Financial brokerage BGC Partners plans to increase its stake in the foundering commercial firm Grubb & Ellis by injecting an additional $10 million so that BGC can provide loans to cover unpaid brokerage commissions, recent documents filed with the U.S. Bankruptcy Court in Manhattan show.
BGC and Grubb want to provide the money in so-called “retention loans” in an effort to hold on to the company’s dealmakers, who they fear are leaving as the company appears rudderless and winds through bankruptcy. In January, two Manhattan brokers moved to Lee & Associates and last August Studley hired a top Grubb retail broker.
“Recognizing that the exodus of additional brokers will cause irreparable harm to [Grubb] and their estates, [Grubb], in consultation with BGC, have formulated the loan program,” Grubb CFO Michael Rispoli, said in court records filed late last Thursday.
Grubb, which state Department of State data show has 64 licensed professionals in New York, estimates it will pay out a total of about $15 million in such loans nationwide to brokers for lump sums of between $1,000 and $750,000. However, there are conditions. Each broker must agree to forgive all claims on broker fees earned before the bankruptcy filing Feb. 20. And the payments are structured as loans that oblige the broker to remain with the company — presumably then owned by BGC Partners — for three years if the amount is $25,000 or more, and two years if less than that amount.
(The loans are only for commissions earned before the Chapter 11 filing. Those earned after the filing are already guaranteed through the bankruptcy process.)
If paid out in full, the $10 million will increase BGC’s total investment to approximately $45.5 million. That figure is composed of about $30 million it paid Feb. 17 to buy outstanding secured debt, and $15.5 million in financing to fund ongoing operations and pay the commissions, court records show. In addition, there are more than 200 brokers in the U.S. from other firms who are owed about $850,000 through co-brokered deals, court records show, who would also be paid.
BGC and Grubb did not immediately respond to requests for comment.
The New York Observer, citing sources, reported last Friday that BGC expected to provide an unspecified amount of funding to pay for broker commissions.
The same day Grubb filed for bankruptcy, it agreed to sell nearly all its assets to BGC on an accelerated schedule. Last week, unsecured creditors including commercial brokers chafing at the proposed quick sale, filed to slow down the bankruptcy process.
Grubb has about 1,300 brokers nationally, but it said in its bankruptcy filing that as of mid-February it had lost top producers who accounted for about 30 percent of the firm’s revenue.