments, especially in the event NNN Realty Advisors is required to make future capital contributions;
 
  •  reliance on NNN Realty Advisors’ Chairman and largest stockholder as well as other key executive officers;
 
  •  conflicts of interest in transactions and arrangements between NNN Realty Advisors, or its directors, officers and affiliates, and its programs, and among its programs;
 
  •  risks related to the real estate industry in general, including risks related to potential increases in interest rates and tenant defaults and declines in real estate values and rental and occupancy rates; and
 
  •  the other risks identified in this prospectus including, without limitation, those under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”


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In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this document or made by representatives of Grubb & Ellis or NNN Realty Advisors may not occur. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof or, in the case of statements incorporated by reference, on the date of the document incorporated by reference, or, in the case of statements made by representatives of Grubb & Ellis or NNN Realty Advisors, on the date those statements are made. All subsequent written and oral forward-looking statements concerning the merger or the combined company or other matters addressed in this document and attributable to Grubb & Ellis or NNN Realty Advisors or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, neither Grubb & Ellis nor NNN Realty Advisors undertakes any obligation to update or publish revised forward-looking statements to reflect events or circumstances after the date hereof or the date of the forward-looking statements or to reflect the occurrence of unanticipated events.
 
COMPARATIVE PER SHARE INFORMATION
 
The following unaudited pro forma combined per share information as of and for the year ended December 31, 2006 and the three months ended March 31, 2007 reflect the merger as if it had occurred on the first day of the periods presented. Such pro forma financial data is based on the historical financial statements of Grubb & Ellis and NNN Realty Advisors and gives effect to the merger under the purchase method of accounting for business combinations. As a result, the pro forma financial information is based on certain assumptions and adjustments as discussed in the section titled “Unaudited Pro Forma Condensed Combined Financial Information”. The following should be read in connection with the section titled “Unaudited Pro Forma Condensed Combined Financial Information”, and other information included in or incorporated by reference into this document.
 
                                 
    NNN Realty
          Unaudited
       
    Advisors
    Grubb & Ellis
    Pro Forma
       
    Historical     Historical     Combined        
 
As of and for the Three Months Ended March 31, 2007:
                               
PER COMMON SHARE DATA:
                               
Income from Continuing Operations
                               
Basic
  $ 0.09     $ (0.11 )   $ 0.00          
Diluted
  $ 0.09     $ (0.11 )   $ 0.00          
Cash Dividends Declared
  $ 0.05           $ 0.03          
Book Value
  $ 5.31     $ 1.78     $ 8.41          
As of and for the Year Ended December 31, 2006:
                               
PER COMMON SHARE DATA:
                               
Income from Continuing Operations
                               
Basic
  $ 0.72     $ (5.89 )   $ 0.17          
Diluted
  $ 0.72     $ (5.89 )   $ 0.17          
Cash Dividends Declared
  $ 0.09           $ 0.06          
Book Value
  $ 5.24     $ 1.87       N/A          


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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
 
The principal market for the Grubb & Ellis’ common stock was the over-the-counter market, or OTC, through June 29, 2006. Since June 30, 2006, the principal market is the New York Stock Exchange, or NYSE. The following table sets forth the high and low sales prices of Grubb & Ellis’ common stock on the NYSE for each quarter of the fiscal year ending June 30, 2007:
 
                 
    2007  
    High     Low  
 
First Quarter
  $ 10.21     $ 7.91  
Second Quarter
  $ 12.61     $ 8.76  
Third Quarter
  $ 11.90     $ 10.23  
Fourth Quarter
  $ 13.25     $ 10.69  
 
The following table sets forth the high and low sales prices of Grubb & Ellis’ common stock on the OTC for each quarter of the fiscal years ended June 30, 2006 and 2005.
 
                                 
    2006     2005  
    High     Low     High     Low  
 
First Quarter
  $ 7.30     $ 5.80     $ 4.26     $ 1.55  
Second Quarter
  $ 12.05     $ 5.55     $ 5.20     $ 3.60  
Third Quarter
  $ 14.20     $ 9.04     $ 4.94     $ 4.10  
Fourth Quarter
  $ 14.50     $ 9.00     $ 7.00     $ 4.75  
 
As of March 31, 2007, there were 1,031 registered holders of Grubb & Ellis’ common stock and 25,906,870 shares of common stock outstanding. Sales of substantial amounts of common stock, including shares issued upon the exercise of options, or the perception that such sales might occur, could adversely affect prevailing market prices for the common stock.
 
No cash dividends were declared on Grubb & Ellis’ common stock during the fiscal years ended June 30, 2006 or 2005. Any such dividends declared and paid are restricted in amount by provisions contained in the credit agreement between Grubb & Ellis and various lenders to not more than 100% of “Excess Cash Flow” generated in the prior fiscal year, as that term is defined in the credit agreement.
 
There is no established public trading market for NNN Realty Advisors common stock. As of June 30, 2007, there were 120 registered holders of common stock and 43,179,741 shares of common stock outstanding. For the quarters ended December 31, 2006, March 31, 2007 and June 29, 2007, the NNN Realty Advisors Board of Directors declared dividends per share of NNN Realty Advisors common stock of $0.09, $0.045 and $0.09, respectively. These dividend payments were funded through cash on hand. Until the consummation of the merger, NNN Realty Advisors intends to continue to pay a dividend of $.09 per calendar quarter (or any pro rata portion thereof). The determination to pay the dividends to NNN Realty Advisors stockholders is at the discretion of the NNN Realty Advisors Board of Directors and will depend upon NNN Realty Advisors’ financial condition, results of operations, capital requirements, general business conditions and other factors that the NNN Realty Advisors Board of Directors may deem relevant. The percentage of NNN Realty Advisors dividends that exceeds NNN Realty Advisors current accumulated earnings and profits may vary substantially from year to year. NNN Realty Advisors may pay dividends from various sources, including cash on hand, borrowings under its credit facilities or past or future capital market transactions. Increased levels of debt could reduce funds available to NNN Realty Advisors to pay dividends, and borrowings may not be available on advantageous terms, if at all, to fund dividend payments.
 
The table below sets forth the closing sale prices of Grubb & Ellis common stock as reported on the NYSE on May 21, 2007, the last trading day prior to the public announcement of the transaction, and on June 29, 2007. The table also shows the implied value of one NNN Realty Advisors common share, which was calculated by multiplying the closing price of Grubb & Ellis common stock by the exchange ratio of 0.88. The market price of Grubb & Ellis common stock on those dates will fluctuate between the date of this document and the time of the special meetings and the completion of the merger. No assurance can be given


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concerning the market price of Grubb & Ellis common stock before the completion of the merger or the market price of Grubb & Ellis common stock after the completion of the merger. The exchange ratio is fixed in the merger agreement. One result of this is that the market value of the Grubb & Ellis common stock that NNN Realty Advisors stockholders will receive in the merger may vary significantly from the prices shown in the table below.
 
                 
          Implied Value
 
          of NNN Realty
 
    Grubb & Ellis
    Advisors
 
    Common Stock     Common Stock(a)  
 
May 21, 2007
  $ 10.76     $ 9.47  
June 29, 2007
  $ 11.60     $ 10.21  
 
NNN Realty Advisors stockholders should obtain current market quotations for shares of Grubb & Ellis common stock in deciding whether to vote for adoption of the merger agreement and approval of the merger. Grubb & Ellis stockholders should obtain current market quotations for shares of Grubb & Ellis common stock in deciding whether to vote for approval of the issuance of Grubb & Ellis common stock to NNN Realty Advisors stockholders in the merger, the amendment to the Grubb & Ellis charter to increase the number of authorized shares and to provide for a classified board of directors, and the election of the proposed board of directors.
 
Upon closing, Grubb & Ellis presently intends to begin paying an annual dividend of $0.41 per share. Payment of dividends in the future, however, will depend on business conditions, its financial condition and earnings, and other factors and there can be no guarantee that any dividends will be paid by Grubb & Ellis.


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UNAUDITED PRO FORMA FINANCIAL DATA
 
The following unaudited pro forma merger condensed combined consolidated statements of operations data for the year ended December 31, 2006 and the three months ended March 31, 2007 reflect the merger of Grubb & Ellis and NNN Realty Advisors, or the merger, as if it had occurred on January 1, 2006. The following unaudited pro forma balance sheet data at March 31, 2007 reflects the merger as if it had occurred on that date. NNN Realty Advisors is the acquiror for purposes of accounting for the merger. Such pro forma financial data is based on the historical financial statements of Grubb & Ellis and NNN Realty Advisors and gives effect to the merger under the purchase method of accounting for business combinations. The Grubb & Ellis historical financials for the twelve months ended December 31, 2006 are compiled from interim financial reports and information filed with the Securities and Exchange Commission. Following the merger, Grubb & Ellis intends to change its fiscal year end from June 30 to December 31.
 
The accompanying unaudited pro forma condensed combined financial statements are presented for information purposes only and are subject to a number of estimates, assumptions and other uncertainties, and do not purport to represent what the results of operations or financial position actually would have been for the combined company had the merger in fact occurred on the dates specified, nor purport to project the results of operations or financial position for the combined company for any future period or at any future date. All pro forma adjustments are based on preliminary estimates and assumptions and are subject to revision upon finalization of the purchase accounting for the acquisition and the related transactions. In management’s opinion, all adjustments necessary to reflect the transactions have been made.
 
The overall presentation of the unaudited pro forma financial data includes the following:
 
  •  pro forma merger condensed consolidated balance sheet as of March 31, 2007 combining the pro forma condensed balance sheet of NNN Realty Advisors as of March 31, 2007 (as described below and referred to as the NNN pro forma condensed balance sheet) with the historical Grubb & Ellis condensed consolidated balance sheet as of March 31, 2007 to give effect to the merger.
 
  •  NNN pro forma condensed consolidated balance sheet as of March 31, 2007 giving effect to certain property dispositions of NNN Realty Advisors which occurred subsequent to March 31, 2007 (excluding the effect of the merger with Grubb & Ellis).
 
  •  pro forma merger condensed consolidated statement of operations for the three months ended March 31, 2007 combining the historical NNN Realty Advisors condensed consolidated statement of operations for the three months ended March 31, 2007 with the historical Grubb & Ellis condensed consolidated statement of operations for the three months ended March 31, 2007 to give effect to the merger.
 
  •  pro forma condensed consolidated statement of operations for the year ended December 31, 2006 combining the pro forma condensed consolidated statement of operations (as described below and referred to as the NNN pro forma condensed consolidated statement of operations) with the historical Grubb & Ellis condensed consolidated statement of operations for the year ended December 31, 2006 to give effect to the merger.
 
  •  NNN pro forma condensed consolidated statement of operations for the year ended December 31, 2006 giving effect to the “formation transactions” of NNN Realty Advisors (excluding the effect of the merger with Grubb & Ellis).
 
The following unaudited merger pro forma condensed combined statements of operations for the three months ended March 31, 2007 and the twelve months ended December 31, 2006 do not give effect to any of the following non-recurring expenses that result from the completion of the merger:
 
  •  $1.0 million transaction bonus paid to an executive officer as a result of the completion of this merger; and
 
  •  the non-recurring compensation charge of $2.6 million that will result from the acceleration of the vesting of restricted stock awards. At the effective time of the merger, restrictions on transfer and/or forfeiture with respect to 326,668 shares of restricted NNN Realty Advisors common stock held by


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  certain members of NNN Realty Advisors’ board of directors and management shall terminate and the Grubb & Ellis common stock issued in exchange for such shares of NNN Realty Advisors common stock shall be fully vested without such restrictions.


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UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
 
UNAUDITED PRO FORMA MERGER CONDENSED
COMBINED CONSOLIDATED BALANCE SHEET
As of March 31, 2007
 
The following unaudited pro forma merger condensed combined consolidated balance sheet combines the NNN Realty Advisors pro forma combined data with the Grubb & Ellis historical data as of March 31, 2007. This data is presented for illustrative purposes only, and is not necessarily indicative of the financial position that would have been realized had the merger been completed as of March 31, 2007. The pro forma merger condensed combined consolidated balance sheet is qualified in its entirety by reference to and should be read in conjunction with the historical March 31, 2007 consolidated financial statements of NNN Realty Advisors and Grubb & Ellis included elsewhere in this document or incorporated by reference. In management’s opinion, all adjustments necessary to reflect the transactions have been made.
 
The accompanying unaudited pro forma merger condensed combined consolidated balance sheet is unaudited and subject to a number of estimates, assumptions and other uncertainties, and does not purport to be indicative of the actual financial position that would have occurred had the merger reflected therein in fact occurred on the dates specified, nor does such balance sheet purport to be indicative of the financial position that may be achieved in the future. In addition, the unaudited pro forma merger condensed combined consolidated balance sheet includes pro forma allocations of the purchase price of the merger based upon preliminary estimates of the fair value of the assets and liabilities acquired in connection with the merger and are subject to change.


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PRO FORMA MERGER CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
March 31, 2007
UNAUDITED
 
                                 
    NNN Pro
                   
    Forma
    Grubb & Ellis
    Pro Forma
    Merger Pro Forma
 
(In thousands)   Combined(a)     Historical(a)     Adjustments     Combined  
ASSETS
Current assets:
                               
Cash and cash equivalents
  $ 99,050     $ 3,838     $ 186 (h)   $ 103,074  
Restricted cash/reserves
    10,857       800               11,657  
Investment in marketable securities
    7,659                     7,659  
Services fees receivable, net
          13,618               13,618  
Other receivables
          6,300               6,300  
Accounts receivable from related parties — net
    43,933                     43,933  
Advances to related parties — net
    13,906                     13,906  
Notes receivable from related party — net
    2,000                     2,000  
Real estate deposits and preacquisition costs
    14,843                     14,843  
Professional services contracts, net
          6,316               6,316  
Prepaid expenses and other assets
    6,564       3,230               9,794  
Deferred tax assets, net
          3,294               3,294  
Properties held for sale
    86,847       43,223       (43,223 )(h)     86,847  
Identified intangible assets held for sale — net
    19,071                     19,071  
                                 
Total current assets
    304,730       80,619       (43,037 )     342,312  
Investments in unconsolidated entities
    5,852       5,145               10,997  
Professional services contracts, net
          11,030               11,030  
Properties held for investment — net
    3,817                     3,817  
Property and equipment — net
    4,433       11,465               15,898  
Goodwill
    60,183       24,763       (24,763 )(b)     278,677  
                      218,494 (b)        
Identified intangible assets — net
    19,476             123,400 (b)     142,876  
Other assets — net
    1,372       2,420               3,792  
                                 
Total Assets
  $ 399,863     $ 135,442     $ 274,094     $ 809,399  
                                 
 
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
                                 
LIABILITIES                                
Current liabilities:
                               
Lines of credit
  $     $     $     $  
Accounts payable and accrued expenses
    32,698       15,080       4,445 (c)     55,907  
                      1,000 (d)        
                      2,684 (i)        
Due to related parties
    2,099                     2,099  
Current portion of capital lease obligations
    177                     177  
Current portion of notes payable
    123                     123  
Commissions payable
          6,704               6,704  
Mortgage loans payable secured by properties held for sale
    116,486       43,037       (43,037 )(h)     116,486  
Liabilities of properties held for sale-net
    797                     797  
Other liabilities
    3,040       9,457               12,497  
                                 
Total current liabilities
    155,420       74,278       (34,908 )     194,790  
Long-term liabilities:
                               
Participating notes
    16,277                     16,277  
Notes payable
    380       3,954               4,334  
Accrued claims and settlements
          5,008               5,008  
Capital lease obligations
    364                     364  
Other liabilities
          6,216               6,216  
Deferred tax liability
    1,526             48,225 (e)     49,751  
                                 
Total Liabilities
    173,967       89,456       13,317       276,740  
Minority interest
    995                     995  
STOCKHOLDERS’ EQUITY
                               
Common Stock
    423       259       (53 )(f)     629  
Additional paid-in capital
    214,038       94,432       213,125 (f)     524,249  
                      2,654 (g)        
Retained earnings
    10,479       (48,482 )     48,482 (f)     6,825  
                      (3,654 )(d)(g)        
Other comprehensive (loss) income
    (39 )     (223 )     223 (f)     (39 )
                                 
Total Stockholders’ Equity
    224,901       45,986       260,777       531,664  
TOTAL LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
  $ 399,863     $ 135,442     $ 274,094     $ 809,399  
                                 
 
See Accompanying Notes to the Unaudited Pro Forma Merger
Condensed Combined Consolidated Balance Sheet


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NOTES TO THE UNAUDITED PRO FORMA MERGER CONDENSED
COMBINED BALANCE SHEET
AS OF MARCH 31, 2007
 
(a) The pro forma merger condensed combined balance sheet was prepared by combining the unaudited NNN pro forma combined balance sheet as of March 31, 2007 (as presented in the following NNN Realty Advisors pro forma condensed combined balance sheet) and the Grubb & Ellis historical unaudited consolidated balance sheet as of the same date.
 
(b) Represents the elimination of Grubb & Ellis’ historical goodwill of $24.8 million and the preliminary allocation of the purchase price fair value over the historical net book value of the acquired assets and assumed liabilities of Grubb & Ellis at March 31, 2007, and is for illustrative purposes only. Actual fair values will be based on financial information as of the acquisition date. Assuming the transaction had occurred on March 31, 2007, the preliminary allocation would have been as follows:
 
         
Purchase price of stock issued1
  $ 307,763  
Acquisition costs
    4,445  
         
Total purchase price
    312,208  
Tangible net assets acquired at fair value2
    18,539  
         
Purchase Price in excess of net tangible assets acquired3
  $ 293,669  
         
 
 
1 The purchase price of stock issued was based upon the Grubb & Ellis market capitalization using the average closing stock price beginning two days before and ending two days after March 30, 2007 and includes the fair value of 832,000 Grubb & Ellis vested stock options and 257,500 unvested stock options which will immediately vest upon consummation of the merger transaction.
 
2 Tangible net assets were acquired at fair value which approximates the Grubb & Ellis historical cost.
 
3 Purchase price in excess of net tangible assets acquired have been allocated on a preliminary basis as follows:
 
         
Customer contracts and relationships
  $ 19,600  
Tradenames and Trademarks
    82,400  
Affiliate agreements
    13,200  
Customer backlog
    2,200  
Internally developed software and research database
    6,000  
Deferred tax liability
    (48,225 )
Goodwill
    218,494  
         
Total purchase price in excess of net tangible assets acquired
  $ 293,669  
         
 
(c) In connection with the merger, NNN Realty Advisors has estimated acquisition expenses of $4.4 million, which has been reflected as an adjustment to purchase price.
 
(d) In connection with employment agreements, certain employees may be entitled to receive up to $1.0 million upon consummation of the merger.
 
(e) Deferred tax liability recorded in purchase accounting related to the establishment of $123.4 million of intangible assets using the statutory federal rate of 34% and estimated state tax rate of 5% (net of federal benefit).
 
(f) Reflects the impact to common stock and additional paid-in capital resulting from the issuance of 37.0 million Grubb & Ellis common shares to NNN Realty Advisors’ shareholders in the 0.88 to 1 merger exchange ratio. Also includes the elimination of Grubb & Ellis historical retained earnings and other comprehensive loss.
 
(g) Reflects the impact to retained earnings of the following non-recurring expenses that will result from the completion of the merger: (i) $1.0 million transaction bonus to be paid to Scott D. Peters, and


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(ii) non-recurring compensation charge of $2.6 million that will result from the acceleration of the vesting of 326,668 shares of restricted stock.
 
(h) Represents the disposition of all real estate held for sale and related liabilities recorded in the Grubb & Ellis historical balance sheet, due to the probable sale of these assets to Grubb & Ellis Realty Advisors, Inc., subsequent to March 31, 2007.
 
(i) Represents change in control payments to be made to executives of Grubb & Ellis upon consummation of the merger. These payments will result in an increase to goodwill.


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UNAUDITED NNN PRO FORMA CONDENSED
COMBINED CONSOLIDATED BALANCE SHEET OF NNN REALTY ADVISORS
As of March 31, 2007
 
The following unaudited pro forma condensed combined consolidated balance sheet (including footnotes thereto) is presented for illustrative purposes only, and is not necessarily indicative of the financial position that would have been realized had properties held by NNN Realty Advisors been disposed as of March 31, 2007. The pro forma condensed combined consolidated balance sheet is qualified in its entirety by reference to and should be read in conjunction with the historical March 31, 2007 consolidated financial statements of NNN Realty Advisors included elsewhere in this document. In management’s opinion, all adjustments necessary to reflect the transactions have been made.
 
The accompanying unaudited pro forma condensed combined consolidated balance sheet is unaudited and subject to a number of estimates, assumptions and other uncertainties, and does not purport to be indicative of the actual financial position that would have occurred had the dispositions reflected herein in fact occurred on the dates specified, nor does such balance sheet purport to be indicative of the financial position that may be achieved in the future.


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UNAUDITED NNN PRO FORMA CONDENSED COMBINED
 
CONSOLIDATED BALANCE SHEET OF NNN REALTY ADVISORS
March 31, 2007
 
                                                 
    NNN Realty
    (a)
    (a)
    (a)
          NNN Pro
 
    Advisors
    Pro Forma
    1600
    Hunter
    (a)
    Forma
 
(In thousands)   Historical     Adjustments     Parkwood     Plaza     Parkway 400     Combined  
 
ASSETS
Current assets:
                                               
Cash and cash equivalents
  $ 69,838     $ 29,780     $ (451 )   $ (117 )   $     $ 99,050  
Restricted cash/reserves
    17,141             (2,104 )     (567 )     (3,613 )     10,857  
Investment in marketable securities
    7,659                               7,659  
Accounts receivable from related parties — net
    44,483             (26 )     (279 )     (245 )     43,933  
Advances to related parties — net
    13,906                               13,906  
Notes receivable from related party — net
    2,000                               2,000  
Real estate deposits and preacquisition costs
    14,843                               14,843  
Prepaid expenses and other assets
    6,616             (33 )     (19 )           6,564  
Properties held for sale
    161,256             (23,426 )     (23,969 )     (27,014 )     86,847  
Identified intangible assets held for sale — net
    39,441             (4,475 )     (8,300 )     (7,595 )     19,071  
                                                 
Total current assets
    377,183       29,780       (30,515 )     (33,251 )     (38,467 )     304,730  
Investments in unconsolidated entities
    5,852                               5,852  
Properties held for investment — net
    3,817                               3,817  
Property and equipment — net
    4,433                               4,433  
Goodwill
    60,183                               60,183  
Identified intangible assets — net
    19,476                               19,476  
Other assets — net
    1,372                               1,372  
                                                 
Total Assets
  $ 472,316     $ 29,780     $ (30,515 )   $ (33,251 )   $ (38,467 )   $ 399,863  
                                                 
 
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
                                                 
LIABILITIES                                                
Current liabilities:
                                               
Lines of credit
  $     $     $     $     $     $  
Accounts payable and accrued expenses
    33,595             (185 )     (419 )     (293 )     32,698  
Due to related parties
    2,099                               2,099  
Current portion of capital lease obligations
    177                               177  
Current portion of notes payable
    123                               123  
Mortgage loans payable secured by properties held for sale
    182,736             (18,250 )     (22,500 )     (25,500 )     116,486  
Liabilities of properties held for sale — net
    3,842             (482 )     (2,321 )     (242 )     797  
Other liabilities
    3,040                               3,040  
                                                 
Total current liabilities
    225,612             (18,917 )     (25,240 )     (26,035 )     155,420  
Long-term liabilities:
                                               
Participating notes
    16,277                               16,277  
Notes payable
    380                               380  
Capital lease obligations
    364                               364  
Deferred tax liability
    1,526                               1,526  
                                                 
Total Liabilities
    244,159             (18,917 )     (25,240 )     (26,035 )     173,967  
                                                 
Minority interest
    3,092             (2,099 )     2             995  
STOCKHOLDERS’ EQUITY
                                               
Common stock
    423                               423  
Additional paid-in capital
    214,038       29,780       (9,237 )     (8,064 )     (12,479 )     214,038  
Retained earnings
    10,643             (262 )     51       47       10,479  
Other comprehensive (loss)
    (39 )                             (39 )
                                                 
Total Equity
    225,065       29,780       ( 9,499 )     (8,013 )     (12,432 )     224,901  
                                                 
TOTAL LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
  $ 472,316     $ 29,780     $ (30,515 )   $ (33,251 )   $ (38,467 )   $ 399,863  
                                                 
 
See Accompanying Notes to the Unaudited Pro Forma
Condensed Combined Consolidated Balance Sheet


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NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET OF NNN REALTY ADVISORS
AS OF MARCH 31, 2007
 
(a) Although the actual sales occurred subsequent to March 31, 2007, the pro forma adjustment assumes that the 1600 Parkwood, Hunter Plaza and Parkway 400 property sales were completed as of March 31, 2007. As a result the assets and liabilities of those properties are excluded from the NNN Realty Advisors financial statements and estimated cash proceeds from the sales of these properties are included in the NNN Realty Advisors financial statements.


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UNAUDITED MERGER PRO FORMA CONDENSED
COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Month Period Ended March 31, 2007
 
The following unaudited pro forma condensed combined consolidated statement of operations of the combined company for the three month period ended March 31, 2007 gives effect to the merger as if it had occurred on January 1, 2006.
 
The accompanying unaudited pro forma condensed combined consolidated statement of operations is unaudited and is presented for informational purposes only and does not purport to represent what the results of operations actually would have been had all or any of the transactions above in fact occurred on the date specified, nor does the information purport to project the results of operations for any future period or at any future date.
 
The pro forma condensed combined consolidated statement of operations (including the notes thereto) is qualified in its entirety by reference to and should be read in conjunction with the historical March 31, 2007 consolidated financial statements for the three months ended March 31, 2007 of NNN Realty Advisors and Grubb & Ellis included elsewhere in this document or incorporated herein by reference. In management’s opinion, all adjustments necessary to reflect the merger and related transactions have been made.


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UNAUDITED PRO FORMA MERGER CONDENSED COMBINED STATEMENT OF OPERATIONS
For the three months ended March 31, 2007
 
                                         
          Grubb &
                   
    NNN
    Ellis
    Pro Forma
    Pro Forma
    Pro Forma
 
(In thousands, except share and per share data)   Historical     Historical     Reclassifications(a)     Adjustments     Combined  
SERVICES REVENUE
                                       
Transaction
  $ 15,126     $ 63,181     $     $ (134 )(b)   $ 78,173  
Management
    10,383       51,767                     62,150  
Dealer-manager
    2,988                           2,988  
                                         
Total service revenue
    28,497       114,948             (134 )     143,311  
OTHER REVENUE
                                       
Rental Revenue
    2,283                           2,283  
Interest Income
    897                           897  
Other Income
    71                           71  
                                         
Total other revenue
    3,251                         3,251  
                                         
TOTAL REVENUE
    31,748       114,948             (134 )     146,562  
SERVICES EXPENSE
                                       
Transaction
                                       
Compensation costs
    6,859             10,644               17,503  
Commissions
          38,148                     38,148  
Salaries and other direct costs
    3,710       2,067       10,101       (134 )(b)     15,744  
Amortization of intangible assets
                      470 (c)     470  
                                         
Total transaction
    10,569       40,215       20,745       336       71,865  
Management
                                       
Compensation costs
    5,659       38,500       3,291               47,450  
Operating and administrative
    2,518       7,965       2,020               12,503  
Amortization of intangible assets
                      446 (c)     446  
                                         
Total management
    8,177       46,465       5,311       446       60,399  
Dealer-manager
                                       
Compensation costs
    285                           285  
Operating and administrative
    2,217                           2,217  
                                         
Total dealer-manager
    2,502                         2,502  
                                         
Total service expense
    21,248       86,680       26,056       782       134,766  
OTHER OPERATING EXPENSE (INCOME)
                                       
Salaries and Wages
          16,940       (16,940 )              
General and administrative
    1,607             4,817       384 (d)     6,808  
Selling, general and administrative
          13,933       (13,933 )              
Depreciation and amortization
    514       2,423             500 (c)     3,437  
Rental related expense
    2,398                           2,398  
Interest expense
    536             99               635  
                                         
Total other operating expense (income)
    5,055       33,296       (25,957 )     884       13,278  
OPERATING INCOME (LOSS)
    5,445       (5,028 )     (99 )     (1,800 )     (1,482 )
OTHER INCOME (EXPENSE )
                                       
Equity in earnings of unconsolidated entities
    169       135                     304  
Interest expense
          (99 )     99                
Interest and other income
    679       264                     943  
                                         
Total other (expense) income
    848       300       99             1,247  
Income (loss) from continuing operations before minority interest and provision for income taxes
    6,293       (4,728 )           (1,800 )     (235 )
Minority interest
    7                           7  
                                         
Income from continuing operations before provision for income taxes
    6,286       (4,728 )           (1,800 )     (242 )
Provision (benefit) for income taxes
    2,489       (1,794 )           (702 )(e)     (7 )
                                         
Income (loss) from continuing operations
  $ 3,797     $ (2,934 )   $     $ (1,098 )   $ (235 )
                                         
Basic earnings (loss) per share from continuing operations
  $ 0.09                             $ (0.00 )
Diluted earnings (loss) per share from continuing operations
  $ 0.09                             $ (0.00 )
Weighted average basic shares
    41,943,074                       (41,943,074 )(f)     63,036,733  
                              36,909,905 (f)        
                              25,839,360 (f)        
                              287,468 (f)        
Weighted average diluted shares
    41,988,334                       (41,988,334 )(f)     63,036,733  
                              36,909,905 (f)        
                              25,839,360 (f)        
                              287,468 (f)        
 
See Accompanying Notes to the Unaudited Pro Forma
Condensed Combined Consolidated Statement of Operations


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NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2007
 
(a) The Grubb & Ellis historical results were reclassified to conform to the NNN Realty Advisors historical segment presentation. As a result, several Grubb & Ellis indirect costs were allocated from the other operating expenses category on the income statement to transaction or management services expense categories, as follows:
 
         
    Pro Forma
 
(In thousands)   Reclassification  
 
Transaction services expense
  $ 20,745  
Management services expense
  $ 5,311  
Other operating expenses
  $ (26,056 )
 
In addition, historical results for both companies, which had been presented in other operating expenses as salaries and wages as well as general and administrative expense, were reclassified to selling, general and administrative expense for pro forma purposes.
 
(b) Reflects the elimination of $0.1 million of transaction revenues and expenses between NNN Realty Advisors and Grubb & Ellis for the period presented.
 
(c) Reflects amortization of intangible assets for the three months ended March 31, 2007, as follows (in thousands):
 
                 
    Identified Intangible
    Amortization
 
    Assets     Expense  
 
Transaction services:
               
Customer backlog
  $ 2,200     $ 275  
Affiliate agreements
  $ 13,200     $ 125  
Customer relationships
  $ 2,400     $ 70  
                 
Total transaction services
  $ 17,800     $ 470  
Management services:
               
Customer relationships
  $ 17,200     $ 446  
Other operating expense:
               
Internally developed software and research database
  $ 6,000     $ 500  
 
Amortization expense is based on estimated cash flows of each intangible asset which generally results in more amortization in the early years and less in later years of the estimated useful life. Amortization expense for internally developed software and research database is based on the straight-line method over a useful life of 3 years.
 
(d) Reflects the impact of additional pro forma cash and stock based compensation for Scott D. Peters, which will become effective upon the consummation of the merger, as if those adjustments occurred on January 1, 2006. The adjustments consist of (i) an increase to $600,000 base salary per annum and a bonus of up to two times his per annum base salary, and (ii) the transfer of 600,000 shares of NNN Realty Advisors common stock from Mr. Thompson to Mr. Peters, which shares vest in equal increments over five years.
 
(e) The pro forma benefit for income taxes for the three months ended March 31, 2007 differs from the federal statutory income tax rate of 34.0% due to the following:
 
         
    (In thousands)  
 
Federal income taxes at the statutory rate
  $ (82 )
State income taxes, net of federal benefit
    (12 )
Other nondeductible items
    87  
         
Total pro forma benefit for income tax
  $ (7 )
         


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(f) The weighted average number of common shares outstanding reflects the following; (1) 25.8 million weighted average shares of Grubb & Ellis for the three months ended March 31, 2007 and (2) an additional 37.0 million shares of Grubb & Ellis common stock issued in connection with the merger based on the 0.88 merger exchange ratio which are assumed to be outstanding for the periods presented. This treatment of weighted shares is consistent with a reverse merger transaction where Grubb & Ellis is considered the legal acquiror and NNN Realty Advisors the accounting acquirer. Also includes 0.3 million shares of Grubb & Ellis common stock which represent the weighted share impact of the vesting of 0.3 million shares of NNN Realty Advisors restricted stock upon consummation of the merger, multiplied by the 0.88 merger exchange ratio.


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UNAUDITED PRO FORMA MERGER CONDENSED
COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006
 
The following unaudited pro forma condensed combined consolidated statement of operations of the combined company for the year ended December 31, 2006 gives effect to the merger as if it had occurred on January 1, 2006.
 
The accompanying unaudited pro forma condensed combined consolidated statement of operations is unaudited and is presented for informational purposes only and does not purport to represent what the results of operations actually would have been had all or any of the transactions above in fact occurred on the date specified, nor does the information purport to project the results of operations for any future period or at any future date.
 
The pro forma condensed combined consolidated statement of operations (including notes thereto) is qualified in its entirety by reference to and should be read in conjunction with the NNN pro forma combined condensed consolidated statement of operations (including the notes thereto), the historical December 31, 2006 consolidated financial statements of NNN Realty Advisors included elsewhere in this document and the historical filings of Grubb & Ellis incorporated by reference in this document. In management’s opinion, all adjustments necessary to reflect the merger and related transactions have been made.


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UNAUDITED PRO FORMA MERGER CONDENSED COMBINED STATEMENT OF OPERATIONS
For the twelve months ended December 31, 2006
 
                                         
    NNN Pro
    Grubb &
                   
    Forma
    Ellis
    Pro Forma
    Pro Forma
    Pro Forma
 
(In thousands, except share and per share data)   Combined     Historical     Reclassifications(a)     Adjustments     Combined  
 
SERVICES REVENUE
                                       
Transaction
  $ 65,237     $ 294,569     $     $ (3,978 )(b)   $ 355,828  
Management
    38,859       197,332                     236,191  
Dealer-manager
    19,139                           19,139  
                                         
Total service revenue
    123,235       491,901             (3,978 )     611,158  
OTHER REVENUE
                                       
Rental Revenue
    9,224                           9,224  
Interest Income
    2,952                           2,952  
Other Income
    3                           3  
                                         
Total other revenue
    12,179                         12,179  
                                         
TOTAL REVENUE
    135,414       491,901             (3,978 )     623,337  
SERVICES EXPENSE
                                       
Transaction
                                       
Compensation costs
    25,712             40,455               66,167  
Commissions
          183,583                       183,583  
Operating and administrative
    19,012       7,847       36,459       (3,978 )(b)     59,340  
Amortization of intangible assets
                      1,890 (c)     1,890  
                                         
Total transaction
    44,724       191,430       76,914       (2,088 )     310,980  
Management
                                       
Compensation costs
    27,994       144,507       11,569               184,070  
Operating and administrative
    8,953       29,439       8,130               46,522  
Amortization of intangible assets
                      3,462 (c)     3,462  
                                         
Total management
    36,947       173,946       19,699       3,462       234,054  
Dealer-manager
                                       
Compensation costs
    3,545                           3,545  
Operating and administrative
    14,083                           14,083  
                                         
Total dealer-manager
    17,628                         17,628  
                                         
Total service expense
    99,299       365,376       96,613       1,374       562,662  
OTHER OPERATING EXPENSE (INCOME)
                                       
Salaries and Wages
          62,307       (62,307 )              
General and administrative
    3,688             17,617       1,537 (d)     22,842  
Selling, general and administrative
          51,923       (51,923 )              
Depreciation and amortization
    2,104       8,103             2,000 (c)     12,207  
Rental related expense
    9,718                           9,718  
Interest expense
    6,236             2,128               8,364  
Reserves and other
    (400 )                         (400 )
Loss on disposal of property and equipment
    141                           141  
Special
          (3,765 )                   (3,765 )
                                         
Total other operating expense (income)
    21,487       118,568       (94,485 )     3,537       49,107  
OPERATING INCOME
    14,628       7,957       (2,128 )     (8,889 )     11,568  
OTHER INCOME (EXPENSE)
                                       
Equity in earnings of unconsolidated entities
    491       512                     1,003  
Interest expense
          (2,128 )     2,128                
Interest income
    824       1,037                     1,861  
                                         
Total other (expense) income
    1,315       (579 )     2,128             2,864  
                                         
Income from continuing operations before minority interest and provision for income taxes
    15,943       7,378             (8,889 )     14,432  
Minority interest
    308                         308  
                                         
Income from continuing operations before provision for income taxes
    15,635       7,378             (8,889 )     14,124  
Provision (benefit) for income taxes
    6,156       4,545               (3,467 )(e)     7,234  
                                         
Income from continuing operations(g)
  $ 9,479     $ 2,833     $     $ (5,422 )   $ 6,890  
                                         
Basic earnings per share from continuing operations(g)
  $ 0.35                             $ 0.17  
Diluted earnings per share from continuing operations(g)
  $ 0.35                             $ 0.17  
Weighted average basic shares
    26,982,176                       (26,982,176 )(f)     41,418,783  
                              23,744,315 (f)        
                              17,387,000 (f)        
                              287,468 (f)        
Weighted average diluted shares
    27,084,676                       (27,084,676 )(f)     41,681,983  
                              23,834,515 (f)        
                              17,560,000 (f)        
                              287,468 (f)        
 
See Accompanying Notes to the Unaudited Pro Forma
Condensed Combined Consolidated Statement of Operations


59


Table of Contents

NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
 
(a) The Grubb & Ellis historical results were reclassified to conform to the NNN Realty Advisors historical segment presentation. As a result, several Grubb & Ellis indirect costs were allocated from the other operating expenses category on the income statement to transaction or management services expense categories, as follows:
 
                         
    Pro Forma
             
(In thousands)   Reclassification              
 
Transaction services expense
  $ 76,914                  
Management services expense
  $ 19,699                  
Other operating expenses
  $ (96,613 )                
 
In addition, historical results for both companies, which had been presented in other operating expenses as salaries and wages as well as general and administrative expense, were reclassified to selling, general and administrative expense for pro forma purposes.
 
(b) Reflects the elimination of $4.0 million of transaction revenues and expenses between NNN Realty Advisors and Grubb & Ellis for the period presented.
 
(c) Reflects amortization of intangible assets for the twelve months ended December 31, 2006 (in thousands):
 
                 
    Identified Intangible
    Amortization
 
    Assets     Expense  
 
Transaction services:
               
Customer backlog
  $ 2,200     $ 1,100  
Affiliate agreements
  $ 13,200     $ 507  
Customer relationships
  $ 2,400     $ 283  
                 
Total transaction service
  $ 17,800     $ 1,890  
Management services:
               
Customer relationships
  $ 17,200     $ 3,462  
Other operating expense:
               
Internally developed software and research database
  $ 6,000     $ 2,000  
 
The estimated amortization expense for the five year period subsequent to the consummation of the merger is as follows (in thousands):
 
                                                 
    Identified
                               
    Intangible
    Amortization Expenses ($)  
    Asset     Yr 1     Yr 2     Yr 3     Yr 4     Yr 5  
 
Transaction services
                                               
Customer backlog
  $ 2,200     $ 1,100     $ 1,100     $     $     $  
Affiliate agreements
  $ 13,200     $ 507     $ 500     $ 497     $ 490     $ 483  
Customer relationships
  $ 2,400     $ 283     $ 278     $ 370     $ 320     $ 285  
Management services
                                               
Customer relationships
  $ 17,200     $ 3,462     $ 1,783     $ 1,608     $ 1,268     $ 996  
Other operating expense
                                               
Internally developed software and research database
  $ 6,000     $ 2,000     $ 2,000     $ 2,000     $     $