##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-K

x ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended June 30,
2003


OR

o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the transition period from
 to

Commission file number 1-8122

GRUBB & ELLIS COMPANY

(Exact name of registrant as specified in its
charter)


|                                                                                              |  |                                                     
|--------------------------------------------------------------------------------------------- |  | ----------------------------------------------------
|                                                                                             
|Delaware
    (State or other jurisdiction of
    Incorporation or organization)               |  | 94-1424307
    (IRS Employer
    Identification No.)
|                                                                                             
|2215 Sanders Road, Suite 400, Northbrook,
    IL
    (Address of principal executive offices) |  | 60062
    (Zip Code)                                

(847) 753-7500

(Registrants telephone number, including
area code)




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Securities registered pursuant to
Section 12(b) of the Act:

|                                     |  |                                                   
|------------------------------------ |  | --------------------------------------------------
|Title of each class
    Common Stock |  | Name of each exchange on which registered
    None

Securities registered pursuant to
Section 12(g) of the Act: None

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days. Yes x No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be
contained, to the best of registrants knowledge, in its
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in rule 12b-2 of the
Act). Yes o No x

The aggregate market value of voting common stock
held by non-affiliates of the registrant as of
September 22, 2003 was approximately $3,966,625.

The number of shares outstanding of the
registrants common stock as of September 22, 2003 was
15,097,371 shares.



---

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
Registrants definitive proxy statement to be filed
pursuant to Regulation 14A no later than 120 days
after the end of the fiscal year (June 30, 2003) are
incorporated by reference into Part III of this Report.



---






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TABLE OF CONTENTS



|                                                                                             |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                                                                      
|Item 1. Business                                                                            
|Item 2. Properties                                                                          
|Item 3. Legal Proceedings                                                                   
|Item 4. Submission of Matters to a Vote of Security Holders                                 
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                                             
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|Item 9A. Controls and Procedures                                                            
|PART III                                                                                    
|Item 10. Directors and Executive Officers of the Registrant                                 
|Item 11. Executive Compensation                                                             
|Item 12. Security Ownership of Certain Beneficial Owners and Management                     
|Item 13. Certain Relationships and Related Transactions                                     
|PART IV                                                                                     
|Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                   
|SIGNATURES                                                                                  
|EXHIBIT INDEX (A)                                                                           
|First Amendment to Employment Agreement                                                     
|Employment Agreement with First Amendment                                                   
|Employment Agreement with 1st and 2nd Amendments                                            
|Compensation Arrangement Letter                                                             
|Subsidiaries of the Registrant                                                              
|Consent of Independent Auditors                                                             
|Powers of Attorney                                                                          
|Section 302 Certifications                                                                  
|Section 906 Certifications                                                                  



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##### Table of Contents



GRUBB & ELLIS COMPANY

FORM 10-K


TABLE OF CONTENTS

|                  |  |                                                                                           |   |      |    | 
|----------------- |  | ----------------------------------------------------------------------------------------- | - | ---- | -- | 
|                  |  |                                                                                           |   | Page |   
|                  |  |                                                                                           |   |      |   
|Cover Page        |  |                                                                                           | 1 |     
|Table of Contents |  |                                                                                           | 2 |     
|Part I.           |  |                                                                                           |   |      |    | 
|Item 1.           |  | Business                                                                                  |   |      | 3  | 
|Item 2.           |  | Properties                                                                                |   |      | 6  | 
|Item 3.           |  | Legal Proceedings                                                                         |   |      | 6  | 
|Item 4.           |  | Submission of Matters to a Vote of Security
    Holders                                   |   |      | 6  | 
|Part II.          |  |                                                                                           |   |      |    | 
|Item 5.           |  | Market for the Registrants Common Equity
    and Related Stockholder Matters             |   |      | 7  | 
|Item 6.           |  | Selected Financial Data                                                                   |   |      | 8  | 
|Item 7.           |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |   |      | 9  | 
|Item 7A.          |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |   |      | 18 | 
|Item 8.           |  | Financial Statements and Supplementary Data                                               |   |      | 19 | 
|Item 9.           |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |   |      | 47 | 
|Item 9A.          |  | Controls and Procedures                                                                   |   |      | 47 | 
|Part III.         |  |                                                                                           |   |      |    | 
|Item 10.          |  | Directors and Executive Officers of the Registrant                                        |   |      | 47 | 
|Item 11.          |  | Executive Compensation                                                                    |   |      | 47 | 
|Item 12.          |  | Security Ownership of Certain Beneficial Owners
    and Management                        |   |      | 47 | 
|Item 13.          |  | Certain Relationships and Related Transactions                                            |   |      | 47 | 
|Part IV.          |  |                                                                                           |   |      |    | 
|Item 14.          |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                      |   |      | 48 | 
|Signatures        |  |                                                                                           |   |      | 55 | 
|Exhibit Index     |  |                                                                                           |   |      | 56 | 

2



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GRUBB & ELLIS COMPANY






PART I







Item 1. Business


General

Grubb & Ellis Company, a Delaware corporation
organized in 1980, is the successor by merger to a real estate
brokerage company first established in California in 1958.
Grubb & Ellis Company and its wholly owned subsidiaries
(Grubb & Ellis or the Company) is an
integrated real estate services firm with 4,750 total employees
as of June 30, 2003. The Company employs more than 800
transaction professionals in 49 owned offices, and has access to
over 400 additional transactions professionals in 51 affiliate
offices. Including its alliance with Knight Frank, one of
Europes leading real estate consulting firms, it has the
collective resources of over 8,000 individuals in 200 offices in
31 countries around the world. The Company is one of the
nations largest publicly traded commercial real estate
firms, based on total revenue.

The Company, through its offices, affiliates and
alliance with Knight Frank provides a full range of real estate
services, including transaction, management and consulting
services, to users and investors worldwide. Grubb &
Ellis strategizes, arranges and advises on the sale, acquisition
or lease of such business properties as industrial, retail and
office buildings, as well as the acquisition and disposition of
multi-family properties and commercial land.

Major multiple-market clients have a single point
of contact through the Companys global accounts program
for coordination of all services. Delivered in a seamless manner
across a global platform, the Companys comprehensive
services include feasibility studies, site selection, market
forecasts and research.

Property and facilities management services are
provided by Grubb & Ellis Management Services, Inc.
(GEMS), a wholly owned subsidiary of the Company.
Leveraging the management portfolio and the trend for
outsourcing, additional revenues are earned by providing
business services and construction management. Operating on a
national scale, GEMS had approximately 150 million square
feet of property under management as of June 30, 2003.

Current Business Platform and
Organization

Historically, Grubb & Ellis transaction
services operations have generated approximately 60% of the
Companys revenue, with leasing transactions providing
approximately 75% of the transaction revenue and dispositions
and acquisitions accounting for the remaining 25%. The leasing
activity represents a balanced blend of tenant representation,
landlord representation and dual-representation. Grubb &
Ellis transaction professionals are supported by the
Companys in-depth market research, which is regarded by
real estate professionals and other industry constituents as one
of the leading sources for market data in the real estate
industry.

The management services group has traditionally
generated approximately 40% of the Companys revenue, with
reimbursed salaries, wages and benefits generating approximately
75% of the groups revenue. Management service fees are
generated from third-party property management, facilities
management, business services, and other related activities and
comprise the remaining 25% of revenue from this group. The Grubb
& Ellis Management Services business unit provides its
customers with client accounting, engineering services,
independent property management, and corporate facilities
management.

The Company is currently organized in the
following business segments. Additional information on these
business segments can be found in Note 19 of Notes to
Consolidated Financial Statements in Item 8 of this Report.

Transaction Services

Historically, transaction services have
represented a large portion of the Companys operations,
and in fiscal year 2003 represented 56% of the Companys
total revenue. A significant portion of the transaction services
provided by the Company are transaction related services, in
which the Company represents the interests of tenants, owners,
buyers or sellers in leasing, acquisition and disposition
transactions. These transactions involve various types of
commercial real estate, including office, industrial, retail,
hospitality, multi-family and land.

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The Company also delivers, to a lesser extent,
certain consulting related services primarily to its transaction
services clients, including site selection, feasibility studies,
exit strategies, market forecasts, appraisals, strategic
planning and research services.

Management Services

GEMS provides comprehensive property management
and related services for properties owned primarily by
institutional investors, along with facilities management
services for corporate users. In regard to certain management
and facility service contracts, the owner of a property will
also reimburse the Company for certain expenses, primarily
employee salaries and related benefit costs, that are incurred
on behalf of the owner. Other related services include
construction management, business services and engineering
services. In fiscal year 2003, these services represented the
remaining 44% of the Companys total revenue.

Ownership and Debt Transactions

On September 19, 2002, Kojaian Ventures,
L.L.C. (KV), a related party to C. Michael
Kojaian, the Companys controlling stockholder and Chairman
of the Board of Directors of the Company, exercised its right to
convert a subordinated promissory note it held into preferred
stock of the Company. As a result of this conversion, 11,725
shares of the Companys Series A Preferred Stock were
issued to KV, having a stated value of $1,000 per share. The
outstanding related party principal and interest obligations
totaling $11,725,000 were reclassified to stockholders
equity on the date of conversion. The preferred stock contains
liquidation preference and voting rights equal to 990 common
shares for each share of preferred stock, and votes, along with
holders of common stock, on all matters on an as liquidated
basis. The Series A Preferred Stock represented an
aggregate of 11,607,750 common share equivalents at
September 19, 2002, subject to adjustment. As a consequence
of the conversion, there was a change in the voting control of
the Company, as these equivalents, along with 3,762,884 shares
of outstanding common stock owned by KV and its affiliates
(approximately 25% of the outstanding common stock of the
Company), represent approximately 57% of the total voting power
of the Company.

In May 2003, Kojaian Capital, L.L.C. (the
New Lender), a related party to the Companys
controlling stockholder and Chairman, agreed to acquire the
Companys credit facility (Credit Agreement)
from Bank of America, N.A. as agent and lender and certain other
lenders (Banks), which transaction was effected on
June 6, 2003. The Company is not a party to the transaction
and the terms of the acquisition have not been disclosed. On
June 20, 2003, the Company and the New Lender entered into
the sixth amendment to the Credit Agreement (the Sixth
Amendment), which improved the financial condition of the
Company. Among other things, the Sixth Amendment defers further
amortization of the principal obligations due under the Credit
Agreement until September 30, 2004, and eliminates certain
minimum EBITDA and fixed charge ratio covenant requirements
through June 30, 2004. As a result of the Sixth Amendment,
the Company was no longer in default under the Credit Agreement
relating to the achievement of these financial covenants or
otherwise.

In connection with the anticipated acquisition of
the credit facility, Kojaian Funding, L.L.C., another affiliated
entity of the Companys controlling stockholder and
Chairman, also made a $4 million subordinated loan to the
Company on May 9, 2003 (the Subordinated Loan)
for working capital purposes. The Subordinated Loan requires
interest only payments during its term at the rate of 10% per
annum, with the entire principal amount of the loan due on
July 15, 2004.

Strategic Initiatives

The Companys revenues during the first
eight months of fiscal 2003 continued to be impacted by the
difficult economic climate in the United States and the
climates direct impact on the real estate services
industry. As a result, the Company initiated a number of actions
in March 2003 to improve its financial condition, including
streamlining the Companys business organization to better
direct investment dollars to its core transaction and management
services businesses. Several senior management changes were also
made as part of a corporate realignment. The Company is also
instituting various cost control initiatives that it believes
will serve to strengthen the Companys financial position,
while at the same time permit the Company to continue to provide
the same level of services that it has in the past.
Specifically, in addition to a work force reduction of
approximately 40 individuals, the Company further reduced
compensation expense, which is the Companys single largest
expense, through executive officer salary reductions. Also, many
contracts the Company held with external professional services
firms were eliminated or revised to better support the
Companys new corporate alignment. The Company expects that
all of the above

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actions will result in a decrease in fixed
operating expenses to a scale more appropriate with the revenue
levels experienced in fiscal 2003.


Knight Frank is the Companys strategic
partner for the advancement of the Companys global
business strategy. With market presence in Europe, India and the
Pacific Rim, the Company believes that Knight Frank is
positioned to be an effective alliance partner that complements
Grubb & Ellis strengths and provides the mechanism to
deliver real estate services to global enterprises. As the trend
towards globalization among large entities continues to gain
momentum, the Company intends to focus on global business
development and capabilities.

The Company continues to develop its national
affiliate program, through alliances with 40 real estate
services firms, which has enabled it to enter markets where it
previously did not have a formal presence and to better meet the
multi-market needs of global clients. The Company has also
invested in technology systems designed to provide a scalable
platform for growth and to efficiently deliver and share data
with clients. Among them is what the Company believes to be a
state-of-the-art, company-wide information sharing and research
network which enables its professional staff across all offices
to work more efficiently, access the latest market intelligence,
and more fully address clients needs.

Industry and Competition

The commercial real estate industry is large and
fragmented. The estimated $4.5 trillion of commercial real
estate in the United States produces annual sales transactions
valued at $150 billion and annual lease transactions valued
at $180 billion. The gross market for annual brokerage
commissions is estimated at approximately $13 billion. On a
national basis, the commercial brokerage industry is highly
fragmented with the half-dozen leading firms generating
approximately 10% of the revenue.

As a result of the current economic downturn,
lease rates have declined and stabilized in many markets.
Absorption rates have dropped significantly and vacancy rates
have increased in many markets. Leasing commission rates have
held firm, although sales commission rates have come under
pressure, especially for larger institutional-grade properties.
These factors have contributed to an industry-wide decline in
commission revenue.

The Company 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 local level. The Company faces competition not only from
other real estate service providers, but also from boutique real
estate advisory firms, appraisal firms and self-managed real
estate investment trusts. Although many of the Companys
competitors are local or regional firms that are substantially
smaller than the Company, some of the Companys competitors
are substantially larger than the Company on a local or regional
basis. In general, there can be no assurance that the Company
will be able to continue to compete effectively, to maintain
current fee levels or margins, or maintain or increase its
market share. Due to the Companys relative strength and
longevity in the markets in which it presently operates, and its
ability to offer clients a range of real estate services on a
local, regional, national and international basis, the Company
believes that it can operate successfully in the future in this
highly competitive industry, although there can be no assurances
in this regard.

Environmental Regulation

Federal, state and local laws and regulations
impose environmental controls, disclosure rules and zoning
restrictions that have impacted the management, development,
use, and/or sale of real estate. The Companys financial
results and competitive position for the fiscal year 2003 have
not been materially impacted by its compliance with
environmental laws or regulations. Such laws and regulations
tend to discourage sales and leasing activities and mortgage
lending with respect to some properties, and may therefore
adversely affect the Company and the industry in general.
Failure of the Company to disclose environmental issues in
connection with a real estate transaction may subject the
Company to liability to a buyer or lessee of property.
Applicable laws and contractual obligations to property owners
could also subject the Company to environmental liabilities
through the provision of management services. Environmental laws
and regulations impose liability on current or previous real
property owners or operators for the cost of investigating,
cleaning up or removing contamination caused by hazardous or
toxic substances at the property. The Company may be held liable
as an operator for such costs in its role as an on-site property
manager. Liability can be imposed even if the original actions
were legal and the Company had no knowledge of, or was not
responsible for, the presence of the hazardous or toxic
substances. Further, the Company may also be held responsible
for the entire payment of the liability if it is subject to
joint and several liability and the other responsible parties are

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unable to pay. The Company may also be liable
under common law to third parties for damages and injuries
resulting from environmental contamination emanating from the
site, including the presence of asbestos containing materials.
Insurance for such matters may not be available. Additionally,
new or modified environmental regulations could develop in a
manner that could adversely affect the Companys
transaction and management services. See Note 13 of Notes
to Consolidated Financial Statements in Item 8 of this
Report for additional information.


Seasonality

Since the majority of the Companys revenues
are derived from transaction services, which are seasonal in
nature, the Companys revenue stream and the related
commission expense are also subject to seasonal fluctuations.
However, the Companys non-variable operating expenses,
which are treated as expenses when incurred during the year, are
relatively constant in total dollars on a quarterly basis. The
Company has typically experienced 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. Revenue in any given
quarter during the years ended June 30, 2003, 2002 and
2001, as a percentage of total annual revenue, ranged from a
high of 32.5% to a low of 20.8%.

Service Marks

The Company has registered trade names and
service marks for the Grubb & Ellis name and
logo and certain other trade names. The right to use the
Grubb & Ellis name is considered an important
asset of the Company, and the Company actively defends and
enforces such trade names and service marks.

Real Estate Markets

The Companys business is highly dependent
on the commercial real estate markets, which in turn are
impacted by numerous factors, including but not limited to the
general economy, interest rates and demand for real estate in
local markets. Changes in one or more of these factors could
either favorably or unfavorably impact the volume of
transactions and prices or lease terms for real estate.
Consequently, the Companys revenue from transaction
services and property management fees, operating results, cash
flow and financial condition are impacted by these factors,
among others.

Common Stock De-listed

On October 17, 2002, the Companys
common stock was de-listed from the New York Stock Exchange
(NYSE), due to the Companys book value and
market capitalization value being below the minimum levels
required by the NYSEs listing standards. The
Companys common stock commenced trading on the
over-the-counter market (OTC) effective
October 17, 2002, under the symbol GBEL.OB, and ceased
trading on the NYSE prior to the opening that day.






Item 2. Properties


The Company leases all of its office space
through non-cancelable operating leases. The terms of the leases
vary depending on the size and location of the office. As of
June 30, 2003, the Company leased approximately 687,000
square feet of office space in 68 locations under leases, which
expire at various dates through October 30, 2012. For those
leases that are not renewable, the Company believes there is
adequate alternative office space available at acceptable rental
rates to meet its needs, although there can be no assurances in
this regard. See Note 13 of Notes to Consolidated Financial
Statements in Item 8 of this Report for additional
information, which is incorporated herein by reference.






Item 3. Legal Proceedings


Information with respect to legal proceedings can
be found in Note 13 of Notes to Consolidated Financial
Statements in Item 8 of this Report and is incorporated
herein by reference.






Item 4. Submission of Matters to a
Vote of Security Holders


No matters were submitted to a vote of security
holders during the fourth quarter of fiscal year 2003.

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##### Table of Contents



GRUBB & ELLIS COMPANY

PART II

Item 5. Market for the
Registrants Common Equity and Related Stockholder
Matters

Market and Price Information

As of October 17, 2002, the principal market
for the Companys common stock is the over-the-counter
market (OTC). Prior to that time, the principal
market was the New York Stock Exchange (NYSE). The
following table sets forth the high and low sales prices of the
Companys common stock on the OTC for the final three
quarters of the fiscal year ended June 30, 2003 and on the
NYSE for the first quarter of the fiscal year ended
June 30, 2003 and each quarter of the fiscal year ended
June 30, 2002.

|               |  |      |      |  |      |   |      |      |  |   |      |  |  |   |      | 
|-------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|               |  |      |      | 
|               |  | 2003 |      |  | 2002 |  
|               |  |      |      |  |      |  
|               |  | High |      |  | Low  |   |      | High |  |   | Low  | 
|               |  |      |      |  |      |   |      |      |  |   |      | 
|First Quarter  |  | $    | 2.75 |  |      | $ | 1.20 |      |  | $ | 5.40 |  |  | $ | 3.35 | 
|Second Quarter |  | $    | 2.50 |  |      | $ | 1.01 |      |  | $ | 4.10 |  |  | $ | 2.31 | 
|Third Quarter  |  | $    | 1.75 |  |      | $ | 0.80 |      |  | $ | 3.10 |  |  | $ | 2.35 | 
|Fourth Quarter |  | $    | 2.05 |  |      | $ | 1.17 |      |  | $ | 4.25 |  |  | $ | 2.30 | 

As of September 22, 2003, there were 1,162
registered holders of the Companys common stock and
15,097,371 shares of common stock outstanding, of which
11,246,279 were held by persons who may be considered
affiliates of the Company, as defined in Federal
securities regulations. Sales of substantial amounts of common
stock, including shares issued upon the exercise of warrants or
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 the
Companys common stock during the fiscal years ended
June 30, 2003 or 2002. The Company has agreed, under the
terms of its revolving credit facility, not to pay cash
dividends on its common stock for the duration of the facility,
without obtaining an appropriate waiver from the lender.

Sales of Unregistered Securities

Effective May 14, 2002, the Company issued
to Kojaian Ventures, L.L.C. (KV) a promissory note
in the face amount of $11,237,500, the outstanding principal,
accrued interest and certain costs of which were convertible,
generally at the option of the holder, to shares of a new
Series A Preferred Stock. On September 19, 2002, KV
converted the promissory note to 11,725 shares of Series A
Preferred Stock. The sale of the securities was not underwritten
and was also exempt from the registration requirements under
Section 4(2) of the Securities Act of 1933. The net
proceeds of the note were used in part to pay down revolving
debt of the Company under its credit agreement and in part for
working capital purposes.

See Note 8 of Notes to Consolidated
Financial Statements in Item 8 of this Report, and such
disclosure is incorporated herein by reference.

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##### Table of Contents



Equity Compensation Plan Information

The following table provides information on
equity compensation plans of the Company as of June 30,
2003.

|                                                               |  |                            |           |  |                      |                         |      |                         |  |  |           | 
|-------------------------------------------------------------- |  | -------------------------- | --------- |  | -------------------- | ----------------------- | ---- | ----------------------- |  |  | --------- | 
|                                                               |  |                            |           |  |                      | Number of securities    |     
|                                                               |  |                            |           |  |                      | remaining available for |     
|                                                               |  |                            |           |  |                      | future issuance under   |     
|                                                               |  | Number of securities to be |           |  | Weighted average     |                         |      | equity compensation     | 
|                                                               |  | issued upon exercise of    |           |  | exercise price of    |                         |      | plans (excluding        | 
|                                                               |  | outstanding options,       |           |  | outstanding options, |                         |      | securities reflected in | 
|                                                               |  | warrants and rights        |           |  | warrants and rights  |                         |      | column (a))             | 
|Plan Category                                                  |  | (a)                        |           |  | (b)                  |                         |      | (c)                     | 
|                                                               |  |                            |           |  |                      |                         |      |                         | 
|Equity Compensation plans approved by security
    holders     |  |                            | 626,457   |  |                      | $                       | 6.34 |                         |  |  | 2,500,517 | 
|Equity compensation plans not approved by
    security holders |  |                            | 974,634   |  |                      | $                       | 7.42 |                         |  |  | 971,979   | 
|Total                                                          |  |                            | 1,601,091 |  |                      | $                       | 7.00 |                         |  |  | 3,472,496 | 

Equity Compensation Plans Not Approved by
Stockholders

Grubb & Ellis 1998 Stock Option
Plan this information can be found in Note 11 of
Notes to Consolidated Financial Statements in Item 8 of
this Report and is incorporated herein by reference.

Item 6. Selected Financial
Data

Five-Year Comparison of Selected Financial and
Other Data for the Company:

|                                                                   |           |                                   |         |            |      |   |         |            |   |   |         |            |  |      |         |            |  |   |         |            | 
|------------------------------------------------------------------ | --------- | --------------------------------- | ------- | ---------- | ---- | - | ------- | ---------- | - | - | ------- | ---------- |  | ---- | ------- | ---------- |  | - | ------- | ---------- | 
|                                                                   |           |                                  
|                                                                   |           | For the Years Ended June 30,      |        
|                                                                   |           |                                   |        
|                                                                   |           | 2003                              |         |            | 2002 |   |         | 2001       |   |   | 2000    |            |  | 1999 |        
|                                                                   |           |                                   |         |            |      |   |         |            |   |   |         |            |  |      |        
|                                                                   |           |                                  
|                                                                   |           | (in thousands, except share data) |        
|Total revenue                                                      |           | $                                 | 425,946 |            |      | $ | 431,446 |            |   | $ | 516,610 |            |  | $    | 508,540 |            |  | $ | 408,854 |           
|Net income (loss) to common stockholders                           |           |                                   | (17,902 | )          |      |   | (15,477 | )          |   |   | 1,369   |            |  |      | 16,290  |            |  |   | 8,079   |           
|Benefit (provision) for income taxes                               |           |                                   | (2,432  | )          |      |   | 1,187   |            |   |   | (5,102  | )          |  |      | (9,598  | )          |  |   | (5,301  | )         
|(Increase) reduction in deferred tax asset
    valuation allowance |           |                                   | (7,707  | )          |      |   | (5,214  | )          |   |   |        |            |  |      |        |            |  |   | 1,325   |           
|Income (loss) from continuing operations(1)                        |           |                                   | (16,772 | )          |      |   | (15,477 | )          |   |   | 4,502   |            |  |      | 16,290  |            |  |   | 8,079   |           
|Income (loss) from continuing operations per
    common share(1)   |           |                                   |         |            |      |   |         |            |   |   |         |            |  |      |         |            |  |   |         |           
|                                                                   |  Basic   |                                   |         | (1.19      | )    |   |         | (1.09      | ) |   |         | 0.26       |  |      |         | 0.82       |  |   |         | 0.41       | 
|                                                                   |  Diluted |                                   |         | (1.19      | )    |   |         | (1.09      | ) |   |         | 0.25       |  |      |         | 0.77       |  |   |         | 0.37       | 
|Weighted average common shares                                     |           |                                   |         |            |      |   |         |            |   |   |         |            |  |      |         |            |  |   |         |           
|                                                                   |  Basic   |                                   |         | 15,101,625 |      |   |         | 14,147,618 |   |   |         | 17,051,546 |  |      |         | 19,779,220 |  |   |         | 19,785,715 | 
|                                                                   |  Diluted |                                   |         | 15,101,625 |      |   |         | 14,147,618 |   |   |         | 17,975,351 |  |      |         | 21,037,311 |  |   |         | 21,587,898 | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Income and per share data reported on the above
    table reflect special charges in the amount of
    $9.5 million, $1.75 million, $6.2 million and
    $2.65 million for the fiscal years ended June 30,
    2003, 2002, 2001 and 2000, respectively. Net income for the
    fiscal year ended June 30, 2001 includes a loss of $676,000
    on the extinguishment of debt and a charge of $3.1 million
    reflecting the cumulative effect of a change in an accounting
    principle. For information regarding comparability of this data
    as it may relate to future periods, see discussion in
    Item 7, Managements Discussion and Analysis of
    Financial Condition and Results of Operations and Notes 5,
    6, 16 and 17 of the Notes to Consolidated Financial Statements
    in Item 8 of this Report.

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|                                 |  |                                   |            |   |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            |  
|-------------------------------- |  | --------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- |  |  | ---- | ---------- |  |  | - | ---------- | -
|                                 |  |                                  
|                                 |  | As of June 30,                    |           
|                                 |  |                                   |           
|                                 |  | 2003                              |            |   | 2002 |   |            | 2001 |  |   | 2000       |  |  | 1999 |           
|                                 |  |                                   |            |   |      |   |            |      |  |   |            |  |  |      |           
|                                 |  |                                  
|                                 |  | (in thousands, except share data) |           
|Consolidated Balance Sheet Data: |  |                                   |            |   |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            |  
|Total assets                     |  | $                                 | 75,102     |   |      | $ | 90,377     |      |  | $ | 92,426     |  |  | $    | 115,942    |  |  | $ | 98,451     |  
|Working capital                  |  |                                   | (2,723     | ) |      |   | 4,251      |      |  |   | 1,216      |  |  |      | 11,883     |  |  |   | (300       | )
|Long-term debt affiliate        |  |                                   | 31,300     |   |      |   |           |      |  |   |           |  |  |      |           |  |  |   |           |  
|Long-term debt                   |  |                                   |           |   |      |   | 36,660     |      |  |   | 29,000     |  |  |      |           |  |  |   | 553        |  
|Other long-term liabilities      |  |                                   | 10,323     |   |      |   | 10,396     |      |  |   | 9,734      |  |  |      | 10,422     |  |  |   | 11,189     |  
|Stockholders equity             |  |                                   | 255        |   |      |   | 5,866      |      |  |   | 16,316     |  |  |      | 61,620     |  |  |   | 44,482     |  
|Book value per common share      |  |                                   | 0.02       |   |      |   | 0.39       |      |  |   | 1.22       |  |  |      | 3.11       |  |  |   | 2.24       |  
|Common shares outstanding        |  |                                   | 15,097,371 |   |      |   | 15,028,839 |      |  |   | 13,358,615 |  |  |      | 19,810,894 |  |  |   | 19,885,084 |  

Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations

Note Regarding Forward-Looking
Statements

This Annual Report contains statements that are
not historical facts and constitute projections, forecasts or
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The statements are not
guarantees of performance. They involve known and unknown risks,
uncertainties, assumptions and other factors which may cause the
actual results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by these statements. You can
identify such statements by the fact that they do not relate
strictly to historical or current facts. These statements use
words such as believe, expect,
should, strive, plan,
intend, estimate and
anticipate or similar expressions. When we discuss
our strategy or plans, we are making projections, forecasts or
forward-looking statements. Actual results and
stockholders value will be affected by a variety of risks
and factors, including, without limitation, international,
national and local economic conditions and real estate risks and
financing risks and acts of terror or war. Many of the risks and
factors that will determine these results and values are beyond
the Companys ability to control or predict. These
statements are necessarily based upon various assumptions
involving judgment with respect to the future.

All such forward-looking statements speak only as
of the date of this Annual Report. The Company expressly
disclaims any obligation or undertaking to release publicly any
updates of revisions to any forward-looking statements contained
herein to reflect any change in the Companys expectations
with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.

Factors that could adversely affect the
Companys ability to obtain these results and value
include, among other things:

  Decline in the Volume of
Real Estate Transactions and Prices of Real Estate.The
Companys revenue is largely based on commissions from real
estate transactions. As a result, a decline in the volume of
real estate available for lease or sale, or in real estate
prices, could have a material adverse effect on the
Companys revenues.

  General Economic Slowdown or
Recession in the Real Estate Markets.Periods of economic
slowdown or recession, rising interest rates or declining demand
for real estate, both on a general or regional basis, will
adversely affect certain segments of the Companys
business. Such economic conditions could result in a general
decline in rents and sales prices, a decline in the level of
investment in real estate, a decline in the value of real estate
investments and an increase in defaults by tenants under their
respective leases, all of which in turn would adversely affect
revenues from transaction services fees and brokerage
commissions which are derived from property sales and aggregate
rental payments, property management fees and consulting and
other service fees.

  The Companys Debt
Level and Ability to Make Principal and Interest Payments.The Company currently has $27.3 million of outstanding
debt incurred in connection with the self-tender offer effected
in December 2000 and $5 million of credit revolver
debt. The Company also has a $4 million subordinated loan
outstanding, which is due to an affiliate. Any material downturn
in the Companys revenue or increase in its costs and
expenses could render the Company unable to meet its debt
obligations.

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  Risks Associated with
Acquisitions.As discussed in Part I, Item I of
this Annual Report under Strategic Initiatives, the
Company has established a strategic alliance. Also, in
connection with the Companys strategic initiatives, it may
undertake one or more additional strategic acquisitions. There
can be no assurance that significant difficulties in integrating
operations acquired from other companies and in coordinating and
integrating systems in a strategic alliance will not be
encountered, including difficulties arising from the diversion
of managements attention from other business concerns, the
difficulty associated with assimilating groups of broad and
geographically dispersed personnel and operations and the
difficulty in maintaining uniform standards and policies. There
can be no assurance that the integration will ultimately be
successful, that the Companys management will be able to
effectively manage any acquired business or that any acquisition
or strategic alliance will benefit the Company overall.

  Liabilities Arising from
Environmental Laws and Regulations.Part I, Item I
of this Annual Report under Environmental Regulation
discusses potential risks related to environmental laws and
regulations.

  The Company Faces Intense
Competition.Part I, Item I of this Annual Report
under Competition discusses potential risks related
to competition.

  The Companys Revenues
are Seasonal.Part I, Item I of this Annual Report
under Seasonality discusses potential risks related
to the seasonal nature of the Companys business.

  The Companys Ability
to Attract and Retain Qualified Personnel.The growth of the
Companys business is largely dependent upon its ability to
attract and retain qualified personnel in all areas of its
business. If the Company is unable to attract and retain such
qualified personnel, it may be forced to limit its growth, and
its business and operating results could suffer.

  Control by Existing
Stockholders.A single investor has a majority of the voting
power of the Company, and is affiliated with the sole lenders to
the Company at June 30, 2003. As a result, this investor
can influence the Companys affairs and policies and the
approval or disapproval of most matters submitted to a vote of
the Companys stockholders, including the election of
directors.

  Other Factors.Other
factors are described elsewhere in this Annual Report.

CRITICAL ACCOUNTING POLICIES AND
ESTIMATES

The Companys consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States, which
require the Company to make estimates and judgments that affect
the reported amount of assets, liabilities, revenues and
expenses, and the related disclosure. The Company believes that
the following critical accounting policies, among others, affect
its more significant judgments and estimates used in the
preparation of its consolidated financial statements.

Revenue Recognition

Real estate sales commissions are recognized at
the earlier of receipt of payment, close of escrow or transfer
of title between buyer and seller. Receipt of payment occurs at
the point at which all Company services have been performed, and
title to real property has passed from seller to buyer, if
applicable. Real estate leasing commissions are recognized upon
execution of appropriate lease and commission agreements and
receipt of full or partial payment, and, when payable upon
certain events such as tenant occupancy or rent commencement,
upon occurrence of such events. All other commissions and fees
are recognized at the time the related services have been
performed by the Company, unless future contingencies exist.
Consulting revenue is recognized generally upon the delivery of
agreed upon services to the client.

In regard to management and facility service
contracts, the owner of the property will typically reimburse
the Company for certain expenses that are incurred on behalf of
the owner, which are comprised primarily of employee salaries
and related benefit costs. The amounts, which are to be
reimbursed per the terms of the services contract, are
recognized as revenue by the Company in the same period as the
related expenses are incurred.

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Impairment of Goodwill

On July 1, 2002, the Company adopted
Statements of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets. The Company
completed the transitional impairment test of goodwill as of
July 1, 2002 and the annual impairment test as of
June 30, 2003 and has determined that no goodwill
impairment will impact the earnings and financial position of
the Company as of those dates. Future events could occur which
would cause the Company to conclude that impairment indicators
exist and an impairment loss is warranted. The determination of
impairment under FAS 142 requires the Company to estimate
the fair value of reporting units. This fair value estimation
involves a number of judgmental variables, including market
multiples, which may change over time.

Deferred Taxes

The Company records a valuation allowance to
reduce the carrying value of its deferred tax assets to an
amount that the Company considers is more likely than not to be
realized in future tax filings. In assessing this allowance, the
Company considers future taxable earnings along with ongoing and
potential tax planning strategies. Additional timing
differences, future earnings trends and/or tax strategies may
occur which could warrant a corresponding adjustment to the
valuation allowance.

Insurance and Claim Reserves

The Company has maintained partially self-insured
and deductible programs for errors and omissions, general
liability, workers compensation and certain employee
health care costs. Reserves are based upon an estimate provided
by an independent actuarial firm of the aggregate of the
liability for reported claims and an estimate of incurred but
not reported claims.

The Company is also subject to various
proceedings, lawsuits and other claims related to environmental,
labor and other matters, and is required to assess the
likelihood of any adverse judgments or outcomes to these
matters. A determination of the amount of reserves, if any, for
these contingencies is made after careful analysis of each
individual issue. New developments in each matter, or changes in
approach such as a change in settlement strategy in dealing with
these matters, may warrant an increase or decrease in the amount
of these reserves.

RESULTS OF OPERATIONS

Overview

The Company reported a net loss of
$16.8 million for the year ended June 30, 2003,
primarily due to a decline in net transaction services revenues
and the recognition of $9.5 million of special charges
during the year, partially offset by a decrease in operating
expenses.

Fiscal Year 2003 Compared to Fiscal Year
2002

Revenue

The Companys revenue is derived principally
from transaction services fees related to commercial real
estate, which include commissions from leasing, acquisition and
disposition, and agency leasing assignments as well as fees from
appraisal and consulting services. Management services fees,
which include reimbursed salaries, wages and benefits, comprise
the remainder of the Companys revenues, and include fees
related to both property and facilities management outsourcing
and business services. Recent accounting pronouncements and
subsequent interpretations have provided further clarification
regarding reimbursements of expenses on third party service
contracts. As a result, the Company believed that it was no
longer appropriate to net the reimbursements received from
property owners against the related salary, wages and benefit
expense. Accordingly, reimbursements received on third party
service contracts are characterized as revenue in the Statement
of Operations rather than as a reduction of expenses incurred.
In prior reports, the Company had disclosed this reimbursement
activity in its accounting policy footnote related to costs and
expenses. See Note 1(p) of Notes to Consolidated Financial
Statements in Item 8 of this Report for additional
information.

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Total revenue of $425.9 million was
recognized for fiscal year 2003 as compared to revenue of
$431.4 million for fiscal year 2002. Transaction services
fees decreased by $21.2 million in the current fiscal year
over the same period in 2002 due to the weak general economy and
its impact on the real estate industry, along with an increased
turnover in the Companys transaction professional
workforce. Management services fees increased by
$15.7 million or 9.2% during that same period due to
increased facility management assignments partially offset by
decreased property management fees. Reimbursed revenues, as well
as reimbursable expenses, related to salaries, wages and
benefits increased by $16.9 million, or 14.4%, during the
same period primarily due to the staffing requirements of the
new assignments.

Costs and Expenses

Services commissions expense is the
Companys largest expense and is a direct function of gross
transaction services revenue levels, which include transaction
services commissions and other fees. Professionals receive
services commissions at rates that increase upon achievement of
certain levels of production. As a percentage of gross
transaction revenue, related commission expense increased
slightly to 58.7% for fiscal year 2003 as compared to 58.0% for
fiscal year 2002.

Salaries, wages and benefits decreased by
$16.5 million, or 16.9%, during fiscal year 2003 as
compared to 2002. The decrease resulted primarily from a
reduction in workforce in March 2002 and March 2003,
along with the reduction of bonus payments and the elimination
of the company match to the 401(k) Plan for qualified employees
for calendar year 2002. Selling, general and administrative
expenses decreased by $2.8 million, or 4.3%, for the same
period, as the Company tightened its discretionary spending in
the fourth quarter of fiscal year 2003.

Depreciation and amortization expense for fiscal
year 2003 decreased by 25.7% to $8.0 million from
$10.7 million in fiscal year 2002, primarily due to the
cessation of goodwill amortization described in the following
paragraph. The Company holds multi-year service contracts with
certain key professionals, the costs of which are amortized over
the lives of the respective contracts, which are generally two
to three years. Amortization expense relating to these contracts
of $1.6 million was recognized in fiscal year 2003,
compared to $2.1 million in the prior year due to a
reduction in the number of new service contracts executed in the
current year.

In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill is no
longer amortized but is subject to annual impairment tests in
accordance with the Statement. Other intangible assets will
continue to be amortized over their useful lives. The Company
applied the new rules on accounting for goodwill and other
intangible assets beginning in the quarter ended
September 30, 2002 and completed the transitional
impairment test of goodwill as of July 1, 2002 and the
annual impairment test as of June 30, 2003. The Company
determined that no goodwill impairment would impact the earnings
and financial position of the Company as of those dates.
Application of the non-amortization provisions of the Statement
resulted in a decrease in depreciation and amortization expense
and a corresponding increase in net operating income of
approximately $1.6 million for fiscal year 2003 as compared
to the same period in 2002, or $0.11 per share.

During fiscal year 2003, the Company recorded
special charges totaling $9.5 million, consisting primarily
of severance costs of $6.3 million related to the
resignations of the Companys former Chief Executive
Officer, Chief Financial Officer, Chief Operating Officer, the
Companys General Counsel and other salaried personnel, and
office closure costs of $3.2 million. See Fiscal Year
2002 Compared to Fiscal Year 2001 below for a description
of special charges incurred during fiscal year 2002.

Interest income decreased during fiscal year 2003
as compared to fiscal year 2002 as a result of lower available
invested cash and declining interest rates.

Interest expense incurred during fiscal year 2003
and 2002 was due primarily to the Companys term loan
borrowings under the credit facility. Interest expense was also
incurred due to the note payable-affiliate that was funded in
March 2002 and subsequently converted to preferred stock in
September 2002, and a second note payable-affiliate that
was funded in May 2003. See Note 8 of Notes to
Consolidated Statements in Item 8 of this Report for
additional information.

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Income Taxes

As of June 30, 2003, the Company had gross
deferred tax assets of $20.3 million, with
$11.8 million of the deferred tax assets relating to net
operating loss carry forwards which will be available to offset
future taxable income through 2013. Management does not believe
that the Company will generate sufficient future taxable income
to realize these net deferred tax assets in the foreseeable
short term future; therefore, the Company has recorded a
valuation allowance for $17.4 million against the deferred
tax assets as of June 30, 2003 and will continue to do so
until such time as management believes that the Company will
realize such tax benefits. Although uncertainties exist as to
these events, the Company will continue to review its operations
periodically to assess whether and when all deferred tax assets
may be realized. The net income tax provision recorded in 2003
reflects a charge for the increase in the valuation allowance of
$7.7 million, compared to a similar charge of
$5.2 million in 2002. See Note 10 of Notes to
Consolidated Financial Statements in Item 8 of this Report
for additional information.

Net Income (Loss)

The net loss to common stockholders for fiscal
year 2003 was $17.9 million, or $(1.19) per common share on
a diluted basis, as compared to $15.5 million, or $(1.09)
per common share for fiscal year 2002.

Stockholders Equity

During fiscal year 2003, stockholders
equity decreased $5.6 million to $255,000 from
$5.9 million at June 30, 2002. The net loss of
$16.8 million for fiscal year 2003 was partially offset by
the conversion of the note payable-affiliate to preferred stock
of $10.9 million, net of issuance costs. See Liquidity and
Capital Resources below and Note 8 of Notes to Consolidated
Financial Statements in Item 8 of this Report for
additional information. The book value per common share issued
and outstanding decreased to $0.02 at June 30, 2003 from
$0.39 at June 30, 2002.

Fiscal Year 2002 Compared to Fiscal Year
2001

Revenue

Total revenue for fiscal year 2002 was
$431.4 million, a decrease of 16.5% from revenue of
$516.6 million for fiscal year 2001. Significantly
affecting this decline was a $96.4 million decrease in
transaction services fees in fiscal year 2002 from the prior
fiscal year. This resulted from decreased activity in the
technology markets as well as the current softening in the
general economy and its impact on the real estate industry
through negative absorption and higher vacancy rates,
particularly in the office sector. The terrorist attacks of
September 11, 2001 created additional marketplace
instability and further deterioration of overall economic
conditions across the United States. Management services fees
increased $11.2 million, or 7.1%, during the 2002 fiscal
year as compared to the prior fiscal year. Decreases in property
management fees were offset by increases in facility management
revenue resulting primarily from a number of new contracts.
Reimbursed revenues, as well as reimbursable expenses, related
to salaries, wages and benefits increased $13.3 million, or
12.7%, for the same period due to the new business.

Costs and Expenses

As a percentage of gross transaction revenue,
related commission expense decreased to 58.0% for fiscal year
2002 as compared to 60.4% for fiscal year 2001. This decrease
was due to unusually high average commission expense incurred
during the prior year in technology markets such as Silicon
Valley, San Francisco, Denver, Washington D.C. and New York,
resulting from higher production per professional.

Salaries, wages and benefits were relatively
flat, decreasing by $1.4 million or 1.4% during fiscal year
2002 as compared to 2001. Selling, general and administrative
expenses decreased by $2.7 million, or 4.0%, for the same
period. The decrease in these operating costs of
$4.1 million resulted from the Company tightening its
discretionary expenditures in response to the slowing general
economy.

Depreciation and amortization expense for fiscal
year 2002 decreased to $10.7 million from
$11.6 million in fiscal year 2001. The Company holds
multi-year service contracts with certain key professionals, the
costs of which are amortized over the lives of the respective
contracts, which are generally two to three years. Amortization
expense

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relating to these contracts of $2.1 million
was recognized in fiscal year 2002, compared to
$2.9 million in the prior year due to a reduction in the
number of new service contracts executed in the current year.


During fiscal year 2002, the Company concluded
long standing litigation proceedings on the John W.
Matthews, et al. v Kidder, Peabody & Co., et al. and HSM
Inc., et al.(Matthews) case for which it had
previously recorded loss reserves. In addition, during this
period, loss reserves were recorded as a result of the
liquidation proceedings surrounding one of the Companys
insurance carriers (Reliance liquidation). The
positive outcome of the Matthews case, partially offset by the
additional exposure on the Reliance liquidation, resulted in
$2.2 million of income from claim related reserves. The
Company also incurred other special charges in fiscal year 2002
totaling $3.9 million, consisting of $1.0 million of
severance costs related to a reduction of salaried overhead,
$2.1 million related to office closure costs, $300,000
related to costs incurred for the retirement of the Warburg
Pincus $5,000,000 Subordinated Note and for the evaluation of an
unsolicited purchase offer from a third party, and $500,000
related to a write-down of the carrying basis of an investment
in a commercial real estate services internet venture. The
Companys decision to write-down its interest in the
venture was due to a dilution in the Companys ownership
position, as well as uncertainty in the ventures ability
to achieve its business plan. As a result of these events, the
Company recognized net special charges of $1,749,000 for fiscal
year 2002.

During fiscal year 2001, the Company recognized
special charges totaling $6.2 million, relating primarily
to the impairment of goodwill related to the April 1998
acquisition of White Commercial Real Estate, as well as
compensation expense related to stock options exercised in
connection with the Companys self-tender offer, an initial
write down in the carrying basis of an investment in an internet
venture, and executive severance costs related to prior senior
management changes. (See Notes 15 and 16 of Notes to
Consolidated Statements in Item 8 of this Report for
additional information.)

Interest income decreased during fiscal year 2002
as compared to fiscal year 2001 as a result of lower available
invested cash and lower interest rates.

Interest expense incurred during fiscal year 2002
was due to the Companys term loan borrowings under the
credit facility related to the Companys self-tender offer,
and the note payable-affiliate funded in March 2002.
Interest expense incurred during the first half of fiscal year
2001 was due primarily to seller financing related to business
acquisitions made in calendar year 1998. Interest expense
incurred in the second half of fiscal year 2001 was due to the
term loan borrowings under the credit facility.

Effective December 31, 2000, the Company
restructured its credit agreement with Bank of America, N.A. as
agent and lender and certain other lenders (Credit
Agreement). Unamortized costs related to the prior
agreement totaling $676,000 were written off and originally
recorded as an extraordinary loss from extinguishment of debt
during fiscal year 2001. In accordance with SFAS 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment to FASB Statement No. 13, and Technical
Corrections, effective for fiscal years beginning after
May 15, 2002, any gain or loss on extinguishment of debt
that was classified as an extraordinary loss in prior periods
shall be reclassified. Accordingly, the $676,000 loss from
extinguishment of debt has been reclassified to interest
expense in the 2001 statement of operations.

In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin
No. 101 (SAB 101), Revenue Recognition in
Financial Statements. SAB 101 summarizes the SEC
staffs views regarding the recognition and reporting of
revenues in financial statements for publicly owned companies.
The adoption of SAB 101 is reflected as a cumulative effect
of a change in accounting principle as of July 1, 2000.
Under SAB 101, the Companys leasing commissions that
are payable upon certain events such as tenant occupancy or
commencement of rent are now recognized under SAB 101 generally
upon the delivery of agreed upon services to the client.
Historically, the Company had recognized leasing commissions at
the earlier of receipt of full payment or receipt of partial
payment when lease and commission agreements had been executed
and no significant contingencies existed. The Company had
recognized consulting fees as employee time was incurred on a
project. While this accounting change affects the timing of
recognition of leasing revenues (and corresponding services
commissions expense) and consulting revenues, it does not impact
the Companys cash flow from operations.

The cumulative effect of the accounting change on
prior years resulted in a reduction to income for fiscal year
2001 of $3.1 million (net of applicable taxes of
$2.1 million), or $0.17 per diluted share. The effect of
retroactive application of the accounting change to July 1,
2000 increased transaction services fees by $2.6 million,
EBITDA by

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$1.1 million and income before the
cumulative effect of the accounting change by $632,000, or $0.04
per diluted share, for fiscal year 2001.


Income Taxes

As of June 30, 2002, the Company had gross
deferred tax assets of $14.6 million, with
$5.4 million of the deferred tax assets relating to net
operating loss carry forwards. The Company recorded a valuation
allowance for $9.7 million against the deferred tax assets
as of June 30, 2002.

Net Income (Loss)

The net loss for fiscal year 2002 was
$15.5 million, or $(1.09) per common share on a diluted
basis, as compared to net income of $1.4 million, or $0.08
per common share for fiscal year 2001.

Stockholders Equity

During fiscal year 2002, stockholders
equity decreased $10.4 million to $5.9 million from
$16.3 million at June 30, 2001. The net loss of
$15.5 million for fiscal year 2002 was partially offset by
the receipt of $5.2 million of proceeds from the exercise
of warrants along with the sale of common stock under the
Companys stock option plans and employee stock purchase
plan. The book value per common share issued and outstanding
decreased to $0.39 at June 30, 2002 from $1.22 at
June 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal year 2003, cash and cash
equivalents decreased by $147,000 primarily as a result of cash
used to fund operating activities of $1.2 million and
investing activities of $3.3 million, offset by cash
generated by financing activities of $4.4 million. Cash
used in operating activities to fund losses from the
Companys operations was partially offset by the receipt of
federal tax refunds. Cash used in investing activities related
to $2.9 million of purchases of equipment, software and
leasehold improvements and $400,000 to a business acquisition.
Net financing activities related primarily to the funding of a
$4.0 million loan by Kojaian Funding, L.L.C. and additional
credit revolver borrowings of $5.0 million, offset by the
repayment of the term loan borrowings of $4.5 million.

The cash flow activities described in the
preceding paragraph, along with the classification of
$5.0 million of the amounts outstanding under the
Companys credit facility as current debt obligations, have
resulted in a negative working capital position of approximately
$2.7 million as of June 30, 2003. Strengthening of the
Companys working capital position will require improvement
in its cash flow from operations, or additional working capital
infusions, as to both of which there can be no assurances.

The Company has historically experienced the
highest use of operating cash in the quarter ending
March 31, primarily related to the payment of incentive and
deferred commission payable balances, which attain peak levels
during the quarter ending December 31. Deferred commissions
balances of approximately $7.6 million, related to revenues
earned in calendar year 2002, were paid in January 2003,
and incentive bonuses of approximately $2.0 million were
paid in March 2003.

See Note 19 of Notes to Consolidated
Financial Statements in Item 8 of this Report for
information concerning earnings before interest, taxes,
depreciation and amortization.

In the event of adverse economic conditions or
other unfavorable events, and to the extent that the
Companys cash requirements are not met by operating cash
flow or additional debt or equity proceeds, as to whose
availability there can be no assurances, the Company may find it
necessary to reduce expenditure levels or undertake other
actions as may be appropriate under the circumstances. The
Company has long-term principal payment obligations under the
term portion of its credit facility of $27.3 million as of
June 30, 2003. The Company has also fully utilized its
revolving credit facility through borrowings of
$5.0 million, and entered into a $4.0 million
subordinated loan with a related party in May 2003 as
described more fully below.

The Company was subject to certain financial
covenants pursuant to the terms of its amended and restated term
loan and credit facility (the Credit Agreement) by
and among the Company, various financial institutions and Bank
of America, N.A. as agent and lender (collectively, the
Banks), including minimum EBITDA (as defined in the

15



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credit agreement) levels it must achieve.
Beginning December 20, 2002, the Company received a series
of waivers through June 6, 2003 from the Banks with respect
to any default regarding the minimum EBITDA levels for the
quarters ended December 31, 2002 and March 31, 2003
which levels were not achieved. The waiver also provided for an
increase in interest rates of 50 basis points on borrowings
until such time as the outstanding principal fell below
$24.0 million, and accelerated certain principal repayments
of $1.7 million, which were made in the quarter ended
March 31, 2003.


In May 2003, Kojaian Capital, L.L.C. (the
New Lender), a related party to the Companys
controlling stockholder and Chairman, agreed to acquire the
Companys Credit Facility from the Banks. The Company is
not a party to the transaction and the terms of the acquisition
have not been disclosed. This transaction was effected on
June 6, 2003. The Company also received an extension of the
waiver through June 30, 2003 relating to defaults that
existed in regards to certain financial covenants required by
the Credit Agreement from the New Lender.

On June 20, 2003, the Company and the New
Lender entered into the sixth amendment to the Credit Agreement
(the Sixth Amendment), which improved the financial
condition of the Company. Among other things, the Sixth
Amendment defers further amortization of the principal
obligations due under the Credit Agreement until
September 30, 2004, and eliminates certain minimum EBITDA
and fixed charge ratio covenant requirements through
June 30, 2004. As a result of the Sixth Amendment, the
Company was no longer in default under the Credit Agreement
relating to the achievement of these financial covenants or
otherwise.

In connection with the anticipated acquisition of
the Credit Facility, Kojaian Funding, L.L.C., another affiliated
entity of the Companys controlling stockholder and
Chairman, made a $4 million subordinated loan to the
Company on May 9, 2003 (the Subordinated Loan)
for working capital purposes. The Company is obligated to pay
interest only on the Subordinated Loan during its term at the
rate of 10% per annum, payable monthly in arrears. The entire
principal amount of the Subordinated Loan is due on
July 15, 2004, although it may be prepaid in whole or in
part at any time by the Company without premium or penalty upon
fifteen (15) days prior notice. The Subordinated
Loan, which was consented to by the Banks, is secured by all the
assets of the Company and is guaranteed by all the
Companys subsidiaries, although such security interest is
subordinate to the interests of the lender under the Credit
Facility. The Company paid a 1% financing fee in connection with
the closing of the Subordinated Loan.

The material terms and conditions of the
Subordinated Loan were negotiated by a special committee
comprised of the disinterested member of the Companys
board of directors, which committee was established for such
purpose. The special committee recommended the entering into of
the Subordinated Loan to the full board of directors of the
Company, which unanimously approved such terms.

The Company has fully utilized its revolving
credit facility through borrowings of $5.0 million. The
borrowings under the revolver are due upon termination or
maturity of the credit agreement, December 31, 2005. In
addition, the Company must repay all outstanding amounts and not
re-borrow such funds for a period of 30 consecutive days each
December.

Interest on outstanding borrowings under the
credit facility is based upon Bank of Americas prime rate
and/or a LIBOR based rate plus, in either case, an additional
margin based upon a particular financial leverage ratio of the
Company, and will vary depending upon which interest rate
options the Company chooses to be applied to specific
borrowings. The average interest rate incurred by the Company on
the Credit Agreement obligations during fiscal year 2003 was
5.70%. Beginning in September 2004, the term loan facility
amortizes on a quarterly basis through December 31, 2005
when both facilities mature.

Scheduled principal payments on the term loan
portion of the Credit Agreement are as follows (in thousands):

|            |  |        |        | 
|----------- |  | ------ | ------ | 
|Year Ending |  |       
|June 30     |  | Amount |       
|            |  |        |       
|2004        |  | $      |       | 
|2005        |  |        | 8,000  | 
|2006        |  |        | 19,300 | 
|            |  |        |       
|            |  | $      | 27,300 | 
|            |  |        |       

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The variable interest rate structure of the
Credit Agreement exposes the Company to risks associated with
changes in the interest rate markets. Consequently, the Company
entered interest rate protection agreements in March 2001 with
banks that were original parties to the Credit Agreement, fixing
the interest rates on 50% of the aggregate principal amount of
the term loan scheduled to be outstanding for a three year
period ending March 31, 2004. The Company established risk
management policies and procedures to manage the cost of
borrowing obligations, which include the use of interest rate
swap derivatives to fix the interest rate on debt with floating
rate indices. Further, the Company prohibits the use of
derivative instruments for trading or speculative purposes. As
of June 30, 2003, the swap agreements had a total notional
amount of $10.5 million, with a fixed annual interest rate
to be paid by the Company of 5.18%, and a variable rate to be
received by the Company equal to three month LIBOR based
borrowing rates. The Company has determined that these
agreements are to be characterized as effective under the
definitions included within Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities.

On June 30, 2003, the derivative instruments
were reported at their fair value of approximately $174,000, net
of applicable taxes, in other liabilities in the condensed
Consolidated Balance Sheet. The offsetting amount is reported as
a deferred loss in Accumulated Other Comprehensive Loss. The
Companys interest rate swaps are treated as cash flow
hedges, which address the risk associated with future variable
cash flows of debt transactions. Over time, the unrealized gains
and losses held in Accumulated Other Comprehensive Loss will be
reclassified into earnings in the same periods in which the
hedged interest payments affect earnings.

On March 17, 2003, the Company disclosed
several executive management changes as part of a corporate
realignment designed to enable the Company to better serve its
clients by focusing on its transaction, management and strategic
services business and global client capabilities. Specifically,
the Company disclosed that the Companys Chief Executive
Officer and Chief Financial Officer had resigned to pursue other
opportunities. In addition, the Company entered into a
separation agreement with its General Counsel who resigned
effective July 2, 2003.

In conjunction with its corporate realignment,
the Company is also instituting various cost control initiatives
that it believes will serve to strengthen the Companys
financial position, while at the same time permit the Company to
continue to provide the same level of services that it has in
the past. Specifically, in addition to a work force reduction of
approximately 40 individuals, the Company is further reducing
compensation expenses, which is the Companys single
largest expense, as a result of the agreement of certain of its
executive officers to reduce their salaries by as much as
fifteen percent. The Company believes the foregoing measures,
and others, including, but not limited to the streamlining of
its national marketing activities, will result in aggregate
savings to the Company of up to $15 million on an
annualized basis.

Effective as of April 1, 2003, the Company
entered into a series of agreements which altered the structure
of the Companys transaction services operations in
Phoenix, Arizona, effectively transferring its existing Phoenix
commercial transaction services business to a newly-formed
entity whose majority owners are the real estate salespersons
previously employed by the Company in its Phoenix office. As
part of the overall transaction, this new entity has signed an
agreement pursuant to which it shall participate in the
Companys affiliate program. The revenues earned from the
new Phoenix structure will be comprised solely of the fees
received by the Company from this affiliate agreement, while the
gross revenues of the office will no longer be reflected in the
Companys future financial statements (other than revenue
earned from trailing contracts the Company retained). The
Company also obtained the right to acquire a minority interest
in this entity, which right it exercised in May 2003, and
will record its proportionate share of the future operations of
the new entity in its financial statements.

On September 19, 2002, Kojaian Ventures,
L.L.C. (KV), a related party, exercised its right to
convert a subordinated promissory note it held into preferred
stock of the Company. As a result of this conversion, 11,725
shares of the Companys Series A Preferred Stock were
issued to KV, having a stated value of $1,000 per share.
The outstanding related party principal and interest obligations
totaling $11,725,000 were reclassified to stockholders
equity on the date of conversion. Issuance costs of $783,000,
previously offset against the note obligations, were also
reclassified as a reduction of additional paid in capital. The
preferred stock carries a dividend coupon of 12%, compounded
quarterly on a cumulative basis, although no payments of
dividends may be made until the credit facility has been
terminated. Accrued dividends at June 30, 2003 totaled
approximately $1.1 million.

The preferred stock contains liquidation
preference and voting rights equal to 990 common shares for each
share of preferred stock and votes, along with holders of common
stock, on all matters on an as liquidated basis. The

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Series A Preferred Stock represented an
aggregate of 11,607,750 common share equivalents at
September 19, 2002, subject to adjustment. As a consequence
of the conversion, there was a change in the voting control of
the Company, as these equivalents, along with 3,762,884 shares
of outstanding common stock owned by KV and its affiliates
(approximately 25% of the outstanding common stock of the
Company), represent approximately 57% of the total voting power
of the Company. The preferred stock is not convertible into any
other securities of the Company or subject to redemption.
Warburg Pincus Investors, L.P., which currently owns
approximately 39% of the outstanding common stock of the
Company, has approximately 22% of the total voting power.


On October 17, 2002, the Companys
common stock was de-listed from the New York Stock Exchange
(NYSE), due to the Companys book value and
market capitalization value being below the minimum levels
required by the NYSEs listing standards. The
Companys common stock commenced trading on the
over-the-counter market (OTC) effective
October 17, 2002, under the symbol GBEL.OB, and ceased
trading on the NYSE prior to the opening that day.

In August 1999, the Company announced a
program through which it may purchase up to $3 million of
its common stock on the open market from time to time as market
conditions warrant. As of June 30, 2003, the Company had
repurchased 359,900 shares at a total cost of approximately
$2.0 million. No shares were repurchased under this program
during fiscal years 2003 and 2002.

Item 7A. Quantitative and
Qualitative Disclosures About Market Risk

The Companys bank debt obligations are
floating rate obligations whose interest rate and related
monthly interest payments vary with the movement in LIBOR. See
Note 6 of Notes to the Consolidated Financial Statements in
Item 8 of this Report for additional information. As of
June 30, 2003, the outstanding principal balances on these
long-term debt obligations totaled $27.3 million. Since
interest payments on these obligations will increase if interest
rate markets rise, or decrease if interest rate markets decline,
the Company is subject to cash flow risk related to these debt
instruments. In order to mitigate this risk, terms of the credit
agreement required the Company to enter into interest rate swap
agreements to effectively convert a portion of its floating rate
term debt obligations to fixed rate debt obligations through
March 2004. Interest rate swaps generally involve the
exchange of fixed and floating rate interest payments on an
underlying notional amount. As of June 30, 2003, the
Company had $10.5 million in notional amount interest rate
swaps outstanding in which the Company pays a fixed rate of
5.18% and receives a three-month LIBOR based rate from the
counter-parties. The notional amount of the interest rate swap
agreements is scheduled to decline as follows:

|                |            |  |      |  |                | 
|--------------- | ---------- |  | ---- |  | -------------- | 
|Notional Amount |            |  | Date | 
|                |            |  |      | 
|                | $8,000,000 |  |      |  | March 31, 2004 | 

When interest rates rise the interest rate swap
agreements increase in fair value to the Company and when
interest rates fall the interest rate swap agreements decline in
value to the Company. As of June 30, 2003, there was a net
decline in interest rates since the Company had entered into the
agreements, and the interest rate swap agreements were in an
unrealized loss position to the Company of approximately
$174,000, net of taxes.

To highlight the sensitivity of the interest rate
swap agreements to changes in interest rates, the following
summary shows the effects of a hypothetical instantaneous change
of 100 basis points (BPS) in interest rates as of
June 30, 2003 (in thousands):

|                                                                            |          |   |        |     |  
|--------------------------------------------------------------------------- | -------- | - | ------ | --- | -
|Notional Amount                                                             |          | $ | 10,500 |    
|Fair Value to the Company                                                   |          |   | (174   | )  
|Change in Fair Value to the Company Reflecting
    Change in Interest Rates |          |   |        |    
|                                                                            | -100 BPS |   |        | (28 | )
|                                                                            | +100 BPS |   |        | 27  |  

The Company does not utilize financial
instruments for trading or other speculative purposes, nor does
it utilize leveraged financial instruments.

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##### Table of Contents



Item 8. Financial Statements and
Supplementary Data

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

Grubb & Ellis Company


We have audited the accompanying consolidated
balance sheets of Grubb & Ellis Company as of
June 30, 2003 and 2002, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
June 30, 2003. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of
Grubb & Ellis Company at June 30, 2003 and 2002,
and the consolidated results of its operations and its cash
flows for each of the three years in the period ended
June 30, 2003, in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 1 to the consolidated
financial statements, in fiscal 2003 the Company changed its
method of accounting for goodwill.

ERNST & YOUNG LLP

Chicago, Illinois

August 22, 2003


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GRUBB & ELLIS COMPANY

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2003 AND 2002

(in thousands, except share data)


|                                         |                                                                                                                                                                     |                                            |   |         |        |  |   |         |        | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------- | ------ |  | - | ------- | ------ | 
|                                         |                                                                                                                                                                     | 2003                                       |   |         | 2002   | 
|                                         |                                                                                                                                                                     |                                            |   |         |        | 
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                     |                                            |   |         |        |  |   |        
|                                         | Cash and cash equivalents, including restricted
    deposits of $3,315 in 2003                                                                                      |                                            | $ | 13,938  |        |  | $ | 14,085  |       
|                                         | Services fees receivable, net                                                                                                                                       |                                            |   | 11,452  |        |  |   | 13,212  |       
|                                         | Other receivables                                                                                                                                                   |                                            |   | 2,726   |        |  |   | 3,396   |       
|                                         | Professional service contracts, net                                                                                                                                 |                                            |   | 1,159   |        |  |   | 1,974   |       
|                                         | Prepaid income taxes                                                                                                                                                |                                            |   | 669     |        |  |   | 6,890   |       
|                                         | Prepaid and other current assets                                                                                                                                    |                                            |   | 557     |        |  |   | 586     |       
|                                         | Deferred tax assets, net                                                                                                                                            |                                            |   |        |        |  |   | 1,563   |       
|                                         |                                                                                                                                                                     |                                            |   |         |        | 
|                                         |                                                                                                                                                                     | Total current assets                       |   |         | 30,501 |  |   |         | 41,706 | 
|Noncurrent assets:                       |                                                                                                                                                                     |                                            |   |         |        |  |   |        
|                                         | Equipment, software and leasehold improvements,
    net                                                                                                             |                                            |   | 13,959  |        |  |   | 17,843  |       
|                                         | Goodwill, net                                                                                                                                                       |                                            |   | 26,958  |        |  |   | 26,958  |       
|                                         | Deferred tax assets, net                                                                                                                                            |                                            |   |        |        |  |   | 947     |       
|                                         | Other assets                                                                                                                                                        |                                            |   | 3,684   |        |  |   | 2,923   |       
|                                         |                                                                                                                                                                     |                                            |   |         |        | 
|                                         |                                                                                                                                                                     | Total assets                               |   | $       | 75,102 |  |   | $       | 90,377 | 
|                                         |                                                                                                                                                                     |                                            |   |         |        | 
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                     |                                            |   |         |        |  |   |        
|                                         | Accounts payable                                                                                                                                                    |                                            | $ | 4,107   |        |  | $ | 5,569   |       
|                                         | Commissions payable                                                                                                                                                 |                                            |   | 3,465   |        |  |   | 5,347   |       
|                                         | Credit facility debt  affiliate                                                                                                                                    |                                            |   | 5,000   |        |  |   |        |       
|                                         | Credit facility debt                                                                                                                                                |                                            |   |        |        |  |   | 5,750   |       
|                                         | Accrued compensation and employee benefits                                                                                                                          |                                            |   | 14,889  |        |  |   | 16,243  |       
|                                         | Other accrued expenses                                                                                                                                              |                                            |   | 5,763   |        |  |   | 4,546   |       
|                                         |                                                                                                                                                                     |                                            |   |         |        | 
|                                         |                                                                                                                                                                     | Total current liabilities                  |   |         | 33,224 |  |   |         | 37,455 | 
|Long-term liabilities:                   |                                                                                                                                                                     |                                            |   |         |        |  |   |        
|                                         | Credit facility debt  affiliate                                                                                                                                    |                                            |   | 27,300  |        |  |   |        |       
|                                         | Credit facility debt                                                                                                                                                |                                            |   |        |        |  |   | 26,000  |       
|                                         | Note payable  affiliate, net                                                                                                                                       |                                            |   | 4,000   |        |  |   | 10,660  |       
|                                         | Accrued claims and settlements                                                                                                                                      |                                            |   | 7,374   |        |  |   | 7,823   |       
|                                         | Other liabilities                                                                                                                                                   |                                            |   | 2,949   |        |  |   | 2,573   |       
|                                         |                                                                                                                                                                     |                                            |   |         |        | 
|                                         |                                                                                                                                                                     | Total liabilities                          |   |         | 74,847 |  |   |         | 84,511 | 
|                                         |                                                                                                                                                                     |                                            |   |         |        | 
|Stockholders equity:                    |                                                                                                                                                                     |                                            |   |         |        |  |   |        
|                                         | Preferred stock: 1,000,000 shares authorized;
    11,725 Series A shares issued and outstanding at $1,000
    stated value at June 30, 2003                         |                                            |   | 11,725  |        |  |   |        |       
|                                         | Common stock, $.01 par value: 50,000,000 shares
    authorized; 15,097,371 and 15,028,839 shares issued and
    outstanding at June 30, 2003 and 2002, respectively |                                            |   | 151     |        |  |   | 150     |       
|                                         | Additional paid-in-capital                                                                                                                                          |                                            |   | 71,410  |        |  |   | 72,084  |       
|                                         | Accumulated other comprehensive loss                                                                                                                                |                                            |   | (174    | )      |  |   | (283    | )     
|                                         | Retained deficit                                                                                                                                                    |                                            |   | (82,857 | )      |  |   | (66,085 | )     
|                                         |                                                                                                                                                                     |                                            |   |         |        | 
|                                         |                                                                                                                                                                     | Total stockholders equity                 |   |         | 255    |  |   |         | 5,866  | 
|                                         |                                                                                                                                                                     |                                            |   |         |        | 
|                                         |                                                                                                                                                                     | Total liabilities and stockholders equity |   | $       | 75,102 |  |   | $       | 90,377 | 
|                                         |                                                                                                                                                                     |                                            |   |         |        | 

The accompanying notes are an integral part of
the consolidated financial statements.

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GRUBB & ELLIS COMPANY

CONSOLIDATED STATEMENTS OF
OPERATIONS

FOR THE YEARS ENDED JUNE 30, 2003, 2002
AND 2001

(in thousands, except share data)


|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |         |   |          |            |         | 
|-------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | -------- | ---------- | ------- | - | -------- | ---------- | ------- | - | -------- | ---------- | ------- | 
|                                                                     |                                                                                 | 2003                                                                             |          |            | 2002    |   |          | 2001       |        
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|Revenue:                                                             |                                                                                 |                                                                                  |          |            |         |   |          |            |         |   |          |           
|                                                                     | Transaction services fees                                                       |                                                                                  |          | $240,916   |         |   |          | $262,077   |         |   |          | $358,462   |        
|                                                                     | Management services fees, including reimbursed
    salaries, wages and benefits |                                                                                  |          | 185,030    |         |   |          | 169,369    |         |   |          | 158,148    |        
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|                                                                     |                                                                                 | Total revenue                                                                    |          |            | 425,946 |   |          |            | 431,446 |   |          |            | 516,610 | 
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|Costs and expenses:                                                  |                                                                                 |                                                                                  |          |            |         |   |          |            |         |   |          |           
|                                                                     | Services commissions                                                            |                                                                                  |          | 141,375    |         |   |          | 151,900    |         |   |          | 216,646    |        
|                                                                     | Reimbursable salaries, wages and benefits                                       |                                                                                  |          | 134,913    |         |   |          | 117,970    |         |   |          | 104,648    |        
|                                                                     | Salaries, wages and benefits                                                    |                                                                                  |          | 81,031     |         |   |          | 97,497     |         |   |          | 98,847     |        
|                                                                     | Selling, general and administrative                                             |                                                                                  |          | 62,983     |         |   |          | 65,828     |         |   |          | 68,550     |        
|                                                                     | Depreciation and amortization                                                   |                                                                                  |          | 7,960      |         |   |          | 10,706     |         |   |          | 11,635     |        
|                                                                     | Severance, office closure and other special
    charges                         |                                                                                  |          | 9,500      |         |   |          | 1,749      |         |   |          | 6,222      |        
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|                                                                     |                                                                                 | Total costs and expenses                                                         |          |            | 437,762 |   |          |            | 445,650 |   |          |            | 506,548 | 
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|                                                                     |                                                                                 | Total operating income (loss)                                                    |          |            | (11,816 | ) |          |            | (14,204 | ) |          |            | 10,062  | 
|Other income and expenses:                                           |                                                                                 |                                                                                  |          |            |         |   |          |            |         |   |          |           
|                                                                     | Interest income                                                                 |                                                                                  |          | 245        |         |   |          | 401        |         |   |          | 1,640      |        
|                                                                     | Interest expense                                                                |                                                                                  |          | (2,271     | )       |   |          | (2,681     | )       |   |          | (2,098     | )      
|                                                                     | Interest expenseaffiliate                                                      |                                                                                  |          | (498       | )       |   |          | (180       | )       |   |          |           |        
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|                                                                     |                                                                                 | Income (loss) before income taxes and
    cumulative effect of accounting change |          |            | (14,340 | ) |          |            | (16,664 | ) |          |            | 9,604   | 
|Benefit (provision) for income taxes                                 |                                                                                 |                                                                                  | (2,432   | )          |         |   | 1,187    |            |         |   | (5,102   | )         
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|Income (loss) from continuing operations                             |                                                                                 |                                                                                  | (16,772  | )          |         |   | (15,477  | )          |         |   | 4,502    |           
|Cumulative effect of accounting change, net of tax                   |                                                                                 |                                                                                  |         |            |         |   |         |            |         |   | (3,133   | )         
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|                                                                     | Net income (loss)                                                               |                                                                                  |          | (16,772    | )       |   |          | (15,477    | )       |   |          | 1,369      |        
|Preferred stock dividends accrued                                    |                                                                                 |                                                                                  | (1,130   | )          |         |   |         |            |         |   |         |           
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|                                                                     | Net income (loss) to common stockholders                                        |                                                                                  |          | $(17,902   | )       |   |          | $(15,477   | )       |   |          | $  1,369   |        
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|Net income (loss) per weighted average
    common share outstanding: |                                                                                 |                                                                                  |          |            |         |   |          |            |         |   |          |           
|                                                                     | Basic-                                                                          |                                                                                  |          |            |         |   |          |            |         |   |          |            |        
|                                                                     | - income (loss) from continuing operations                                      |                                                                                  |          | $  (1.19   | )       |   |          | $  (1.09   | )       |   |          | $   0.26   |        
|                                                                     | - from cumulative effect of accounting change                                   |                                                                                  |          |           |         |   |          |           |         |   |          | (0.18      | )      
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|                                                                     |                                                                                 |                                                                                  | $  (1.19 | )          |         |   | $  (1.09 | )          |         |   | $   0.08 |           
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|                                                                     | Diluted-                                                                        |                                                                                  |          |            |         |   |          |            |         |   |          |            |        
|                                                                     | - income (loss) from continuing operations                                      |                                                                                  |          | $  (1.19   | )       |   |          | $  (1.09   | )       |   |          | $   0.25   |        
|                                                                     | - from cumulative effect of accounting change                                   |                                                                                  |          |           |         |   |          |           |         |   |          | (0.17      | )      
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|                                                                     |                                                                                 |                                                                                  | $  (1.19 | )          |         |   | $  (1.09 | )          |         |   | $   0.08 |           
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|Weighted average common shares outstanding:                          |                                                                                 |                                                                                  |          |            |         |   |          |            |         |   |          |           
|                                                                     | Basic-                                                                          |                                                                                  |          | 15,101,625 |         |   |          | 14,147,618 |         |   |          | 17,051,546 |        
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        
|                                                                     | Diluted-                                                                        |                                                                                  |          | 15,101,625 |         |   |          | 14,147,618 |         |   |          | 17,975,351 |        
|                                                                     |                                                                                 |                                                                                  |          |            |         |   |          |            |        

The accompanying notes are an integral part of
the consolidated financial statements.

21



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##### Table of Contents



GRUBB & ELLIS COMPANY






CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


FOR THE YEARS ENDED JUNE 30, 2003, 2002
AND 2001

(in thousands, except share data)


|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------- |  | --------- | ------ | ------------ | ----------- |  | ---------- | ------ | ----------- | -------- | ------- | - | ------------- | ---- | ------- | -------- | --------- | - | ------------- | ------------- |  | ------------- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |     
|                                                                      |  |           |        | Common Stock |             |  |            |        | Accumulated |          |         |   |               |      |         |         
|                                                                      |  |           |        |              |             |  | Additional |        |             | Other    |         |   | Retained      |      |         | Total    |           |   | Total         |              
|                                                                      |  | Preferred |        |              | Outstanding |  |            |        |             | Paid-In- |         |   | Comprehensive |      |         | Earnings |           |   | Comprehensive |               |  | Stockholders |        
|                                                                      |  | Stock     |        |              | Shares      |  |            | Amount |             |          | Capital |   |               | Loss |         |          | (Deficit) |   |               | Income (Loss) |  |               | Equity  |  
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |  
|Balance as of July 1, 2000                                            |  |           |        |              |             |  | 19,810,894 |        |             | $        | 198     |   |               | $    | 113,399 |          |           | $ |              |               |  | $             | (51,977 | ) |  |   |         |   |  | $ | 61,620  |  
|Self-tender offer repurchases                                         |  |           |        |              |             |  | (7,000,073 | )      |             |          | (70     | ) |               |      | (48,740 | )        |           |   |              |               |  |               |        |   |  |   |         |   |  |   | (48,810 | )
|Employee common stock purchases and net exercise
    of stock options |  |           |        |              |             |  | 547,794    |        |             |          | 6       |   |               |      | 2,199   |          |           |   |              |               |  |               |        |   |  |   |         |   |  |   | 2,205   |  
|Net income                                                            |  |           |        |              |             |  |           |        |             |          |        |   |               |      |        |          |           |   |               |               |  |               | 1,369   |   |  | $ | 1,369   |   |  |   | 1,369   |  
|Change in value of cash flow hedge, net of tax                        |  |           |        |              |             |  |           |        |             |          |        |   |               |      |        |          |           |   | (68           | )             |  |               |        |   |  |   | (68     | ) |  |   | (68     | )
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |  
|Total comprehensive income                                            |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |   |  | $ | 1,301   |   |  |   |         |  
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |  
|Balance as of June 30, 2001                                           |  |           |        |              |             |  | 13,358,615 |        |             |          | 134     |   |               |      | 66,858  |          |           |   | (68           | )             |  |               | (50,608 | ) |  |   |         |   |  |   | 16,316  |  
|Employee common stock purchases and net exercise
    of stock options |  |           |        |              |             |  | 330,889    |        |             |          | 3       |   |               |      | 1,076   |          |           |   |              |               |  |               |        |   |  |   |         |   |  |   | 1,079   |  
|Proceeds from stock warrant exercises, net                            |  |           |        |              |             |  | 1,339,335  |        |             |          | 13      |   |               |      | 4,150   |          |           |   |              |               |  |               |        |   |  |   |         |   |  |   | 4,163   |  
|Net loss                                                              |  |           |        |              |             |  |           |        |             |          |        |   |               |      |        |          |           |   |              |               |  |               | (15,477 | ) |  | $ | (15,477 | ) |  |   | (15,477 | )
|Change in value of cash flow hedge, net of tax                        |  |           |        |              |             |  |           |        |             |          |        |   |               |      |        |          |           |   | (215          | )             |  |               |        |   |  |   | (215    | ) |  |   | (215    | )
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |  
|Total comprehensive loss                                              |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |   |  | $ | (15,692 | ) |  |   |         |  
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |  
|Balance as of June 30, 2002                                           |  |           |        |              |             |  | 15,028,839 |        |             |          | 150     |   |               |      | 72,084  |          |           |   | (283          | )             |  |               | (66,085 | ) |  |   |         |   |  |   | 5,866   |  
|Issuance of 11,725 Series A shares of
    preferred stock             |  | $         | 11,725 |              |             |  |            |        |             |          |         |   |               |      | (783    | )        |           |   |               |               |  |               |         |   |  |   |         |   |  |   | 10,942  |  
|Stock repurchases                                                     |  |           |        |              |             |  | (125,000   | )      |             |          | (1      | ) |               |      | (162    | )        |           |   |               |               |  |               |         |   |  |   |         |   |  |   | (163    | )
|Employee common stock purchases and net exercise
    of stock options |  |           |        |              |             |  | 193,532    |        |             |          | 2       |   |               |      | 271     |          |           |   |               |               |  |               |         |   |  |   |         |   |  |   | 273     |  
|Net loss                                                              |  |           |        |              |             |  |           |        |             |          |        |   |               |      |        |          |           |   |               |               |  |               | (16,772 | ) |  | $ | (16,772 | ) |  |   | (16,772 | )
|Change in value of cash flow hedge, net of tax                        |  |           |        |              |             |  |           |        |             |          |        |   |               |      |        |          |           |   | 109           |               |  |               |        |   |  |   | 109     |   |  |   | 109     |  
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |  
|Total comprehensive loss                                              |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |   |  | $ | (16,663 | ) |  |   |         |  
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |  
|Balance as of June 30, 2003                                           |  | $         | 11,725 |              |             |  | 15,097,371 |        |             | $        | 151     |   |               | $    | 71,410  |          |           | $ | (174          | )             |  | $             | (82,857 | ) |  |   |         |   |  | $ | 255     |  
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |         |          |           |   |               |               |  |               |         |  

The accompanying notes are an integral part of
the consolidated financial statements.

22



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##### Table of Contents



GRUBB & ELLIS COMPANY

CONSOLIDATED STATEMENTS OF CASH
FLOWS

FOR THE YEARS ENDED JUNE 30, 2003, 2002
AND 2001

(in thousands, except share data)


|                                                                                                       |                                                                            |                                                         |         |        |        |   |         |        |        |   |         |        |         |  
|------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------- | ------------------------------------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------- | -
|                                                                                                       |                                                                            | 2003                                                    |         |        | 2002   |   |         | 2001   |       
|                                                                                                       |                                                                            |                                                         |         |        |        |   |         |        |       
|Cash Flows from Operating Activities:                                                                  |                                                                            |                                                         |         |        |        |   |         |        |        |   |         |       
|Net income (loss)                                                                                      |                                                                            | $                                                       | (16,772 | )      |        | $ | (15,477 | )      |        | $ | 1,369   |       
|Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities: |                                                                            |                                                         |         |        |        |   |         |        |        |   |         |       
|                                                                                                       | Deferred tax provision (benefit)                                           |                                                         |         | (5,197 | )      |   |         | (2,893 | )      |   |         | (566   | )      
|                                                                                                       | Increase in deferred tax asset valuation allowance                         |                                                         |         | 7,707  |        |   |         | 5,214  |        |   |         |       |        
|                                                                                                       | Depreciation and amortization                                              |                                                         |         | 7,960  |        |   |         | 10,706 |        |   |         | 11,635 |        
|                                                                                                       | Loss on extinguishment of debt                                             |                                                         |         |       |        |   |         |       |        |   |         | 676    |        
|                                                                                                       | Cumulative effect of accounting change, net of tax                         |                                                         |         |       |        |   |         |       |        |   |         | 3,133  |        
|                                                                                                       | Accrued severance, office closure and other
    special charges            |                                                         |         | 9,500  |        |   |         | 374    |        |   |         | 3,000  |        
|                                                                                                       | Payment of accrued severance                                               |                                                         |         | (3,007 | )      |   |         |       |        |   |         |       |        
|                                                                                                       | Payment of office closure costs                                            |                                                         |         | (1,157 | )      |   |         | (107   | )      |   |         |       |        
|                                                                                                       | Provision (recovery) for services fees receivable
    valuation allowances |                                                         |         | 84     |        |   |         | (229   | )      |   |         | (195   | )      
|                                                                                                       | Stock option compensation expense                                          |                                                         |         |       |        |   |         |       |        |   |         | 1,219  |        
|Net receipt of tax refunds                                                                             |                                                                            |                                                         | 6,473   |        |        |   | 1,576   |        |        |   |        |       
|Funding of multi-year service contracts                                                                |                                                                            |                                                         | (2,361  | )      |        |   | (793    | )      |        |   | (3,637  | )     
|(Increase) decrease in services fees receivable                                                        |                                                                            |                                                         | 1,727   |        |        |   | 4,724   |        |        |   | (3,962  | )     
|(Increase) decrease in prepaid income taxes                                                            |                                                                            |                                                         | (252    | )      |        |   | (3,868  | )      |        |   | (4,868  | )     
|(Increase) decrease in prepaid and other assets                                                        |                                                                            |                                                         | 1,061   |        |        |   | 1,662   |        |        |   | 3,975   |       
|Increase (decrease) in accounts and commissions
    payable                                            |                                                                            |                                                         | (3,370  | )      |        |   | (255    | )      |        |   | 92      |       
|Increase (decrease) in accrued compensation and
    employee benefits                                  |                                                                            |                                                         | (3,770  | )      |        |   | 2,828   |        |        |   | (900    | )     
|Increase (decrease) in accrued claims and
    settlements                                              |                                                                            |                                                         | (449    | )      |        |   | 1,328   |        |        |   | (46     | )     
|Increase (decrease) in other liabilities                                                               |                                                                            |                                                         | 578     |        |        |   | (471    | )      |        |   | (2,916  | )     
|                                                                                                       |                                                                            |                                                         |         |        |        |   |         |        |       
|                                                                                                       |                                                                            | Net cash provided by (used in) operating
    activities |         |        | (1,245 | ) |         |        | 4,319  |   |         |        | 8,009   |  
|                                                                                                       |                                                                            |                                                         |         |        |        |   |         |        |       
|Cash Flows from Investing Activities:                                                                  |                                                                            |                                                         |         |        |        |   |         |        |        |   |         |       
|Purchases of equipment, software and leasehold
    improvements                                        |                                                                            |                                                         | (2,933  | )      |        |   | (5,147  | )      |        |   | (6,153  | )     
|Cash paid for business acquisitions, net of cash
    acquired                                          |                                                                            |                                                         | (400    | )      |        |   | (2,295  | )      |        |   | (568    | )     
|                                                                                                       |                                                                            |                                                         |         |        |        |   |         |        |       
|                                                                                                       |                                                                            | Cash used in investing activities                       |         |        | (3,333 | ) |         |        | (7,442 | ) |         |        | (6,721  | )
|                                                                                                       |                                                                            |                                                         |         |        |        |   |         |        |       
|Cash Flows from Financing Activities:                                                                  |                                                                            |                                                         |         |        |        |   |         |        |        |   |         |       
|Repayment of credit facility debt                                                                      |                                                                            |                                                         | (4,450  | )      |        |   | (11,250 | )      |        |   | (3,000  | )     
|Borrowings on credit facility debt                                                                     |                                                                            |                                                         | 5,000   |        |        |   | 6,000   |        |        |   | 40,000  |       
|Repayment of acquisition indebtedness                                                                  |                                                                            |                                                         |        |        |        |   |        |        |        |   | (519    | )     
|Repayment of borrowings from affiliate                                                                 |                                                                            |                                                         |        |        |        |   | (5,000  | )      |        |   |        |       
|Borrowings on note payable affiliate                                                                  |                                                                            |                                                         | 4,000   |        |        |   | 16,237  |        |        |   |        |       
|Proceeds from issuance of common stock, net                                                            |                                                                            |                                                         | 273     |        |        |   | 1,079   |        |        |   | 986     |       
|Proceeds from stock warrant exercises, net                                                             |                                                                            |                                                         |        |        |        |   | 4,163   |        |        |   |        |       
|Cash paid to fund self-tender offer                                                                    |                                                                            |                                                         |        |        |        |   |        |        |        |   | (48,810 | )     
|Repurchase of common stock                                                                             |                                                                            |                                                         | (163    | )      |        |   |        |        |        |   |        |       
|Issuance costs and deferred financing fees                                                             |                                                                            |                                                         | (229    | )      |        |   | (1,269  | )      |        |   | (559    | )     
|                                                                                                       |                                                                            |                                                         |         |        |        |   |         |        |       
|                                                                                                       |                                                                            | Net cash provided by (used in) financing
    activities |         |        | 4,431  |   |         |        | 9,960  |   |         |        | (11,902 | )
|                                                                                                       |                                                                            |                                                         |         |        |        |   |         |        |       
|Net increase (decrease) in cash and cash
    equivalents                                               |                                                                            |                                                         | (147    | )      |        |   | 6,837   |        |        |   | (10,614 | )     
|Cash and cash equivalents at beginning of the year                                                     |                                                                            |                                                         | 14,085  |        |        |   | 7,248   |        |        |   | 17,862  |       
|                                                                                                       |                                                                            |                                                         |         |        |        |   |         |        |       
|Cash and cash equivalents at end of the year,
    including restricted deposits of $3,315 in 2003      |                                                                            | $                                                       | 13,938  |        |        | $ | 14,085  |        |        | $ | 7,248   |       
|                                                                                                       |                                                                            |                                                         |         |        |        |   |         |        |       

The accompanying notes are an integral part of
the consolidated financial statements.

23



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##### Table of Contents



GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1. Summary of Significant Accounting
Policies

(a) The Company

Grubb & Ellis Company (the
Company) is a full service commercial real estate
company that provides services to real estate owners/investors
and tenants including transaction services involving leasing,
acquisitions and dispositions, and property and facilities
management services. Additionally, the Company provides
consulting and strategic services with respect to commercial
real estate.

(b) Principles of Consolidation

The consolidated financial statements include the
accounts of Grubb & Ellis Company, and its wholly owned
subsidiaries, including Grubb & Ellis Management
Services, Inc. (GEMS), which provides property and
facilities management services. All significant intercompany
accounts have been eliminated.

The Company consolidates all entities for which
it has a controlling financial interest evidenced by ownership
of a majority voting interest. Investments in corporations and
partnerships in which the Company does not have a controlling
financial interest or majority interest are accounted for on the
equity method of accounting.

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46,
Consolidation of Variable Interest Entities and
Interpretation of Accounting Research Bulletin (ARB) No. 51
(FIN 46). FIN 46 introduces a new
consolidation model, the variable interest model, which
determines control (and consolidation) based on potential
variability in gains and losses of the entity being evaluated
for consolidation. The consolidation provisions of FIN 46
apply immediately to variable interests in variable interest
entities created after January 31, 2003. It applies in the
first fiscal year or interim period beginning after
June 15, 2003 to variable interest entities in which an
enterprise that is a public company holds a variable interest
that it acquired before February 1, 2003. The Company has
reviewed the provisions of FIN 46 and has determined that
it will not have an impact on its financial condition and
results of operations.

(c) Basis of Presentation

The financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States, which require management to make estimates, and
assumptions that affect the reported amounts of assets and
liabilities (including disclosure of contingent assets and
liabilities) at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

(d) Revenue Recognition

Real estate sales commissions are recognized at
the earlier of receipt of payment, close of escrow or transfer
of title between buyer and seller. Receipt of payment occurs at
the point at which all Company services have been performed, and
title to real property has passed from seller to buyer, if
applicable. Real estate leasing commissions are recognized upon
execution of appropriate lease and commission agreements and
receipt of full or partial payment, and, when payable upon
certain events such as tenant occupancy or rent commencement,
upon occurrence of such events. All other commissions and fees
are recognized at the time the related services have been
performed by the Company, unless future contingencies exist.
Consulting revenue is recognized generally upon the delivery of
agreed upon services to the client.

In regard to management and facility service
contracts, the owner of the property will typically reimburse
the Company for certain expenses that are incurred on behalf of
the owner, which are comprised primarily of employee salaries
and related benefit costs. The amounts, which are to be
reimbursed per the terms of the services contract, are
recognized as revenue by the Company in the same period as the
related expenses are incurred. These fees totaled approximately
$134.9 million, $118.0 million and $104.6 million
during the fiscal years ended June 30, 2003, 2002 and 2001,
respectively. See Note 1(p) of Notes to Consolidated
Financial Statements for additional information.

24



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



1. Summary of Significant Accounting
Policies (Continued)


Effective July 1, 2000, the Company changed
its method of accounting to comply with the Securities and
Exchange Commissions (SEC) Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial
Statements, which summarized the SEC staffs views
regarding the recognition and reporting of revenues in financial
statements. See Note 17 of Notes to Consolidated Financial
Statements for additional information.

(e) Costs and Expenses

Real estate transaction services and other
commission expenses are recognized concurrently with the related
revenue. All other costs and expenses are recognized when
incurred.

(f) Accounting for Stock-Based
Compensation

Statements of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation
(Statement 123) allows companies to
either account for stock-based compensation under the provisions
of Statement 123 or under the provisions of Accounting
Principles Board Opinion No. 25 (APB 25).
The Company elected to continue accounting for stock-based
compensation to its employees under the provisions of
APB 25. Accordingly, because the exercise price of the
Companys employee stock options equals or exceeds the fair
market value of the underlying stock on the date of grant, no
compensation expense is recognized by the Company. If the
exercise price of an award is less than the fair market value of
the underlying stock at the date of grant, the Company
recognizes the difference as compensation expense over the
vesting period of the award. The Company, however, is required
to provide pro forma disclosure as if the fair value measurement
provisions of Statement 123 had been adopted. See
Note 11 of Notes to Consolidated Financial Statements for
additional information.

(g) Income Taxes

Deferred income taxes are recorded based on
enacted statutory rates to reflect the tax consequences in
future years of the differences between the tax bases of assets
and liabilities and their financial reporting amounts. Deferred
tax assets, such as net operating loss carry forwards, which
will generate future tax benefits are recognized to the extent
that realization of such benefits through future taxable
earnings or alternative tax strategies in the foreseeable short
term future is more likely than not.

(h) Cash and Cash Equivalents

Cash and cash equivalents consist of demand
deposits and highly liquid short-term debt instruments with
maturities of three months or less from the date of purchase and
are stated at cost. Cash and cash equivalents whose use are
restricted due to various contractual constraints, the majority
of which relates to the Companys insurance policies,
totaled $3,315,000 as of June 30, 2003.

Cash payments for interest were approximately
$2,721,000, $2,892,000 and $1,383,000 for each of the fiscal
years ended June 30, 2003, 2002 and 2001, respectively.
Cash payments for income taxes for the fiscal years ended June
30, 2003, 2002 and 2001 were approximately $180,000, $360,000
and $10,303,000, respectively. Cash refunds for income taxes
totaling approximately $6,473,000 and $1,576,000 were received
in the fiscal years ended June 30, 2003 and 2002,
respectively.

(i) Transaction Service
Contracts

The Company holds multi-year service contracts
with certain key transaction professionals for which cash
payments were made to the professionals upon signing, the costs
of which are being amortized over the lives of the respective
contracts, which are generally two to three years. Amortization
expense relating to these contracts of $1.6 million,
$2.1 million and $2.9 million was recognized in fiscal
years 2003, 2002 and 2001, respectively.

25



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



1. Summary of Significant Accounting
Policies (Continued)


(j) Equipment, Software and Leasehold
Improvements

Equipment, software and leasehold improvements
are recorded at cost. Depreciation of equipment is computed
using the straight-line method over their estimated useful lives
ranging from three to seven years. Software costs consist of
costs to purchase and develop software. Costs related to the
development of internal use software are capitalized only after
a determination has been made as to how the development work
will be conducted. Any costs incurred in the preliminary project
stage prior to this determination are expensed when incurred.
Also, once the software is substantially complete and ready for
its intended use, any further costs related to the software such
as training or maintenance activities are also expensed as
incurred. Amortization of the development costs of internal use
software programs begins when the related software is ready for
its intended use. All software costs are amortized using a
straight-line method over their estimated useful lives, ranging
from three to seven years. Leasehold improvements are amortized
using the straight-line method over their useful lives not to
exceed the terms of the respective leases. Maintenance and
repairs are charged to expense as incurred.

(k) Goodwill

Goodwill, representing the excess of the cost
over the fair value of the net tangible assets of acquired
businesses, is stated at cost and was amortized prior to
July 1, 2002 on a straight-line basis over estimated future
periods to be benefited, which ranged from 15 to 25 years.
Accumulated amortization amounted to approximately $5,815,000 at
June 30, 2003 and 2002. The Company wrote-off approximately
$454,000 of fully amortized goodwill in 2002.

Prior to July 1, 2002, the net carrying
value of goodwill was reviewed by management if facts and
circumstances, such as significant declines in revenues or
number of professionals, suggested that an impairment existed.
If an impairment was identified as a result of such reviews, the
Company would measure it by comparing undiscounted cash flows of
a specific acquired business with the carrying value of goodwill
associated therewith. If the future estimated undiscounted cash
flows were not sufficient to recover the carrying value of such
goodwill, such asset would be adjusted to its fair value through
a charge to operations. An impairment loss of $2,150,000 was
recognized in fiscal 2001. (See Note 16 of Notes to
Consolidated Financial Statements for additional information.)
No goodwill impairment losses were identified in fiscal 2002.

In June 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting
Standards No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill is no longer amortized but
is subject to annual impairment tests in accordance with the
Statement. Other intangible assets will continue to be amortized
over their useful lives.

The Company applied the new rules on accounting
for goodwill and other intangible assets beginning in the
quarter ended September 30, 2002 and completed the
transitional impairment test of goodwill as of July 1, 2002
and the annual impairment test as of June 30, 2003. The
Company has determined that no goodwill impairment will impact
the earnings and financial position of the Company as of those
dates. Application of the non-amortization provisions of the
Statement resulted in a decrease in depreciation and
amortization expense and a corresponding increase in net
operating income of approximately $1.6 million for fiscal
year 2003 as compared to the same period in 2002, or $0.11 per
share.

(l) Accrued Claims and
Settlements

The Company has maintained partially self-insured
and deductible programs for errors and omissions, general
liability, workers compensation and certain employee
health care costs. Reserves for such programs are included in
accrued claims and settlements and compensation and employee
benefits payable, as appropriate. Reserves are based on the
aggregate of the liability for reported claims and an
actuarially-based estimate of incurred but not reported claims.

26



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



1. Summary of Significant Accounting
Policies (Continued)


(m) Financial Instruments

Statements of Financial Accounting Standards
No. 107, Disclosures about Fair Value of Financial
Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the
Consolidated Balance Sheets. Considerable judgment is required
in interpreting market data to develop estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on
the estimated fair value amounts. The carrying amounts of the
Companys financial instruments, which include cash and
cash equivalents, receivables and obligations under accounts
payable and debt instruments, approximate their fair values,
based on similar instruments with similar risks.

In May 2003, the Financial Accounting
Standards Board issued Statement of Financial Accounting
(SFAS) No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. SFAS No. 150 establishes standards for
classifying and measuring as liabilities certain financial
instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS
No. 150 is effective for all financial instruments created
or modified after May 31, 2003, and otherwise is effective
at the beginning of the first interim period beginning after
June 15, 2003. The Company does not anticipate that the
provisions of SFAS No. 150 will have an impact on its
financial condition and results of operations.

(n) Fair Value of Derivative Instruments
and Hedged Items

The Financial Accounting Standards Board issued
Statement of Financial Accounting (SFAS)
No. 138 Accounting for Derivative Instruments and
Hedging Activities which amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133, as amended, requires
companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. The Company became
subject to the requirements of SFAS No. 133 during
March 2001, as a result of entering into two interest rate
swap agreements in conjunction with a new credit agreement. See
Note 6 of Notes to Consolidated Financial Statements for
additional information. SFAS No. 133 may increase or
decrease reported net income and stockholders equity
prospectively, depending on future levels of interest rates, the
computed effectiveness of the derivatives, as that
term is defined by SFAS No. 133, and other variables
affecting the fair values of derivative instruments and hedged
items, but will have no effect on cash flows.

In April 2003, the Financial Accounting
Standards Board issued Statement of Financial Accounting
(SFAS) No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities under Statement 133. SFAS No. 149
is effective for contracts entered into or modified after
June 30, 2003, with some exceptions, and for hedging
relationships designated after June 30, 2003. The guidance
should be applied prospectively. The Company does not anticipate
that the provisions of SFAS No. 149 will have an impact on
its financial condition and results of operations.

(o) Costs Associated with Exit or
Disposal Activities

In June 2002, the Financial Accounting
Standards Board issued Statement 146, Accounting for
Costs Associated with Exit or Disposal Activities. This
Statement requires liabilities for costs associated with an exit
or disposal activity to be recognized and measured initially at
its fair value in the period in which the liability is incurred.

The Company records a liability for one-time
termination benefits at the date the plan of termination meets
certain criteria including appropriate management approval,
specificity as to employee and benefits to be provided and an
indication that significant changes to the plan are unlikely. If
the employees are required to render service until they are
terminated in order to receive the termination benefits beyond
the minimum retention period as defined in the Statement, the
Company will recognize the liability ratably over the retention
period.

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

1. Summary of Significant Accounting
Policies (Continued)

The Company records a liability for certain
operating leases based on the fair value of the liability at the
cease-use date. The fair value is determined based on the
remaining lease rentals, reduced by estimated sublease rentals.

(p) Reclassifications

Recent accounting pronouncements and subsequent
interpretations have provided further clarification regarding
reimbursements of expenses on third party service contracts. As
a result, the Company believed that it was no longer appropriate
to net the reimbursements received from property owners against
the related salary, wages and benefit expense. Accordingly,
reimbursements received on third party service contracts are
characterized as revenue in the Statement of Operations rather
than as a reduction of expenses incurred. The Company has
reclassified the reimbursements received during fiscal years
2002 and 2001 as revenue to conform to the current year
presentation. In prior reports, the Company had disclosed this
reimbursement activity in its accounting policy footnote related
to costs and expenses. This reclassification has not changed the
previously reported results of operations or cash flow of the
Company.

Certain other amounts in prior periods have been
reclassified to conform to the current year presentation. Such
reclassifications have not changed previously reported results
of operations or cash flow.

2. Services Fees Receivable,
net

Services fees receivable at June 30, 2003
and 2002 consisted of the following (in thousands):

|                                     |                                                |       |       |        |        |   |       |        |        | 
|------------------------------------ | ---------------------------------------------- | ----- | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|                                     |                                                | 2003  |       |        | 2002   |  
|                                     |                                                |       |       |        |        |  
|Transaction services fees receivable |                                                | $     | 5,246 |        |        | $ | 6,005 |       
|Management services fees receivable  |                                                |       | 7,157 |        |        |   | 8,126 |       
|                                     | Allowance for uncollectible accounts           |       |       | (689   | )      |   |       | (605   | )     
|                                     |                                                |       |       |        |        |  
|                                     |                                                | Total |       |        | 11,714 |   |       |        | 13,526 | 
|                                     | Less portion classified as current             |       |       | 11,452 |        |   |       | 13,212 |       
|                                     |                                                |       |       |        |        |  
|                                     | Non-current portion (included in other assets) |       | $     | 262    |        |   | $     | 314    |       
|                                     |                                                |       |       |        |        |  

The following is a summary of the changes in the
allowance for uncollectible services fees receivable for the
fiscal years ended June 30, 2003, 2002 and 2001 (in
thousands):

|                                                                |  |      |     |  |      |   |      |      |  |   |        |  
|--------------------------------------------------------------- |  | ---- | --- |  | ---- | - | ---- | ---- |  | - | ------ | -
|                                                                |  | 2003 |     |  | 2002 |   |      | 2001 | 
|                                                                |  |      |     |  |      |   |      |      | 
|Balance at beginning of year                                    |  | $    | 605 |  |      | $ | 834  |      |  | $ | 2,326  |  
|Reduction from change in accounting principle
    (see Note 14) |  |      |    |  |      |   |     |      |  |   | (1,297 | )
|Provision for bad debt                                          |  |      | 84  |  |      |   |     |      |  |   |       |  
|Recovery of allowance                                           |  |      |    |  |      |   | (229 | )    |  |   | (195   | )
|                                                                |  |      |     |  |      |   |      |      | 
|Balance at end of year                                          |  | $    | 689 |  |      | $ | 605  |      |  | $ | 834    |  
|                                                                |  |      |     |  |      |   |      |      | 

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

3. Equipment, Software and Leasehold
Improvements, net

Equipment, software and leasehold improvements at
June 30, 2003 and 2002 consisted of the following (in
thousands):

|                                                        |       |      |        |        |      |   |        |        | 
|------------------------------------------------------- | ----- | ---- | ------ | ------ | ---- | - | ------ | ------ | 
|                                                        |       | 2003 |        |        | 2002 |  
|                                                        |       |      |        |        |      |  
|Furniture, equipment and software systems               |       | $    | 43,423 |        |      | $ | 43,436 |       
|Leasehold improvements                                  |       |      | 6,734  |        |      |   | 6,636  |       
|                                                        |       |      |        |        |      |  
|                                                        | Total |      |        | 50,157 |      |   |        | 50,072 | 
|Less accumulated depreciation and amortization          |       |      | 36,198 |        |      |   | 32,229 |       
|                                                        |       |      |        |        |      |  
|Equipment, software and leasehold improvements,
    net |       | $    | 13,959 |        |      | $ | 17,843 |       
|                                                        |       |      |        |        |      |  

The Company wrote off approximately
$2.8 million and $1.1 million of furniture and
equipment during the fiscal years ended June 30, 2003 and
2002, respectively. Approximately $2.4 million and
$0.9 million of accumulated depreciation and amortization
expense had been recorded on these assets prior to their
disposition in the fiscal years ended June 30, 2003 and
2002, respectively.

4. Earnings (Loss) Per Common
Share

Statement of Financial Accounting Standards
No. 128, Earnings per Share
(Statement 128) requires disclosure of basic
earnings per share that excludes any dilutive effects of
options, warrants, and convertible securities and diluted
earnings per share.

The following table sets forth the computation of
basic and diluted earnings per common share from continuing
operations (in thousands, except per share data):

|                                   |                                                                        |                                    |   |         |      |  |   |         |   |  |   |        |     | 
|---------------------------------- | ---------------------------------------------------------------------- | ---------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------ | --- | 
|                                   |                                                                        |                                   
|                                   |                                                                        | For the Fiscal Year Ended June 30, |  
|                                   |                                                                        |                                    |  
|                                   |                                                                        | 2003                               |   |         | 2002 |  |   | 2001    |  
|                                   |                                                                        |                                    |   |         |      |  |   |         |  
|Basic earnings per common share:   |                                                                        |                                    |   |         |      |  |   |         |   |  |   |       
|                                   | Income (loss) from continuing operations                               |                                    | $ | (16,772 | )    |  | $ | (15,477 | ) |  | $ | 4,502  |    
|                                   | Preferred stock dividends accrued                                      |                                    |   | (1,130  | )    |  |   |        |   |  |   |       |    
|                                   |                                                                        |                                    |   |         |      |  |   |         |  
|                                   | Income (loss) from continuing operations to
    common stockholders    |                                    | $ | (17,902 | )    |  | $ | (15,477 | ) |  | $ | 4,502  |    
|                                   |                                                                        |                                    |   |         |      |  |   |         |  
|                                   | Weighted average common shares outstanding                             |                                    |   | 15,102  |      |  |   | 14,148  |   |  |   | 17,052 |    
|                                   |                                                                        |                                    |   |         |      |  |   |         |  
|                                   | Income (loss) from continuing operations per
    common share basic   |                                    | $ | (1.19   | )    |  | $ | (1.09   | ) |  | $ | 0.26   |    
|                                   |                                                                        |                                    |   |         |      |  |   |         |  
|Diluted earnings per common share: |                                                                        |                                    |   |         |      |  |   |         |   |  |   |       
|                                   | Income (loss) from continuing operations                               |                                    | $ | (16,772 | )    |  | $ | (15,477 | ) |  | $ | 4,502  |    
|                                   | Preferred stock dividends accrued                                      |                                    |   | (1,130  | )    |  |   |        |   |  |   |       |    
|                                   |                                                                        |                                    |   |         |      |  |   |         |  
|                                   | Income (loss) from continuing operations to
    common stockholders    |                                    | $ | (17,902 | )    |  | $ | (15,477 | ) |  | $ | 4,502  |    
|                                   |                                                                        |                                    |   |         |      |  |   |         |  
|                                   | Weighted average common shares outstanding                             |                                    |   | 15,102  |      |  |   | 14,148  |   |  |   | 17,052 |    
|                                   | Effect of dilutive securities:                                         |                                    |   |         |      |  |   |         |   |  |   |        |    
|                                   |                                                                        | Stock options and warrants         |   |         |     |  |   |         |  |  |   |        | 923 | 
|                                   |                                                                        |                                    |   |         |      |  |   |         |  
|                                   | Weighted average common shares outstanding                             |                                    |   | 15,102  |      |  |   | 14,148  |   |  |   | 17,975 |    
|                                   |                                                                        |                                    |   |         |      |  |   |         |  
|                                   | Income (loss) from continuing operations per
    common share diluted |                                    | $ | (1.19   | )    |  | $ | (1.09   | ) |  | $ | 0.25   |    
|                                   |                                                                        |                                    |   |         |      |  |   |         |  

Additionally, options outstanding to purchase
shares of common stock, the effect of which would be
anti-dilutive, were 1,601,091, 2,816,861, and 1,661,697 at
June 30, 2003, 2002 and 2001, respectively, and were not
included in the computation of diluted earnings per share either
because an operating loss was reported or, in 2001, the option
exercise price was greater than the average market price of the
common shares.

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

5. Credit Facility Debt

Effective December 31, 2000, the Company
entered into an amended and restated credit agreement
(Credit Agreement) by and among the Company, various
financial institutions and Bank of America, N.A. as agent and
lender (collectively, the Banks), which revised
certain terms and provisions of its prior credit facility. The
Credit Agreement provided for a $40 million term loan that
was used to fund a portion of the self-tender offer completed by
the Company effective January 24, 2001, along with a
$15 million revolving credit facility for working capital
purposes.

Effective March 8, 2002, the Company
completed the restructuring of its credit facility that was
effected in accordance with the terms and conditions of a third
amendment to the Credit Agreement (Third Amendment).
Under the terms of the Third Amendment, $5,000,000 of principal
amortization of the term loan that was previously due in
calendar year 2002 was deferred, certain financial covenants
relating to the Companys cash flows and operations were
revised, and the commitment under the revolving loan portion was
reduced from $15,000,000 to $6,000,000 (and was further reduced
to $5,000,000 in June 2002).

Simultaneously with the Third Amendment, the
Company, Bank of America (as administrative agent), and Warburg,
Pincus Investors, L.P. (Warburg Pincus) also entered
into an option purchase agreement (the Option
Agreement) whereby Warburg Pincus funded a $5,000,000
promissory note (the $5,000,000 Subordinated Note)
and granted the Company the right (which right was assignable to
the banks) to cause Warburg Pincus to deliver to the Company an
additional $6,000,000 in June 2002 upon substantially the
same terms and conditions as the $5,000,000 Subordinated Note
(the $6,000,000 Subordinated Note). All sums
evidenced by the $5,000,000 Subordinated Note and the $6,000,000
Subordinated Note (collectively, the Subordinated
Notes) were subordinate to all other indebtedness under
the credit facility. The Subordinated Notes were demand
obligations bearing interest at the rate of 15% per annum,
compounded quarterly, although no payments of interest or
principal were permitted until the credit facility was
terminated. In addition, all principal and interest and
reasonable costs evidenced by the Subordinated Notes were
subject to conversion generally at the option of the holder,
into 11,000 shares of the Companys newly created
Series A Preferred Stock, subject to adjustment for accrued
interest thereon, having a stated value of $1,000 per share.

Pursuant to the Option Agreement, the Company
also received the right to replace the Warburg Pincus financing
arrangements (Refinancing Right) by a certain date,
contemplated by the Option Agreement. Specifically, upon the
receipt of at least approximately $15,000,000 from the sale of
equity or subordinated debt securities, and the tendering to
Warburg Pincus, or its assigns, on or before the extended date
of May 14, 2002, of (i) the entire principal amount of
the $11,000,000 Subordinated Notes, plus accrued interest
thereon and reasonable costs with respect thereto, and
(ii) the sum of $4,158,431, to re-purchase 1,337,358 shares
of common stock acquired by Warburg Pincus in January 2002,
all of the debt and equity securities issued and issuable
thereunder, would automatically be terminated. On May 13,
2002, the Company exercised the Refinancing Right and entered
into a replacement financing arrangement with Kojaian Ventures,
L.L.C. See Note 8 of Notes to Consolidated Financial
Statements for additional information.

The Company was subject to certain financial
covenants pursuant to the terms of its Credit Agreement,
including minimum EBITDA (as defined in the credit agreement)
levels it must achieve. Beginning December 20, 2002, the
Company received a series of waivers through June 6, 2003
from the Banks with respect to any default regarding the minimum
EBITDA levels for the quarters ended December 31, 2002 and
March 31, 2003 which levels were not achieved. The waiver
also provided for an increase in interest rates of 50 basis
points on borrowings until such time as the outstanding
principal due fell below $24.0 million, and accelerated
certain principal repayments of $1.7 million, which were
made in the quarter ended March 31, 2003.

In May 2003, an affiliated entity of the
Companys controlling stockholder and Chairman agreed to
acquire the Companys Credit Agreement from the Banks. This
transaction was effected on June 6, 2003. (See Note 6
of Notes to Consolidated Financial Statements for additional
information.)

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

5. Credit Facility
Debt(Continued)

Unamortized fees related to the prior credit
facility agreement, totaling approximately $676,000 were written
off concurrently with the effective date of the Credit Agreement
and were originally recorded as an extraordinary loss from
extinguishment of debt during the fiscal year ended
June 30, 2001. In accordance with SFAS 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment to FASB Statement No. 13, and Technical
Corrections, effective for fiscal years beginning after
May 15, 2002, any gain or loss on extinguishment of debt
that was classified as an extraordinary loss in prior periods
shall be reclassified. Accordingly, the $676,000 loss from
extinguishment of debt has been reclassified to interest
expense in the 2001 statement of operations.

6. Credit Facility Debt
Affiliate

Kojaian Capital, L.L.C. (the New
Lender), an affiliated entity of the Companys
controlling stockholder and Chairman, acquired the
Companys Credit Agreement from the Banks on June 6,
2003. The Company also received an extension of a waiver through
June 30, 2003 relating to defaults that existed in regards
to certain financial covenants required by the Credit Agreement
from the New Lender.

On June 20, 2003, the Company and the New
Lender entered into the sixth amendment to the Credit Agreement
(the Sixth Amendment) which, among other things,
defers further amortization of the principal obligations due
under the Credit Agreement until September 30, 2004, and
eliminates certain minimum EBITDA and fixed charge ratio
covenant requirements through June 30, 2004. As a result of
the Sixth Amendment, the Company was no longer in default under
the Credit Agreement relating to the achievement of these
financial covenants or otherwise.

The Company has fully utilized its revolving
credit facility through borrowings of $5.0 million. The
borrowings under the revolver are due upon termination or
maturity of the credit agreement, December 31, 2005. In
addition, the Company must repay all outstanding amounts and not
re-borrow such funds for a period of 30 consecutive days each
December.

Interest on outstanding borrowings under the
credit facility is based upon Bank of Americas prime rate
and/or a LIBOR based rate plus, in either case, an additional
margin based upon a particular financial leverage ratio of the
Company, and vary depending upon which interest rate options the
Company chooses to be applied to specific borrowings. The
average interest rate incurred by the Company on the Credit
Agreement obligations during fiscal year 2003 was 5.70%.
Beginning in September 2004, the term loan amortizes on a
quarterly basis through December 31, 2005 when both
facilities mature.

Scheduled principal payments on the term loan
portion of the Credit Agreement are as follows (in thousands):

|            |  |        |        | 
|----------- |  | ------ | ------ | 
|Year Ending |  |       
|June 30     |  | Amount |       
|            |  |        |       
|2004        |  | $      |       | 
|2005        |  |        | 8,000  | 
|2006        |  |        | 19,300 | 
|            |  |        |       
|            |  | $      | 27,300 | 
|            |  |        |       

Direct expenses related to the Credit Agreement
and amendments totaling approximately $1,273,000 have been
recorded as deferred financing fees and are amortized over the
term of the agreement. The variable interest rate structure of
the Credit Agreement exposes the Company to risks associated
with changes in the interest rate markets. Consequently, the
Credit Agreement required the Company to enter interest rate
protection agreements, within 90 days of the date of the
agreement, initially fixing the interest rates on not less than
50% of the aggregate principal amount of the term loan scheduled
to be outstanding for a period of not less than three years. The
Company subsequently established risk management policies and
procedures to manage the cost of borrowing obligations, which
include the use of interest rate swap derivatives to fix the
interest rate on debt with floating rate indices. Further, the
Company prohibits the use of derivative instruments for trading
or speculative purposes. In March 2001, the

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

6. Credit Facility Debt
Affiliate(Continued)

Company entered into two interest rate swap
agreements for a three year term, with banks that were original
parties to the Credit Agreement. As of June 30, 2003, the
swap agreements had a total notional amount of
$10.5 million, with a fixed annual interest rate to be paid
by the Company of 5.18%, and a variable rate to be received by
the Company equal to three month LIBOR based borrowing rates.
The net interest paid as a result of these pay/receive rates
totaled $467,000, $442,000 and $15,000 for the fiscal years
ended June 30, 2003, 2002 and 2001, respectively. The
Company has determined that these agreements are to be
characterized as effective under the definitions included within
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities.

On June 30, 2003, the derivative instruments
were reported at their fair value of approximately $174,000, net
of applicable taxes, in other liabilities in the Consolidated
Balance Sheet. The offsetting amount is reported as a deferred
loss in Accumulated Other Comprehensive Loss. The Companys
interest rate swaps are treated as cash flow hedges, which
address the risk associated with future variable cash flows of
debt transactions. Over time, the unrealized gains and losses
held in Accumulated Other Comprehensive Loss will be
reclassified into earnings in the same periods in which the
hedged interest payments affect earnings.

Repayment of the Credit Agreement is
collateralized by substantially all of the Companys assets
and the Credit Agreement contains certain restrictive covenants,
including, among other things: restrictions on indebtedness, the
payment of dividends, the redemption or repurchase of capital
stock, acquisitions, investments and loans.

7. Note Payable Affiliate

In connection with the anticipated acquisition of
the Credit Agreement, Kojaian Funding, L.L.C., another
affiliated entity of the Companys controlling stockholder
and Chairman, made a $4 million subordinated loan to the
Company on May 9, 2003 (the Subordinated Loan)
for working capital purposes. The Company is obligated to pay
interest only on the Subordinated Loan during its term at the
rate of 10% per annum, payable monthly in arrears. The entire
principal amount of the Subordinated Loan is due on
July 15, 2004, although it may be prepaid in whole or in
part at any time by the Company without premium or penalty upon
fifteen (15) days prior notice. The Subordinated
Loan, which was consented to by the Banks, is secured by all
assets of the Company and is guaranteed by all the
Companys subsidiaries, although such security interest is
subordinate to the interests of the lender under the Credit
Facility. The Company paid a 1% financing fee in connection with
the closing of the Subordinated Loan.

The material terms and conditions of the
Subordinated Loan were negotiated by a special committee
comprised of the disinterested member of the Companys
board of directors, which committee was established for such
purpose. The special committee recommended the entering into of
the Subordinated Loan to the full board of directors of the
Company, which unanimously approved such terms.

8. Issuance of Preferred Stock

On May 13, 2002, the Company effected a
closing of a financing with Kojaian Ventures, L.L.C.
(KV) which is wholly-owned by the Companys
controlling stockholder and Chairman, who, along with his
father, owned, subsequent to the closing of the KV financing,
approximately 20% of the Companys issued and outstanding
Common Stock. In addition, certain affiliated real estate
entities of KV, in the aggregate, are substantial clients of the
Company. The Company accepted the financing offered by KV based,
in part, upon the fact that the KV financing, which replaced the
financing provided by Warburg Pincus in March 2002 (see
Note 5 of Notes to Consolidated Financial Statements for
additional information), was on more favorable terms and
conditions to the Company than the Warburg Pincus financing.

Accordingly, on the closing of the KV financing
on May 13, 2002, KV paid to the Company an aggregate of
$15,386,580 which provided the Company with the necessary funds,
which the Company used, to (i) repay the $5,000,000
Subordinated Note and accrued interest thereon of $137,500,
(ii) pay $100,000 of Warburg Pincus reasonable,
documented out-of-pocket expenses associated with the $5,000,000
Subordinated Note, (iii) repurchase, at cost, 1,337,358
shares of Common Stock held by Warburg Pincus for a price per
share of $3.11, or an aggregate

32



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



8. Issuance of Preferred
Stock(Continued)


purchase price of $4,158,431, and (iv) pay
down $6,000,000 of revolving debt under the Companys
Credit Agreement. In exchange therefore, KV received (i) a
convertible subordinated note in the principal amount of
$11,237,500 (the KV Debt), and (ii) 1,337,358
shares of Common Stock at a price of $3.11 per share. As a
consequence, upon the closing of the KV Transaction, the Option
Agreement was terminated, and KV replaced Warburg Pincus as a
junior lender under the Credit Facility. The form of KVs
financing was substantially identical to the form of the
$11,000,000 Subordinated Notes that Warburg Pincus was to
provide pursuant to the Option Agreement, provided, however,
that the KV Debt was more favorable to the Company in two
(2) material respects.

First, the interest rate on the KV Debt was 12%
per annum as opposed to 15% per annum. Similarly, the
Series A Preferred Stock into which the KV Debt was
converted has a coupon of 12% per annum, compounded quarterly,
rather than 15% per annum, compounded quarterly. Second, the
Series A Preferred Stock that KV received, like the
Series A Preferred Stock that was issuable to Warburg
Pincus, has approximately a 40% preference on liquidation,
dissolution and certain change in control transactions rather
than the 50% preference on the Warburg Pincus financing.
KVs liquidation preference is the greater of (i) 1.5
times the Conversion Amount, plus the accrued dividend thereon
at the rate of 12% per annum (provided such liquidation,
dissolution, or change of control transaction takes place within
twelve (12) months after May 13, 2002, and thereafter
it will increase to 2 times the Conversion Amount plus the
accrued dividend thereon at the rate of 12% per annum), or
(ii) the equivalent of 40% percent of the consideration to
be paid to all the equity holders of the Company, not on a fully
diluted basis as was the case in the Warburg Pincus financing,
but rather, on an Adjusted Outstanding Basis (as
defined in the underlying documents).

On September 19, 2002, the conversion rights
existing under the KV Debt were exercised. As a result of this
conversion, 11,725 shares of the Companys Series A
Preferred Stock were issued to KV, having a stated value of
$1,000 per share. The outstanding related party principal and
interest obligations totaling $11,725,000 were reclassified to
stockholders equity on the date of conversion. Issuance
costs of $783,000, previously offset against the note
obligations, were also reclassified as a reduction of additional
paid in capital. Accrued dividends on the preferred stock
totaled approximately $1.1 million at June 30, 2003.

The preferred stock contains liquidation
preference and voting rights, which after final contractual
adjustments were equal to 949 common shares for each share of
preferred stock, or a total of 11,127,025 common share
equivalents. As a consequence of the conversion, there has been
a change in the voting control of the Company, as these
equivalents, along with 3,762,884 shares of outstanding common
stock owned by KV and its affiliates (approximately 25% of the
outstanding common stock of the Company), represent
approximately 57% of the total voting power of the Company. The
preferred stock is not convertible into any other securities of
the Company or subject to redemption. Warburg Pincus Investors,
L.P., which currently owns approximately 39% of the outstanding
common stock of the Company, has approximately 22% of the total
voting power.

9. Securities Exchange Listing

On October 17, 2002, the Companys
common stock was de-listed from the New York Stock Exchange
(NYSE) due to the Companys book value and
market capitalization value being below the minimum levels
required by the NYSEs listing standards. The
Companys common stock commenced trading on the
over-the-counter market (OTC) effective
October 17, 2002, under the symbol GBEL.OB, and ceased
trading on the NYSE prior to the opening that day.

10. Income Taxes

The Company maintains a fiscal year ending
June 30 for financial reporting purposes and a calendar
year for income tax reporting purposes. The provision for income
taxes for the fiscal years ended June 30, 2003, 2002 and

33



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



10. Income
Taxes(Continued)


2001, which includes the income tax impact
attributed to the cumulative effect adjustment ($2,089,000) in
2001, consisted of the following (in thousands):

|         |                         |      |       |       |      |  |        |        |   |  |       |       | 
|-------- | ----------------------- | ---- | ----- | ----- | ---- |  | ------ | ------ | - |  | ----- | ----- | 
|         |                         | 2003 |       |       | 2002 |  |        | 2001   |  
|         |                         |      |       |       |      |  |        |        |  
|Current  |                         |      |       |       |      |  |        |        |   |  |       |      
|         | Federal                 |      | $     | (245  | )    |  | $      | (4,051 | ) |  | $     | 3,095 | 
|         | State and local         |      |       | 167   |      |  |        | 381    |   |  |       | 484   | 
|         |                         |      |       |       |      |  |        |        |  
|         |                         |      | (78   | )     |      |  | (3,670 | )      |   |  | 3,579 |      
|Deferred |                         |      | 2,510 |       |      |  | 2,483  |        |   |  | (566  | )    
|         |                         |      |       |       |      |  |        |        |  
|         | Net provision (benefit) |      | $     | 2,432 |      |  | $      | (1,187 | ) |  | $     | 3,013 | 
|         |                         |      |       |       |      |  |        |        |  

The Company recorded prepaid taxes totaling
approximately $669,000 and $6,890,000 as of June 30, 2003
and 2002, respectively. Included in these assets are tax refund
receivables resulting from filed federal and state returns
totaling approximately $476,000 and $2,584,000 at June 30,
2003 and 2002, respectively. Also included are tax effected
operating loss carrybacks totaling approximately $193,000 and
$4,306,000 at June 30, 2003 and 2002, respectively, which
the Company will realize or has realized primarily against
federal or state tax liability payments made in prior tax years.
The Company also received net tax refunds of approximately
$6,473,000 and $1,576,000, during fiscal years 2003 and 2002,
respectively, primarily related to its federal tax carrybacks.

At June 30, 2003, federal income tax
operating loss carryforwards (NOLs) were
available to the Company in the amount of approximately
$27.1 million, which expire from 2008 to 2013. Utilization
of certain of these net operating loss carryforwards totaling
$4.4 million is limited to approximately $960,000 per year,
pursuant to Section 382 of the Internal Revenue Code
(Code) relating to a prior ownership change.

The Companys effective tax rate on its
income before taxes differs from the statutory federal income
tax rate as follows for the fiscal years ended June 30:

|                                                               |                           |      |       |       |      |  |       |      |   |  |       |       |   
|-------------------------------------------------------------- | ------------------------- | ---- | ----- | ----- | ---- |  | ----- | ---- | - |  | ----- | ----- | --
|                                                               |                           | 2003 |       |       | 2002 |  |       | 2001 |  
|                                                               |                           |      |       |       |      |  |       |      |  
|Federal statutory rate                                         |                           |      | 35.0  | %     |      |  | 34.0  | %    |   |  | (35.0 | )%   
|State and local income taxes (net of federal tax
    benefits) |                           |      | 5.2   |       |      |  | 5.2   |      |   |  | (3.9  | )    
|Meals and entertainment                                        |                           |      | (2.2  | )     |      |  | (2.2  | )    |   |  | (3.2  | )    
|Increase in valuation allowance                                |                           |      | (53.8 | )     |      |  | (31.3 | )    |   |  |      |      
|Goodwill impairment                                            |                           |      |      |       |      |  |      |      |   |  | (8.1  | )    
|Goodwill amortization and other                                |                           |      | 2.6   |       |      |  | 1.4   |      |   |  | (2.1  | )    
|Non-deductible executive compensation                          |                           |      | (3.8  | )     |      |  |      |      |   |  |      |      
|                                                               |                           |      |       |       |      |  |       |      |  
|                                                               | Effective income tax rate |      |       | (17.0 | )%   |  |       | 7.1  | % |  |       | (52.3 | )%
|                                                               |                           |      |       |       |      |  |       |      |  

During fiscal years 2003 and 2002, the Company
increased the valuation allowance it carries against its
deferred tax assets by approximately $7.7 million and
$5.2 million, respectively, to reflect uncertainty in
regards to the realization of the assets in future periods.

34



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



10. Income
Taxes(Continued)


Deferred income tax liabilities or assets are
determined based on the differences between the financial
statement and tax basis of assets and liabilities. The
components of the Companys deferred tax assets and
liabilities are as follows as of June 30, 2003 and 2002 (in
thousands):

|                         |                                           |                     |         |        |        |  |        |       |        | 
|------------------------ | ----------------------------------------- | ------------------- | ------- | ------ | ------ |  | ------ | ----- | ------ | 
|                         |                                           | 2003                |         |        | 2002   | 
|                         |                                           |                     |         |        |        | 
|Deferred tax assets:     |                                           |                     |         |        |        |  |        |      
|                         | NOL and credit carry forwards             |                     | $       | 11,764 |        |  | $      | 5,435 |       
|                         | Insurance reserves                        |                     |         | 3,788  |        |  |        | 3,887 |       
|                         | Commission and fee reserves               |                     |         | 745    |        |  |        | 725   |       
|                         | Office closure reserves                   |                     |         | 1,232  |        |  |        | 686   |       
|                         | Claims and settlements                    |                     |         | 697    |        |  |        | 679   |       
|                         | Accounting change, deferred for tax basis |                     |         | 203    |        |  |        | 609   |       
|                         | Deferred compensation plan                |                     |         |       |        |  |        | 1,409 |       
|                         | Other                                     |                     |         | 1,902  |        |  |        | 1,184 |       
|                         |                                           |                     |         |        |        | 
|                         |                                           | Deferred tax assets |         |        | 20,331 |  |        |       | 14,614 | 
|Less valuation allowance |                                           |                     | (17,452 | )      |        |  | (9,745 | )    
|                         |                                           |                     |         |        |        | 
|                         |                                           |                     | 2,879   |        |        |  | 4,869  |      
|Deferred tax liabilities |                                           |                     | (2,879  | )      |        |  | (2,359 | )    
|                         |                                           |                     |         |        |        | 
|                         | Net deferred tax asset                    |                     | $       |       |        |  | $      | 2,510 |       
|                         |                                           |                     |         |        |        | 
|                         |                                           | Current             |         | $      |       |  |        | $     | 1,563  | 
|                         |                                           |                     |         |        |        | 
|                         |                                           | Long Term           |         | $      |       |  |        | $     | 947    | 
|                         |                                           |                     |         |        |        | 

11. Stock Options, Warrants, Stock
Purchase and 401(k) Plans

Stock Option Plans

Changes in stock options were as follows for the
fiscal years ended June 30, 2003, 2002, and 2001:

|                                                           |  |        |            |   |                |  |                 |        |  |  |                |   |  |        |                 |  |                |  |           |   |  |  |                 | 
|---------------------------------------------------------- |  | ------ | ---------- | - | -------------- |  | --------------- | ------ |  |  | -------------- | - |  | ------ | --------------- |  | -------------- |  | --------- | - |  |  | --------------- | 
|                                                           |  |        |            |   |                | 
|                                                           |  | 2003   |            |   | 2002           |  |                 | 2001   | 
|                                                           |  |        |            |   |                |  |                 |        | 
|                                                           |  | Shares |            |   | Exercise Price |  |                 | Shares |  |  | Exercise Price |   |  | Shares |                 |  | Exercise Price | 
|                                                           |  |        |            |   |                |  |                 |        |  |  |                |   |  |        |                 |  |                | 
|Stock options outstanding at the beginning of the
    year |  |        | 2,816,861  |   |                |  | $1.88 to $16.44 |        |  |  | 2,554,515      |   |  |        | $1.88 to $16.44 |  |                |  | 2,714,330 |   |  |  | $1.88 to $16.44 | 
|Granted                                                    |  |        | 10,000     |   |                |  | $2.00           |        |  |  | 868,000        |   |  |        | $2.60 to $4.95  |  |                |  | 620,000   |   |  |  | $4.80 to $6.44  | 
|Lapsed or canceled                                         |  |        | (1,225,770 | ) |                |  | $1.88 to $13.50 |        |  |  | (577,777       | ) |  |        | $4.25 to $13.50 |  |                |  | (310,895  | ) |  |  | $1.88 to $13.50 | 
|Exercised                                                  |  |        |           |   |                |  |                |        |  |  | (27,877        | ) |  |        | $1.88 to $4.25  |  |                |  | (468,920  | ) |  |  | $1.88 to $6.50  | 
|                                                           |  |        |            |   |                |  |                 |        |  |  |                |   |  |        |                 |  |                | 
|Stock options outstanding at the end of the year           |  |        | 1,601,091  |   |                |  | $2.00 to $16.44 |        |  |  | 2,816,861      |   |  |        | $1.88 to $16.44 |  |                |  | 2,554,515 |   |  |  | $1.88 to $16.44 | 
|                                                           |  |        |            |   |                |  |                 |        |  |  |                |   |  |        |                 |  |                | 
|Exercisable at end of the Year                             |  |        | 1,129,466  |   |                |  |                 |        |  |  | 1,267,861      |   |  |        |                 |  |                |  | 1,095,007 |   |  |  |                 | 
|                                                           |  |        |            |   |                |  |                 |        |  |  |                |   |  |        |                 |  |                | 

35



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



11. Stock Options, Warrants, Stock
Purchase and 401(k) Plans (Continued)


Additional information segregated by relative
ranges of exercise prices for stock options outstanding as of
June 30, 2003 is as follows:

|         |                  |  |        |          |           |      |          |                   |        |          |                   |        |       |  |  |  |       | 
|-------- | ---------------- |  | ------ | -------- | --------- | ---- | -------- | ----------------- | ------ | -------- | ----------------- | ------ | ----- |  |  |  | ----- | 
|         |                  |  |        | Weighted |           |      | Weighted |                   |        | Weighted |                  
|         |                  |  |        | Average  |           |      | Average  |                   |        | Average  |                  
|         |                  |  |        | Years    |           |      | Exercise |                   |        | Exercise |                  
|Exercise |                  |  |        |          | Remaining |      |          | Price-Outstanding |        |          | Price-Exercisable |       
|Price    |                  |  | Shares |          |           | Life |          |                   | Shares |          |                   | Shares |      
|         |                  |  |        |          |           |      |          |                   |        |          |                   |        |      
|         | $ 2.00 to $ 3.05 |  |        |          | 353,000   |      |          |                   | 8.78   |          |                   |        | 2.93  |  |  |  | 2.98  | 
|         | $ 3.13 to $ 5.63 |  |        |          | 296,534   |      |          |                   | 6.35   |          |                   |        | 3.90  |  |  |  | 3.91  | 
|         | $ 5.81 to $ 8.94 |  |        |          | 454,807   |      |          |                   | 5.89   |          |                   |        | 6.73  |  |  |  | 6.89  | 
|         | $11.13 to $16.44 |  |        |          | 496,750   |      |          |                   | 4.02   |          |                   |        | 11.98 |  |  |  | 11.98 | 
|         |                  |  |        |          |           |      |          |                   |        |          |                   |        |      
|         |                  |  |        |          | 1,601,091 |      |          |                   |        |          |                   |        |       |  |  |  |       | 
|         |                  |  |        |          |           |      |          |                   |        |          |                   |        |      

Weighted average information per share with
respect to stock options for fiscal years ended June 30,
2003 and 2002 is as follows:

|                |                        |      |      |       |      |  |      |       | 
|--------------- | ---------------------- | ---- | ---- | ----- | ---- |  | ---- | ----- | 
|                |                        | 2003 |      |       | 2002 | 
|                |                        |      |      |       |      | 
|Exercise price: |                        |      |      |       |      |  |      |      
|                | Granted                |      | $    | 2.00  |      |  | $    | 3.73  | 
|                | Lapsed or cancelled    |      |      | 5.36  |      |  |      | 8.00  | 
|                | Exercised              |      |      |      |      |  |      | 2.05  | 
|                | Outstanding at June 30 |      |      | 7.00  |      |  |      | 6.30  | 
|Remaining life  |                        |      | 6.03 | years |      |  | 7.40 | years

The Companys 1990 Amended and Restated
Stock Option Plan, as amended, provides for grants of options to
purchase the Companys common stock for a total of
2,000,000 shares. At June 30, 2003, 2002 and 2001, the
number of shares available for the grant of options under the
plan were 904,517, 795,371 and 595,014, respectively. Stock
options under this plan may be granted at prices from 50% up to
100% of the market price per share at the dates of grant, their
terms and vesting schedules of which are determined by the Board
of Directors.

The Companys 1993 Stock Option Plan for
Outside Directors provides for an automatic grant of an option
to purchase 10,000 shares of common stock to each newly elected
independent member of the Board of Directors and an automatic
grant of an option to purchase 8,000 shares at the successive
four year service anniversaries of each such director. The
exercise prices are set at the market price at the date of
grant. The initial options expire five years from the date of
grant and vest over three years from such date. The anniversary
options vest over four years from the date of grant and expire
ten years from such date. The plan was amended in
November 1998 to increase the number of issuable shares
authorized for the plan from 50,000 to 300,000 and to provide
for the anniversary options. The number of shares available for
grant was 236,000 at June 30, 2003 and 2002 and 254,000 at
June 30, 2001.

The Companys 1998 Stock Option Plan
provides for grants of options to purchase the Companys
common stock. The plan authorizes the issuance of up to
2,000,000 shares, and had 971,979, 755,355, and 786,105 shares
available for grant as of June 30, 2003, 2002 and 2001,
respectively. Stock options under this plan may be granted at
prices and with such other terms and vesting schedules as
determined by the Compensation Committee of the Board of
Directors, or, with respect to options granted to corporate
officers, the full Board of Directors.

The Companys 2000 Stock Option Plan
provides for grants of options to purchase the Companys
common stock. The plan authorizes the issuance of up to
1,500,000 shares, and had 1,360,000, 470,000 and 900,000 shares
available for grant as of June 30, 2003, 2002 and 2001,
respectively. Stock options under this plan may be granted at
prices and with such other terms and vesting schedules as
determined by the Compensation Committee of the Board

36



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

11. Stock Options, Warrants, Stock
Purchase and 401(k) Plans (Continued)

of Directors, or, with respect to options
granted to corporate officers who are subject to Section 16
of the Securities Exchange Act of 1934, as amended, the full
Board of Directors.

Stock Warrants

In July 1999, the Company issued a warrant
to purchase 600,000 shares of the Companys common stock at
$6.25 per share to Aegon USA Realty Advisors, Inc., the parent
company of Landauer Associates, Inc. (LAI), as part
of the consideration granted in the acquisition of LAI. The
warrant has a five-year life, expiring in July 2004, and
remains outstanding as of June 30, 2003.

During January 2002, warrants were exercised
resulting in the issuance of 1,339,335 common shares and
proceeds of approximately $4.2 million. Other warrants,
representing 337,827 common shares, expired on January 29,
2002.

Employee Stock Purchase Plan

The Grubb & Ellis Company Employee Stock
Purchase Plan provided for the purchase of up to 1,750,000
shares of common stock by employees of the Company at a 15%
discount from market price, as defined, through payroll
deductions. The numbers of shares purchased under this plan were
193,532, 178,012 and 182,683 during the fiscal years ended
June 30, 2003, 2002 and 2001, respectively. This plan was
suspended in May 2003.

The Company has a 401(k) Plan covering eligible
employees and provides that employer contributions may be made
in common stock of the Company or cash. Discretionary
contributions by the Company for the plans (net of forfeitures
and reimbursements received pursuant to property and corporate
facilities management services agreements) amounted to
approximately $1,209,000 and $1,083,000 for the plan years ended
December 31, 2001 and 2000, respectively. The Company did
not provide for a company match to the 401(k) Plan for the plan
year ended December 31, 2002.

Pro Forma Information

Pro forma information regarding net income and
earnings per share is required by Statement 123, and has
been determined as if the Company had accounted for options
granted subsequent to July 1, 1996, and therefore includes
grants under the 1990 Amended and Restated Stock Option Plan,
1993 Stock Option Plan for Outside Directors, 1998 Stock Option
Plan and 2000 Stock Option Plan and purchases made under the
Grubb & Ellis Employee Stock Purchase Plan, under the fair
value method of that Statement. The fair value for the options
was estimated at the date of grant using a Black-Scholes option
pricing model. Weighted-average assumptions for options granted
for fiscal years 2003, 2002 and 2001, respectively, are as
follows:

|                                                                            |  |      |      |       |      |  |      |       |  |  |      |      
|--------------------------------------------------------------------------- |  | ---- | ---- | ----- | ---- |  | ---- | ----- |  |  | ---- | -----
|                                                                            |  | 2003 |      |       | 2002 |  |      | 2001  | 
|                                                                            |  |      |      |       |      |  |      |       | 
|Risk free interest rates                                                    |  |      | 3.83 | %     |      |  | 4.43 | %     |  |  | 5.23 | %    
|Dividend yields                                                             |  |      | 0    | %     |      |  | 0    | %     |  |  | 0    | %    
|Volatility factors of the expected market
    price
    Of the common stock |  |      | .393 |       |      |  | .607 |       |  |  | .587 |      
|Weighted-average expected lives                                             |  |      | 6.00 | years |      |  | 6.00 | years |  |  | 6.00 | years

The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility. Because changes in these assumptions can materially
affect the fair value estimate, in managements opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of options granted. The weighted
average fair values of options granted by the Company in fiscal
years 2003, 2002 and 2001 using this model were $0.88, $2.24 and
$4.86, respectively.

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



11. Stock Options, Warrants, Stock
Purchase and 401(k) Plans (Continued)


The Company accounts for its stock-based employee
compensation plan under the intrinsic value method in accordance
with APB 25. The Company has adopted the disclosure-only
provisions of Statement 123, as amended by FASB Statement
No. 148, Accounting for Stock  Based
Compensation  Transition and Disclosure
(FAS 148). Had the Company elected to
adopt the fair value recognition provisions of FAS 123, pro
forma net income and net income per share would be as follows
(in thousands):

|                                                                                                                                                        |                       |                                    |         |       |      |   |         |       |   |   |        |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ---------------------------------- | ------- | ----- | ---- | - | ------- | ----- | - | - | ------ | ----- | -
|                                                                                                                                                        |                       |                                   
|                                                                                                                                                        |                       | For the Fiscal Year Ended June 30, |        
|                                                                                                                                                        |                       |                                    |        
|                                                                                                                                                        |                       | 2003                               |         |       | 2002 |   |         | 2001  |  
|                                                                                                                                                        |                       |                                    |         |       |      |   |         |       |  
|Net income to common stockholders, as reported                                                                                                          |                       | $                                  | (17,902 | )     |      | $ | (15,477 | )     |   | $ | 1,369  |      
|Add: Total stock-based employee compensation
    expense determined under the intrinsic value method for all
    awards, net of related tax effects     |                       |                                    | 228     |       |      |   |        |       |   |   | 792    |      
|Deduct: Total stock-based employee
    compensation expense determined under the fair value based
    method for all awards, net of related tax effects |                       |                                    | (340    | )     |      |   | (1,781  | )     |   |   | (2,407 | )    
|                                                                                                                                                        |                       |                                    |         |       |      |   |         |       |  
|Pro forma net income to common stockholders                                                                                                             |                       | $                                  | (18,014 | )     |      | $ | (17,258 | )     |   | $ | (246   | )    
|                                                                                                                                                        |                       |                                    |         |       |      |   |         |       |  
|Net earnings per weighted average common share
    outstanding:                                                                                         |                       |                                    |         |       |      |   |         |       |   |   |        |      
|                                                                                                                                                        | Basic  as reported   |                                    | $       | (1.19 | )    |   | $       | (1.09 | ) |   | $      | 0.08  |  
|                                                                                                                                                        |                       |                                    |         |       |      |   |         |       |  
|                                                                                                                                                        | Basic  pro forma     |                                    | $       | (1.19 | )    |   | $       | (1.22 | ) |   | $      | (0.01 | )
|                                                                                                                                                        |                       |                                    |         |       |      |   |         |       |  
|                                                                                                                                                        | Diluted  as reported |                                    | $       | (1.19 | )    |   | $       | (1.09 | ) |   | $      | 0.08  |  
|                                                                                                                                                        |                       |                                    |         |       |      |   |         |       |  
|                                                                                                                                                        | Diluted  pro forma   |                                    | $       | (1.19 | )    |   | $       | (1.22 | ) |   | $      | (0.01 | )
|                                                                                                                                                        |                       |                                    |         |       |      |   |         |       |  

Stock Repurchase Plan

In August 1999, the Company announced a
program through which it may repurchase up to $3.0 million
of its common stock on the open market from time to time as
market conditions warrant. As of June 30, 2003, the Company
had repurchased 359,900 shares of stock at an aggregate price of
approximately $2.0 million. No shares were repurchased
under this program during fiscal years 2003, 2002 or 2001.

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

12. Related Party Transactions

The Company provides both transaction and
management services to parties, which are related to principal
stockholders and/or directors of the Company, primarily Kojaian
affiliated entities (collectively, Kojaian
Companies) and Archon Group, L.P. (Archon). In
addition, the Company also paid asset management fees to the
Kojaian Companies and Archon related to properties the Company
manages on their behalf. Revenue earned by the Company for
services rendered to these and other affiliates, including joint
ventures, officers and directors and their affiliates, was as
follows for the fiscal years ended June 30, 2003, 2002 and
2001 (in thousands):

|                     |                             |      |       |       |      |  |       |        |  |  |        |        | 
|-------------------- | --------------------------- | ---- | ----- | ----- | ---- |  | ----- | ------ |  |  | ------ | ------ | 
|                     |                             | 2003 |       |       | 2002 |  |       | 2001   | 
|                     |                             |      |       |       |      |  |       |        | 
|Transaction Services |                             |      |       |       |      |  |       |        |  |  |        |       
|                     | Kojaian Companies           |      | $     | 291   |      |  | $     | 700    |  |  | $      | 1,686  | 
|                     | Archon                      |      |       | 1,663 |      |  |       | 4,176  |  |  |        | 10,999 | 
|                     | Others                      |      |       | 277   |      |  |       | 481    |  |  |        | 654    | 
|                     |                             |      |       |       |      |  |       |        | 
|                     |                             |      | 2,231 |       |      |  | 5,357 |        |  |  | 13,339 |       
|                     |                             |      |       |       |      |  |       |        | 
|Management Services  |                             |      |       |       |      |  |       |        |  |  |        |       
|                     | Kojaian Companies           |      |       | 6,106 |      |  |       | 6,064  |  |  |        | 5,446  | 
|                     | Archon                      |      |       | 2,304 |      |  |       | 3,476  |  |  |        | 3,604  | 
|                     |                             |      |       |       |      |  |       |        | 
|                     |                             |      | 8,410 |       |      |  | 9,540 |        |  |  | 9,050  |       
|                     | Less: asset management fees |      |       |       |      |  |       |        |  |  |        |        | 
|                     | Kojaian Companies           |      |       | 3,295 |      |  |       | 2,750  |  |  |        | 2,061  | 
|                     | Archon                      |      |       | 239   |      |  |       | 242    |  |  |        | 175    | 
|                     |                             |      |       |       |      |  |       |        | 
|                     |                             |      | 4,876 |       |      |  | 6,548 |        |  |  | 6,814  |       
|                     |                             |      |       |       |      |  |       |        | 
|                     | Total                       |      | $     | 7,107 |      |  | $     | 11,905 |  |  | $      | 20,153 | 
|                     |                             |      |       |       |      |  |       |        | 

In August 2002, the Company entered into a
lease for 16,800 square feet of office space in Southfield,
Michigan within a building owned by an entity related to the
Kojaian Companies. The lease provides for an annual average base
rent of $365,400 over the ten year life of the lease.

The Company entered into certain contractual
employment and compensation agreements with its former chief
executive, financial and operating officers during fiscal years
2002 and 2001. Terms of these agreements included, among other
things, i) signing bonuses totaling $528,500,
ii) guaranteed initial year bonuses totaling $810,000,
iii) loans totaling $1.8 million with repayment terms
tied to retention bonuses and continued employment,
iv) retention bonuses, net of taxes, sufficient to repay
the executive loan obligations in (iii) above, and
v) options to purchase 850,000 shares of the Companys
common stock, exercisable at current market prices, none of
which were exercised as of June 30, 2003. All payments
related to the signing bonuses and loans were made to the
officers by August 15, 2001, and the guaranteed initial
year bonuses, along with a retention bonus sufficient to repay
$500,000 of the loans, were paid in June and July 2002.

In July 2002, the chief operating
officers employment agreement with the Company was
terminated, and in March 2003, the Company disclosed that
the Companys Chief Executive Officer and Chief Financial
Officer had resigned. In addition, the Company entered into a
separation agreement with its General Counsel who resigned
effective July 2, 2003. Severance charges totaling
approximately $3.4 million were recognized during fiscal
year 2003 relating to these events. (See Note 16 of Notes
to Consolidated Financial Statements for additional information.)

13. Commitments and
Contingencies

Non-cancelable Operating Leases

The Company has non-cancelable operating lease
obligations for office space and certain equipment ranging from
one to nine years, and sublease agreements under which the
Company acts as sublessor.

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



13. Commitments and
Contingencies(Continued)


The office space leases provide for annual rent
increases based on the Consumer Price Index, or other specific
terms, and typically require payment of property taxes,
insurance and maintenance costs.

Future minimum payments under non-cancelable
operating leases with an initial term of one year or more were
as follows at June 30, 2003 (in thousands):

|                     |            |  |                   |   |        | 
|-------------------- | ---------- |  | ----------------- | - | ------ | 
|Year Ending June 30, |            |  | Lease Obligations |  
|                     |            |  |                   |  
|                     | 2004       |  |                   | $ | 17,334 | 
|                     | 2005       |  |                   |   | 14,663 | 
|                     | 2006       |  |                   |   | 11,269 | 
|                     | 2007       |  |                   |   | 7,691  | 
|                     | 2008       |  |                   |   | 5,543  | 
|                     | Thereafter |  |                   |   | 12,174 | 

Lease and rental expense for the fiscal years
ended June 30, 2003, 2002 and 2001 amounted to $21,678,000,
$22,695,000, and $22,288,000, respectively.

Litigation/Recovery of Loss Reserves

John W. Matthews, et al. v Kidder, Peabody
& Co., et al. and HSM Inc., et
al.,filed on January 23, 1995 in
the United States District Court for the Western District of
Pennsylvania, was a class action on behalf of approximately
6,000 limited partners who invested approximately
$85 million in three public real estate limited
partnerships (the Partnerships) during the period
beginning in 1982 and continuing through 1986. The defendants
included HSM Inc., a wholly owned subsidiary of the Company, and
several subsidiaries of HSM Inc., along with other parties
unrelated to HSM Inc. The complaint alleged violation under the
Racketeer Influenced and Corrupt Organizations Act
(RICO), securities fraud, breach of fiduciary duty
and negligent misrepresentation surrounding the defendants
organization, promotion, sponsorship and management of the
Partnerships. Specific damages were not pled, but treble,
punitive as well as compensatory damages and restitution were
sought.

On August 18, 2000, the district court
issued an opinion granting defendants motions for summary
judgment dismissing the federal RICO claims as time-barred under
the statute of limitations. As to the state law claims for
breach of fiduciary duty and negligent misrepresentation, the
court declined to exercise supplemental jurisdiction and
dismissed them without prejudice. The court declined to rule on
defendants motion to decertify the class because it was
moot. Plaintiffs appealed the summary judgment to the Third
Circuit Court of Appeals. On July 31, 2001, the appeals
court affirmed and upheld the dismissal of the Plaintiffs
claims. The Plaintiffs petition for rehearing was denied
on August 28, 2001, and the Plaintiffs time for
filing any further appeals or related claims expired in both
federal and state courts in the quarter ended December 31,
2001. Accordingly, the Company has recognized a recovery of loss
reserves previously recorded in connection with this case. (See
Note 16 of Notes to Consolidated Financial Statements.)

Environmental

A corporate subsidiary of the Company owns a 33%
interest in a general partnership, which in turn owns property
in the State of Texas which is the subject of an environmental
assessment and remediation effort, due to the discovery of
certain chemicals related to a release of dry cleaning solvent
in the soil and groundwater of the partnerships property
and adjacent properties. Prior assessments had determined that
minimal costs would be incurred to remediate the release.
However, subsequent findings at and around the
partnerships property have increased the probability that
additional remediation costs will be necessary. The partnership
is working with the Texas Natural Resource Conservation
Commission and the local municipality to implement a
multi-faceted plan, which includes both remediation and ongoing
monitoring of the affected properties. Although the
partnerships other

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



13. Commitments and
Contingencies(Continued)


partners have made all past contributions and are
expected to make all future required contributions, there can be
no assurances to this effect. The Companys share of
anticipated costs to remediate and monitor this situation is
estimated at approximately $1,024,000, based upon a
comprehensive project plan prepared by an independent third
party environmental remediation firm. As of June 30, 2003,
approximately $557,000 of this amount has been paid and the
remaining $467,000 has been reflected as a loss reserve for such
matters in the consolidated balance sheet. The Companys
management believes that the outcome of these events will not
have a material adverse effect on the Companys
consolidated financial position or results of operations.

Insolvent Insurance Provider

In fiscal years 1999 and 2000, the Companys
primary errors and omissions insurance carrier was Reliance
Insurance Company (of Illinois and California, collectively
Reliance). The Company had six open claims that were
covered by Reliance policies upon the exhaustion of a
self-insured retention.

In October 2001, Reliance was placed in
liquidation by order of the Commonwealth of Pennsylvania, which
casts doubt on the recovery from Reliance of the Companys
open claims. The Company has established loss reserves for the
estimated settlement costs of the claims. The Company is seeking
reimbursement for the costs of defense, settlement and/or
judgment on these claims both from appropriate state insurance
guaranty associations and from the liquidator. The Company is
unable to estimate the probability and timing of any potential
reimbursement at this time, and therefore, has not assumed any
potential recoveries in establishing its reserves.

Executive Change of Control Plan

In December 2002, the Company was named as a
defendant in a complaint filed by an executive officer of the
Company in the Eastern Division of the U.S. District Court for
the Northern District of Illinois, pursuant to which such
executive officer sought a determination whether a change
of control had occurred at the Company, as that term is
defined in the Companys Executive Change of Control Plan.
On March 6, 2003, the Company settled the lawsuit for the
amount of the plaintiffs legal fees and the case was
dismissed without prejudice.

Sales Tax on Client Purchases

Grubb & Ellis Management Services, Inc. v.
Connecticut Department of Revenue
Services, was filed in the Connecticut
Superior Court, Tax Session, Judicial District of New Britain,
in October 2002 to appeal an assessment of sales tax
against the Company related to purchases made on behalf of the
Companys clients from 1993 through 1996. The Company filed
this judicial appeal after exhausting its administrative appeal
remedy within the Department of Revenue Services. There is no
dispute that the state collected all appropriate sales tax when
the vendors initially provided goods or services to the
properties managed by the Company. The Company claims that no
additional sales tax is owed where the property owners later
replenished the operating accounts that were managed by the
Company and used to pay the vendors.

The Company has, and intends to continue to,
vigorously pursue its appeal of the sales tax assessment. The
Company believes it has a meritorious basis to contest the
assessment, and any future assessment arising out of a recent
notice that the Connecticut Department of Revenue also intends
to audit the 2000-2003 time period. Based upon available
information, the Company believes that the outcome of this
appeal will not have a material adverse effect on the
Companys consolidated financial position or results of
operations.

General

The Company is involved in various other claims
and lawsuits arising out of the conduct of its business, as well
as in connection with its participation in various joint
ventures and partnerships, many of which may not be covered by
the Companys insurance policies. In the opinion of
management, the eventual outcome of such claims and lawsuits is
not expected to have a material adverse effect on the
Companys financial position or results of operations.

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

14. Concentration of Credit
Risk

Financial instruments that potentially subject
the Company to credit risk consist principally of trade
receivables and interest-bearing investments. Users of real
estate services account for a substantial portion of trade
receivables and collateral is generally not required. The risk
associated with this concentration is limited due to the large
number of users and their geographic dispersion.

The Company places substantially all of its
interest-bearing investments with major financial institutions
and limits the amount of credit exposure with any one financial
institution.

The Company believes it has limited exposure to
the extent of non-performance by the counterparties of each
interest rate swap agreement as each counterparty is a major
financial institution and, accordingly, the Company does not
anticipate their non-performance.

15. Self-Tender Offer

On December 15, 2000, the Company commenced
a self-tender offer to purchase up to 7.0 million shares of
its outstanding common stock at a price of $7 per share in cash.
Shares issuable upon the exercise of outstanding stock options
and warrants were also eligible for the buyback. On
January 25, 2001 the Company announced the expiration of
the offer period.

The Company subsequently disbursed net proceeds
of approximately $48.8 million to buy back and concurrently
retire approximately 7.0 million shares of common stock,
including 281,901 shares from options exercised by option
holders, and fund direct costs of the self-tender offer.

Holders of the Companys outstanding stock
warrants chose not to exercise such warrants and tender any
underlying shares in respect of the warrants. The tender offer
was financed through a $40 million term loan (See
Note 5 of Notes to Consolidated Financial Statements.) and
$8.8 million of the Companys cash reserves. Direct
expenses totaling approximately $795,000 related to the tender
offer were charged to stockholders equity during the
fiscal year ended June 30, 2001.

The option exercises, and the subsequent
repurchase of the resulting shares by the Company through the
completion of the tender offer, resulted in non-recurring
compensation expense of approximately $970,000 to the Company
during the quarter ended March 31, 2001. APB Opinion
No. 25, Accounting for Stock Issued to Employees, and
related interpretations require that compensation expense be
recognized to the extent that the fair value of stock
repurchased by a company exceeds the exercise price of the
underlying option, whenever such purchases are made within six
months of the option exercise date.

16. Severance, Office Closure and Other
Special Charges

During the fiscal year ended June 30, 2003,
the Company recorded special charges totaling $9.5 million,
consisting primarily of severance costs of $6.3 million
related to the resignations of the Companys former Chief
Executive Officer, Chief Financial Officer, Chief Operation
Officer, and General Counsel, and to a reduction of other
salaried personnel, and office closure costs of
$3.2 million. Office closure costs consist primarily of
future lease obligations of office space by the Company, net of
estimated sublease income, along with related unamortized
leasehold improvements. As of June 30, 2003, remaining
future net lease obligations, including those which arose in
prior years, totaled approximately $2.6 million.

During the fiscal year ended June 30, 2002,
the Company concluded long standing litigation proceedings on
the John W. Matthews, et al. v Kidder,
Peabody & Co., et al. and HSM Inc., et al.(Matthews) case for which it had previously
recorded loss reserves. (See Note 13 of Notes to
Consolidated Financial Statements.) In addition, during this
period, loss reserves were recorded as a result of the
liquidation proceedings surrounding one of the Companys
insurance carriers (Reliance liquidation). (See
Note 13 of Notes to Consolidated Financial Statements.) The
positive outcome of the Matthews case, partially offset by the
additional exposure on the Reliance liquidation, resulted in
$2.2 million of net income from claim related reserves. The
Company also incurred other special charges totaling

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



16. Severance, Office Closure and Other
Special Charges(Continued)


$500,000 related to a write-down of the carrying
basis of an investment in a commercial real estate services
internet venture. The Companys decision to write-down its
interest in the venture was due to a dilution in the
Companys ownership position, as well as uncertainty in the
ventures ability to achieve its business plan. The Company
recorded additional special charges of $3.4 million,
consisting of $1.0 million of severance costs related to a
reduction of salaried personnel, $2.1 million related to
office closure costs and $300,000 related to costs incurred for
the retirement of the Warburg Pincus $5,000,000 Subordinated
Note and for the evaluation of an unsolicited purchase offer
from a third party. As a result of these events, the Company
recognized a net special charge of $1,749,000 in the fiscal year
ended June 30, 2002.

In accordance with Financial Accounting Standards
No. 121 Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed of, the
net carrying value of goodwill is reviewed by management if
facts and circumstances suggest that an impairment may exist.
Such impairment was identified related to the remaining goodwill
associated with the April 1998 acquisition of White
Commercial Real Estate. A significant majority of the sales
force terminated their relationship with the Company, and the
office was subsequently closed with the remaining staff
relocated to the Oakland, California office. The Company
believed that the future estimated undiscounted cash flows of
this operation were not sufficient to support the carrying value
of such goodwill, and wrote off the remaining asset totaling
$2,150,000 to other special charges in the fiscal year ended
June 30, 2001.

The Company also incurred other special charges
in the fiscal year ended June 30, 2001 totaling $736,000,
primarily professional services fees, related to its review of
strategic initiatives, including potential acquisitions, sales
and mergers, $970,000 of stock option compensation expense
related to the in the money portion of the options exercised in
connection with the Companys self-tender offer, $1,516,000
of executive severance costs related to senior management
changes, and $850,000 related to a write-down of the carrying
basis of an investment in commercial real estate services
internet venture.

17. Change in Accounting
Principle

In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements
(SAB 101). SAB 101 summarizes the SEC
staffs views regarding the recognition and reporting of
revenues in financial statements. At June 30, 2001, the
Company changed its method of accounting for revenue recognition
for leasing commissions and consulting fees, in compliance with
SAB 101, and reported such change as a cumulative effect of
a change in accounting principle, effective July 1, 2000.
As such, operating results for the years ended June 30,
2003, 2002 and 2001 are presented in compliance with the
requirements of this accounting change. Historically, the
Company had recognized leasing commissions at the earlier of
receipt of full payment or receipt of partial payment when lease
and commissions agreements had been executed and no significant
contingencies existed. The Company had recognized consulting
fees as employee time was incurred on a project. Under the new
accounting method, adopted retroactive to July 1, 2000, the
Companys leasing commissions that are payable upon certain
events such as tenant occupancy or commencement of rent will now
be recognized upon the occurrence of such events. In addition,
consulting fees will be recognized under SAB 101 generally upon
the delivery of agreed upon services to the client. While this
accounting change affects the timing of recognition of leasing
and consulting revenues (and corresponding services commission
expense), it does not impact the Companys cash flow from
operations.

The cumulative effect of the accounting change
for years prior to fiscal year 2001 resulted in a reduction to
income for 2001 of $3.1 million, net of applicable taxes of
$2.1 million. The effect of the change in fiscal year 2001
was to increase revenues by $2.6 million and income before
the cumulative effect of the accounting change by $632,000, or
$.04 per diluted common share.

For the fiscal years ended June 30, 2002 and
2001, the Company recognized revenue, net of related services
commission expense, totaling $319,000 and $4.1 million,
respectively, that was included in the $5.2 million pre-tax

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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



17. Change in Accounting
Principle(Continued)


cumulative effect adjustment at July 1,
2000. The Company did not recognize any revenue that was
included in the cumulative effect adjustment during the fiscal
year ended June 30, 2003.

18. Business Acquisitions and Related
Indebtedness

Fiscal 2003 Acquisition

Effective as of April 1, 2003, the Company
entered into a series of agreements which altered the structure
of the Companys transaction services operations in
Phoenix, Arizona, effectively transferring its existing Phoenix
commercial transaction services business to a newly-formed
entity whose majority owners are the real estate salespersons
previously employed by the Company in its Phoenix office. As
part of the overall transaction, this new entity signed an
agreement pursuant to which it shall participate in the
Companys affiliate program. The fees received by the
Company from this affiliate agreement will comprise the revenues
earned from the new Phoenix structure, as the gross operations
of the office will no longer be reflected in the Companys
future financial statements (other than revenue earned from
trailing contracts the Company retained). The Company also
obtained the right to acquire a minority interest in this entity
for $400,000, which right it exercised in May 2003.

Fiscal 2002 Acquisition

In February 2002, the Company acquired
substantially all of the assets of the Wadley-Donovan Group,
Inc., a professional real estate services firm located in
northern New Jersey. Wadley-Donovan Group, Inc. specializes in
site selection, consulting and providing economic development
strategies primarily for Fortune 100 companies and state,
local and regional government agencies and municipalities.
Consideration given to the seller at closing equaled
$2.3 million. The Company has recorded the acquisition
under the purchase method of accounting. All operations
subsequent to the acquisition date are reflected in the
Companys financial statements. Substantially all of the
purchase price was allocated to goodwill.

19. Segment Information

The Company has two reportable segments -
Transaction Services and Management Services.

The Transaction Services segment advises buyers,
sellers, landlords and tenants on the sale, leasing and
valuation of commercial property and includes the Companys
national accounts groups and national affiliate program
operations.

The Management Services segment provides property
management and related services for owners of investment
properties and facilities management services for corporate
users.

The fundamental distinction between the
Transaction Services and Management Services segments lies in
the nature of the revenue streams and related cost structures.
Transaction Services generates revenues primarily on a
commission or project fee basis. Therefore, the personnel
responsible for providing these services are compensated
primarily on a commission basis. The Management Services
revenues are generated primarily by long term (one year or more)
contractual fee arrangements. Therefore, the personnel
responsible for delivering these services are compensated
primarily on a salaried basis.

The Company evaluates segment performance and
allocates resources based on earnings before interest, taxes,
depreciation and amortization, and other special charges
(EBITDA) that include an allocation (primarily based
on segment revenue) of certain corporate level administrative
expenses (amounts in thousands). In evaluating segment
performance, the Companys management utilizes EBITDA as a
measure of the segments ability to generate cash flow from
its operations. Other items contained within the measurement of
net income, such as interest and taxes, and special charges, are
generated and managed at the corporate administration level
rather than the segment level. In addition, net income measures
also include non-cash amounts such as depreciation and
amortization expense.

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GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



19. Segment
Information(Continued)


Management believes that EBITDA as presented with
respect to the Companys reportable segments is an
important measure of cash generated by the Companys
operating activities. EBITDA is similar to net cash flow from
operations because it excludes certain non-cash items, however,
it also excludes interest and income taxes. Management believes
that EBITDA is relevant because it assists investors in
evaluating the Companys ability to service its debt by
providing a commonly used measure of cash available to pay
interest. EBITDA should not be considered as an alternative to
net income (loss) or cash flows from operating activities (which
are determined in accordance with GAAP), as an indicator of
operating performance or a measure of liquidity. EBITDA also
facilitates comparison of the Companys results of
operations with those companies having different capital
structures. Other companies may define EBITDA differently, and,
as a result, such measures may not be comparable to the
Companys EBITDA.

|                                |                |                        |   |         |            |  |   |         |   |  |   |         |  
|------------------------------- | -------------- | ---------------------- | - | ------- | ---------- |  | - | ------- | - |  | - | ------- | -
|                                |                | Transaction            |   |         | Management |  |   | Company |  
|                                |                | Services               |   |         | Services   |  |   | Totals  |  
|                                |                |                        |   |         |            |  |   |         |  
|                                |                |                       
|                                |                | (amounts in thousands) |  
|Fiscal year ended June 30, 2003 |                |                        |   |         |            |  |   |         |   |  |   |        
|                                | Total Revenues |                        | $ | 240,916 |            |  | $ | 185,030 |   |  | $ | 425,946 |  
|                                | EBITDA         |                        |   | 4,893   |            |  |   | 751     |   |  |   | 5,644   |  
|                                | Total Assets   |                        |   | 56,191  |            |  |   | 18,242  |   |  |   | 74,433  |  
|Fiscal year ended June 30, 2002 |                |                        |   |         |            |  |   |         |   |  |   |        
|                                | Total Revenues |                        | $ | 262,077 |            |  | $ | 169,369 |   |  | $ | 431,446 |  
|                                | EBITDA         |                        |   | 598     |            |  |   | (2,347  | ) |  |   | (1,749  | )
|                                | Total Assets   |                        |   | 60,866  |            |  |   | 20,111  |   |  |   | 80,977  |  
|Fiscal year ended June 30, 2001 |                |                        |   |         |            |  |   |         |   |  |   |        
|                                | Total Revenues |                        | $ | 358,462 |            |  | $ | 158,148 |   |  | $ | 516,610 |  
|                                | EBITDA         |                        |   | 32,433  |            |  |   | (4,514  | ) |  |   | 27,919  |  

Reconciliation of Segment EBITDA to Statements
of Operations (in thousands):

|                              |                                   |                            |        |         |      |   |         |         |   |   |         |        | 
|----------------------------- | --------------------------------- | -------------------------- | ------ | ------- | ---- | - | ------- | ------- | - | - | ------- | ------ | 
|                              |                                   |                           
|                              |                                   | Fiscal Year Ended June 30, |       
|                              |                                   |                            |       
|                              |                                   | 2003                       |        |         | 2002 |   |         | 2001    |  
|                              |                                   |                            |        |         |      |   |         |         |  
|Total Segment EBITDA          |                                   | $                          | 5,644  |         |      | $ | (1,749  | )       |   | $ | 27,919  |       
|Less:                         |                                   |                            |        |         |      |   |         |         |   |   |         |       
|Depreciation & amortization   |                                   |                            | (7,960 | )       |      |   | (10,706 | )       |   |   | (11,635 | )     
|Special charges               |                                   |                            | (9,500 | )       |      |   | (1,749  | )       |   |   | (6,222  | )     
|Net interest income (expense) |                                   |                            | (2,524 | )       |      |   | (2,460  | )       |   |   | 218     |       
|                              |                                   |                            |        |         |      |   |         |         |  
|                              | Income (loss) before income taxes |                            | $      | (14,340 | )    |   | $       | (16,664 | ) |   | $       | 10,280 | 
|                              |                                   |                            |        |         |      |   |         |         |  

Reconciliation of Segment Assets to Balance
Sheet (in thousands):

|                     |              |                |        |        |      |   |        |        | 
|-------------------- | ------------ | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                     |              |               
|                     |              | As of June 30, |       
|                     |              |                |       
|                     |              | 2003           |        |        | 2002 |  
|                     |              |                |        |        |      |  
|Total segment assets |              | $              | 74,433 |        |      | $ | 80,977 |       
|Current tax assets   |              |                | 669    |        |      |   | 6,890  |       
|Deferred tax assets  |              |                |       |        |      |   | 2,510  |       
|                     |              |                |        |        |      |  
|                     | Total Assets |                | $      | 75,102 |      |   | $      | 90,377 | 
|                     |              |                |        |        |      |  

45



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

20. Selected Quarterly Financial Data
(unaudited)

|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |        |  |   |              |        | 
|----------------------------------------------- | ---------------------------------------------- | ---------------------------------------- | ------------ | ------ | -------------- | - | ------------ | ------------- |  | - | -------------- | ------ |  | - | ------------ | ------ | 
|                                                |                                                |                                         
|                                                |                                                | Fiscal Year Ended June 30, 2003          |             
|                                                |                                                | (in thousands, except per share amounts) |             
|                                                |                                                |                                          |             
|                                                |                                                | First Quarter                            |              |        | Second Quarter |   |              | Third Quarter |  |   | Fourth Quarter |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Operating revenue                               |                                                | $                                        | 107,810      |        |                | $ | 123,196      |               |  | $ | 98,390         |        |  | $ | 96,550       |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Operating income (loss)                         |                                                | $                                        | (2,762       | )      |                | $ | 3,304        |               |  | $ | (12,490        | )      |  | $ | 132          |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Net (loss) income to common stockholders        |                                                | $                                        | (2,276       | )      |                | $ | 1,354        |               |  | $ | (16,110        | )      |  | $ | (870         | )     
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Income (loss) per common share:                 |                                                |                                          |              |        |                |   |              |               |  |   |                |        |  |   |              |       
|Basic                                          |                                                | $                                        | (0.15        | )      |                | $ | 0.09         |               |  | $ | (1.06          | )      |  | $ | (0.06        | )     
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|                                                | Weighted average common
    shares outstanding |                                          |              | 15,072 |                |   |              | 15,110        |  |   |                | 15,140 |  |   |              | 15,085 | 
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Diluted                                        |                                                | $                                        | (0.15        | )      |                | $ | 0.09         |               |  | $ | (1.06          | )      |  | $ | (0.06        | )     
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|                                                | Weighted average common
    shares outstanding |                                          |              | 15,072 |                |   |              | 15,110        |  |   |                | 15,140 |  |   |              | 15,085 | 
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|EBITDA                                          |                                                | $                                        | 185          |        |                | $ | 6,248        |               |  | $ | (2,816         | )      |  | $ | 2,027        |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Common stock market
    price range (high: low) |                                                | $                                        | 2.75 :
$1.20 |        |                | $ | 2.50 : $1.01 |               |  | $ | 1.75 : $0.80   |        |  | $ | 2.05 : $1.17 |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       

|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |        |  |   |              |        | 
|----------------------------------------------- | ---------------------------------------------- | ---------------------------------------- | ------------ | ------ | -------------- | - | ------------ | ------------- |  | - | -------------- | ------ |  | - | ------------ | ------ | 
|                                                |                                                |                                         
|                                                |                                                | Fiscal Year Ended June 30, 2002          |             
|                                                |                                                | (in thousands, except per share amounts) |             
|                                                |                                                |                                          |             
|                                                |                                                | First Quarter                            |              |        | Second Quarter |   |              | Third Quarter |  |   | Fourth Quarter |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Operating revenue                               |                                                | $                                        | 103,803      |        |                | $ | 129,962      |               |  | $ | 89,738         |        |  | $ | 107,943      |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Operating income (loss)                         |                                                | $                                        | (3,373       | )      |                | $ | 3,230        |               |  | $ | (10,780        | )      |  | $ | (3,281       | )     
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Net (loss) income to common stockholders        |                                                | $                                        | (2,266       | )      |                | $ | 1,294        |               |  | $ | (6,586         | )      |  | $ | (7,919       | )     
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Income (loss) per common share:                 |                                                |                                          |              |        |                |   |              |               |  |   |                |        |  |   |              |       
|Basic                                          |                                                | $                                        | (0.17        | )      |                | $ | 0.10         |               |  | $ | (0.45          | )      |  | $ | (0.53        | )     
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|                                                | Weighted average common
    shares outstanding |                                          |              | 13,447 |                |   |              | 13,545        |  |   |                | 14,585 |  |   |              | 15,032 | 
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Diluted                                        |                                                | $                                        | (0.17        | )      |                | $ | 0.09         |               |  | $ | (0.45          | )      |  | $ | (0.53        | )     
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|                                                | Weighted average common
    shares outstanding |                                          |              | 13,447 |                |   |              | 13,679        |  |   |                | 14,585 |  |   |              | 15,032 | 
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|EBITDA                                          |                                                | $                                        | (573         | )      |                | $ | 4,320        |               |  | $ | (5,715         | )      |  | $ | 219          |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Common stock market
    price range (high: low) |                                                | $                                        | 5.40 :
$3.35 |        |                | $ | 4.10 : $2.31 |               |  | $ | 3.10 : $2.35   |        |  | $ | 4.25 : $2.30 |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       

46



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)






Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure


None.






Item 9A. Controls and
Procedures


Effective as of June 30, 2003, the Company
carried out an evaluation, under the supervision and with the
participation of management, including the Co-Chief Executive
Officers and the Chief Financial Officer, of the effectiveness
of the Companys disclosure controls and procedures (as
defined in Rules 13a 15e under the Exchange Act).
Based upon that evaluation, the Companys Co-Chief
Executive Officers and Chief Financial Officer have concluded
that the Companys disclosure controls and procedures are
effective to timely alert them to material information relating
to the Company (including its consolidated subsidiaries)
required to be included in the Companys Exchange Act
filings. There were no significant changes in the Companys
internal controls or in other factors that could significantly
affect those controls subsequent to the date of the evaluation.

GRUBB & ELLIS COMPANY






PART III







Item 10. Directors and Executive
Officers of the Registrant


The information called for by Item 10 is
incorporated by reference from the registrants definitive
proxy statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 (the Exchange
Act) no later than 120 days after the end of the 2003
fiscal year.






Item 11. Executive
Compensation


The information called for by Item 11 is
incorporated by reference from the registrants definitive
proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act no later than 120 days after the end
of the 2003 fiscal year.






Item 12. Security Ownership of
Certain Beneficial Owners and Management


The information called for by Item 12 is
incorporated by reference from the registrants definitive
proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act no later than 120 days after the end
of the 2003 fiscal year.






Item 13. Certain Relationships and
Related Transactions


The information called for by Item 13 is
incorporated by reference from the registrants definitive
proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act no later than 120 days after the end
of the 2003 fiscal year.

47



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##### Table of Contents



GRUBB & ELLIS COMPANY






PART IV







Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K


(a)The
following documents are filed as part of this report:



|   |                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------
|1. | The following Report of Independent Auditors and
    Consolidated Financial Statements are submitted herewith:

Report of Independent Auditors

Consolidated Balance Sheets at June 30, 2003
and June 30, 2002.

Consolidated Statements of Operations for the
years ended June 30, 2003, 2002 and 2001.

Consolidated Statements of Stockholders
Equity for the years ended June 30, 2003, 2002 and 2001.

Consolidated Statements of Cash Flows for the
years ended June 30, 2003, 2002 and 2001.



| |                                            
| | -------------------------------------------
| | Notes to Consolidated Financial Statements.



|   |                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | All schedules for which provision is made in the
    applicable accounting regulations of the Securities and Exchange
    Commission are not required under the related instructions, are
    inapplicable, or the information is contained in the Notes to
    Consolidated Financial Statements and therefore have been
    omitted.
|  
|3. | Exhibits required to be filed by Item 601 of
    Regulation S-K:                                                                                                                                                                                                                                                                      

(3) Articles of Incorporation and
Bylaws

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Certificate of Incorporation of the Registrant as
    restated to include all amendments through November 1,
    1994, which was filed with the Delaware Secretary of State on
    May 19, 1995, incorporated herein by reference to
    Exhibit 3.2 to the Registrants Annual Report on
    Form 10-K filed on March 31, 1995.                                                                                                                                              
|3.2 |  | Amendment to the Restated Certificate of
    Incorporation of the Registrant as filed with the Delaware
    Secretary of State on December 9, 1997, incorporated herein
    by reference to Exhibit 4.4 to the Registrants
    Statement on Form S-8 filed on December 19, 1997 (File
    No. 333-42741).                                                                                                                                                                    
|3.3 |  | Certificate of Retirement with Respect to 130,233
    Shares of Junior Convertible Preferred Stock of Grubb &
    Ellis Company, filed with the Delaware Secretary of State on
    January 22, 1997, incorporated herein by reference to
    Exhibit 3.3 to the Registrants Quarterly Report on
    Form 10-Q filed on February 13, 1997.                                                                                                                                    
|3.4 |  | Certificate of Retirement with Respect to 8,894
    Shares of Series A Senior Convertible Preferred Stock,
    128,266 Shares of Series B Senior Convertible Preferred
    Stock, and 19,767 Shares of Junior Convertible Preferred Stock
    of Grubb & Ellis Company, filed with the Delaware
    Secretary State on January 22, 1997, incorporated herein by
    reference to Exhibit 3.4 to the Registrants Quarterly
    Report on Form 10-Q filed on February 13, 1997.
|3.5 |  | Certificate of Designations, Number, Voting
    Powers, Preferences and Rights of Series A Preferred Stock
    of the Registrant as filed with the Secretary of State of the
    State of Delaware on March 8, 2002 incorporated herein by
    reference to Exhibit 4 to the Registrants Current
    Report on Form 8-K filed on March 12, 2002.                                                                                                                             
|3.6 |  | Certificate of Amendment of Certificate of
    Designations, Number, Voting Powers, Preferences and Rights of
    Series A Preferred Stock of Grubb & Ellis Company,
    incorporated herein by reference to Exhibit 4 to the
    Registrants Current Report on Form 8-K filed on
    May 14, 2002.                                                                                                                                                                          
|3.7 |  | Bylaws of the Registrant, as amended and restated
    effective May 31, 2000, incorporated herein by reference to
    Exhibit 3.5 to the Registrants Annual Report on
    Form 10-K filed on September 28, 2000.                                                                                                                                                                                                                                                             
|3.8 |  | Amended and Restated Certificate of Designations,
    Number, Voting Powers, Preferences and Rights of Series A
    Preferred Stock of Grubb & Ellis Company, as filed with
    the Secretary of State of Delaware on September 13, 2002
    incorporated herein by reference to Exhibit 3.8 to the
    Registrants Annual Report on Form 10-K filed on
    October 15, 2002.                                                                                                

48



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##### Table of Contents



(4) Instruments Defining the Rights of
Security Holders, including Indentures.

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1  |  | Stock Purchase Agreement dated as of
    December 11, 1996 among the Registrant, Mike Kojaian,
    Kenneth J. Kojaian and C. Michael Kojaian,
    incorporated herein by reference to Exhibit 4.3 to the
    Registrants Current Report on Form 8-K filed on
    December 20, 1996.                                                                                                                                                                                              
|4.2  |  | Registration Rights Agreement dated as of
    December 11, 1996 among the Registrant, Warburg, Pincus
    Investors, L.P., Joe F. Hanauer, Mike Kojaian,
    Kenneth J. Kojaian and C. Michael Kojaian,
    incorporated herein by reference to Exhibit 4.1 to the
    Registrants Current Report on Form 8-K filed on
    December 20, 1996.                                                                                                                                    
|4.3  |  | Purchase Agreement dated as of January 24,
    1997 between the Registrant and Warburg, Pincus Investors, L.P.,
    incorporated herein by reference to Exhibit 4.1 to the
    Registrants Current Report on Form 8-K filed on
    February 4, 1997.                                                                                                                                                                                                                             
|4.4  |  | Stock Purchase Agreement dated as of
    January 24, 1997 between the Registrant and Archon Group,
    L.P., incorporated herein by reference to Exhibit 4.2 to
    the Registrants Current Report on Form 8-K filed on
    February 4, 1997.                                                                                                                                                                                                                                    
|4.5  |  | Registration Rights Agreement dated as of
    January 24, 1997 between the Registrant and Archon Group,
    L.P., incorporated herein by reference to Exhibit 4.3 to
    the Registrants Current Report on Form 8-K filed on
    February 4, 1997.                                                                                                                                                                                                                               
|4.6  |  | Securities Purchase Agreement dated May 13,
    2002 by and between Grubb & Ellis Company and Kojaian
    Ventures, L.L.C., incorporated herein by reference to
    Exhibit 2 to the Registrants Current Report on
    Form 8-K filed on May 14, 2002.                                                                                                                                                                                                                           
|4.7  |  | Convertible Subordinated Promissory Note and
    Security Agreement in the principal amount of $11,237,500 dated
    May 13, 2002 and executed by Grubb & Ellis
    Company, incorporated herein by reference to Exhibit 3 to
    the Registrants Current Report on Form 8-K filed on
    May 14, 2002.                                                                                                                                                                          
|4.8  |  | Stock Subscription Warrant No. A-1 dated
    July 30, 1999 issued to Aegon USA Realty Advisors, Inc.,
    incorporated herein by reference to Exhibit 4.20 to the
    Registrants Annual Report on Form 10-K filed on
    September 28, 1999.                                                                                                                                                                                                                                    
|4.9  |  | Amended and Restated Credit Agreement among the
    Registrant, the other financial institutions from time to time
    parties thereto, Bank of America, N.A., American National Bank
    and Trust Company of Chicago and LaSalle Bank National
    Association, dated as of December 31, 2000, incorporated
    herein by reference to Exhibit (b)(1) to the
    Registrants Amendment No. 2 to Tender Offer Statement
    on Schedule TO/ A filed on January 10, 2001.        
|4.10 |  | Note executed by the Registrant in favor of Bank
    of America, N.A. dated as of December 31, 2000,
    incorporated herein by reference to Exhibit (b)(2) to the
    Registrants Amendment No. 2 to Tender Offer Statement
    on Schedule TO/A filed on January 10, 2001.                                                                                                                                                                                                     
|4.11 |  | Note executed by the Registrant in favor of
    LaSalle Bank National Association dated as of December 31,
    2000, incorporated herein by reference to Exhibit (b)(3) to
    the Registrants Amendment No. 2 to Tender Offer
    Statement on Schedule TO/ A filed on January 10, 2001.                                                                                                                                                                                        
|4.12 |  | Note executed by the Registrant in favor of
    American National Bank and Trust Company of Chicago dated as of
    December 31, 2000, incorporated herein by reference to
    Exhibit (b)(4) to the Registrants Amendment
    No. 2 to Tender Offer Statement on Schedule TO/ A
    filed on January 10, 2001.                                                                                                                                                                  
|4.13 |  | Swingline Loan Note executed by the Registrant in
    favor of Bank of America, N.A. in the amount of $2,000,000 dated
    as of December 31, 2000, incorporated herein by reference
    to Exhibit (b)(5) to the Registrants Amendment
    No. 2 to Tender Offer Statement on Schedule TO/A filed
    on January 10, 2001.                                                                                                                                                      
|4.14 |  | First Amendment dated August 22, 2001 to
    Amended and Restated Credit Agreement among the Registrant, the
    other financial institutions from time to time parties thereto,
    Bank of America, N.A., American National Bank and Trust Company
    of Chicago and LaSalle Bank National Association, dated as of
    December 31, 2000, incorporated herein by reference to
    Exhibit 4.19 to the Registrants Annual Report on
    Form 10-K filed on September 28, 2001.

49



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##### Table of Contents



|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.15 |  | Second Amendment dated November 29, 2001 to
    Amended and Restated Credit Agreement among the Registrant, the
    other financial institutions from time to time parties thereto,
    Bank of America, N.A., American National Bank and Trust Company
    of Chicago and LaSalle Bank National Association, dated as of
    December 31, 2000 incorporated herein by reference to
    Exhibit 4.1 to the Registrants Quarterly Report on
    Form 10-Q filed on February 14, 2002.
|4.16 |  | Third Amendment dated March 7, 2002 to
    Amended and Restated Credit Agreement dated as of
    December 31, 2000 by and among the Registrant, various
    financial institutions, and Bank of America, N.A., as
    Administrative Agent incorporated herein by reference to
    Exhibit 1 to the Registrants Current Report on
    Form 8-K filed on March 12, 2002.                                                                                                             
|4.17 |  | Form of Subordination Agreement, executed by
    Warburg, Pincus Investors, L.P. in favor of Bank of America,
    N.A., as Agent, and the Lenders, which is an Exhibit to the
    Option Purchase Agreement incorporated herein by reference to
    Exhibit 2 to the Registrants Current Report on
    Form 8-K filed on March 12, 2002.                                                                                                                                            
|4.18 |  | Option Purchase Agreement dated March 7,
    2002 by and among the Registrant, Warburg, Pincus Investors,
    L.P. and Bank of America, N.A., as Administrative Agent
    incorporated herein by reference to Exhibit 3 to the
    Registrants Current Report on Form 8-K filed on
    March 12, 2002.                                                                                                                                                                              
|4.19 |  | Fourth Amendment dated as of May 13, 2002 to
    the Amended and Restated Credit Agreement among the Registrant,
    the other financial institutions from time to time parties
    thereto, Bank of America, N.A., American National Bank and Trust
    Company of Chicago and LaSalle Bank National Association, dated
    as of December 31, 2000, incorporated herein by reference
    to Exhibit 5 to the Registrants Current Report on
    Form 8-K filed on May 14, 2002.    
|4.20 |  | Form of Waiver executed by Bank of America, N.A.,
    LaSalle Bank National Association and Bank One, N.A., and the
    Registrant, dated December 20, 2002, incorporated herein by
    reference to Exhibit 1 to the Registrants Current
    Report on Form 8-K filed on January 10, 2003.                                                                                                                                                                                         
|4.21 |  | Form of Waiver executed by Bank of America, N.A.,
    LaSalle Bank National Association and Bank One, N.A., and the
    Registrant, dated March 26, 2003, incorporated herein by
    reference to Exhibit 6 to the Registrants Current
    Report on Form 8-K filed on March 27, 2003.                                                                                                                                                                                              
|4.22 |  | Form of Waiver executed by Bank of America, N.A.,
    LaSalle Bank National Association and Bank One, N.A., and the
    Registrant, dated May 1, 2003, incorporated herein by
    reference to Exhibit 1 to the Registrants Current
    Report on Form 8-K filed on May 2, 2003.                                                                                                                                                                                                    
|4.23 |  | Form of Waiver executed by Bank of America, N.A.,
    LaSalle Bank National Association and Bank One, N.A., and the
    Registrant, dated May 30, 2003, incorporated herein by
    reference to Exhibit 1 to the Registrants Current
    Report on Form 8-K filed on June 13, 2003.                                                                                                                                                                                                 
|4.24 |  | Form of Waiver executed by Kojaian Capital,
    L.L.C. and the Registrant, dated June 6, 2003, incorporated
    herein by reference to Exhibit 2 to the Registrants
    Current Report on Form 8-K filed on June 13, 2003.                                                                                                                                                                                                                                                          
|4.25 |  | Sixth Amendment dated as of June 20, 2003 to
    the Amended and Restated Credit Agreement among the Registrant
    and Kojaian Capital, L.L.C., dated as of December 31, 2000
    incorporated herein by reference to Exhibit 1 to the
    Registrants Current Report on Form 8-K filed on
    June 23, 2003.                                                                                                                                                                      
|4.26 |  | Copy of $5,000,000 Convertible Promissory Note
    and Security Agreement dated March 7, 2002 issued by the
    Registrant to Warburg, Pincus Investors, L.P. incorporated
    herein by reference to Exhibit 5 to the Registrants
    Current Report on Form 8-K filed on March 12, 2002.                                                                                                                                                                                          
|4.27 |  | Form of $6,000,000 Convertible Promissory Note
    and Security Agreement of the Registrant which is an Exhibit to
    the Option Purchase Agreement to be payable to the order of
    Warburg, Pincus Investors, L.P. incorporated herein by reference
    to Exhibit 6 to the Registrants Current Report on
    Form 8-K filed on March 12, 2002 (Commission File
    No. 1-8122).                                                                                                
|4.28 |  | Securities Purchase Agreement dated May 13,
    2002 by and between Grubb & Ellis Company and Kojaian
    Ventures, L.L.C., incorporated herein by reference to
    Exhibit 2 to the Registrants Current Report on
    Form 8-K filed on May 14, 2002.                                                                                                                                                                                                                              

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|     |  |                                                                                                                                                                                                                                                                                                                                
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.29 |  | Copy of Convertible Subordinated Promissory Note
    and Security Agreement in the principal amount of $11,237,500
    dated May 13, 2002 issued by the Registrant to Kojaian
    Ventures, L.L.C., incorporated herein by reference to
    Exhibit 3 to the Registrants Current Report on
    Form 8-K filed on May 14, 2002.
|4.30 |  | Copy of Promissory Note in the principal amount
    of $4,000,000 dated May 9, 2003 issued by the Registrant to
    Kojaian Funding, L.L.C., incorporated herein by reference to
    Exhibit 4.7 to the Registrants Quarterly Report on
    Form 10-Q filed on May 20, 2003.                                                  
|4.31 |  | Copy of Guarantee and Collateral Agreement by the
    Registrant and certain of its Subsidiaries in favor of Kojaian
    Funding, L.L.C., as Lender, dated as of May 9, 2003,
    incorporated herein by reference to Exhibit 4.8 to the
    Registrants Quarterly Report on Form 10-Q filed on
    May 20, 2003.             
|4.32 |  | Copy of Security Agreement by the Registrant in
    favor of Kojaian Funding, L.L.C., as Lender, dated as of
    May 9, 2003, incorporated herein by reference to
    Exhibit 4.9 to the Registrants Quarterly Report on
    Form 10-Q filed on May 20, 2003.                                                                 
|4.33 |  | Copy of Subordination Agreement executed by
    Kojaian Funding, L.L.C. in favor of Bank of America, as Agent,
    and the Lenders, dated as of May 9, 2003, incorporated
    herein by reference to Exhibit 4.10 to the
    Registrants Quarterly Report on Form 10-Q filed on
    May 20, 2003.                             
|4.34 |  | Copy of Side Letter Agreement executed by the
    Registrant, dated as of May 9, 2003, incorporated herein by
    reference to Exhibit 4.11 to the Registrants
    Quarterly Report on Form 10-Q filed on May 20, 2003.                                                                                                       
|4.35 |  | Copy of Side Letter Agreement executed by the
    Registrant, dated as of May 9, 2003, incorporated herein by
    reference to Exhibit 4.12 to the Registrants
    Quarterly Report on Form 10-Q filed on May 20, 2003.                                                                                                       

On an individual basis, instruments other than
Exhibits listed above under Exhibit 4 defining the rights
of holders of long-term debt of the Registrant and its
consolidated subsidiaries and partnerships do not exceed ten
percent of total consolidated assets and are, therefore,
omitted; however, the Company will furnish supplementally to the
Commission any such omitted instrument upon request.

(10) Material Contracts

| |       |  |  |                                                                                                                                                                                                                                                                                                                               
| | ----- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.1* |  |  | Employment Agreement entered into between
    Barry M. Barovick and the Registrant dated as of
    May 15, 2001, incorporated herein by reference to
    Exhibit 10.1 to the Registrants Quarterly Report on
    Form 10-Q filed on May 12, 2001.                                                                            
| | 10.2* |  |  | Stock Purchase Agreement entered into between
    Barry M. Barovick and the Registrant dated as of
    May 15, 2001, incorporated herein by reference to
    Exhibit 4.8 to the Registrants registration statement
    on Form S-8 filed on June 15, 2001 (File
    No. 333-63136).                                          
| | 10.3* |  |  | Loan Agreement and Retention Bonus Program
    entered into between Barry M. Barovick and the Registrant,
    and Promissory Note executed by Mr. Barovick, dated as of
    May 15, 2001, incorporated herein by reference to
    Exhibit 10.3 to the Registrants Annual Report on
    Form 10-K filed on September 28, 2001.
| | 10.4* |  |  | Separation Agreement entered into between
    Barry M. Barovick and the Registrant dated March 14,
    2003, incorporated herein by reference to Exhibit 3 to the
    Registrants Current Report on Form 8-K filed on
    March 27, 2003.                                                                                    
| | 10.5* |  |  | Employment Agreement entered into between
    Mark R. Costello and the Registrant dated as of
    July 5, 2001, incorporated herein by reference to
    Exhibit 10.4 to the Registrants Annual Report on
    Form 10-K filed on September 28, 2001.                                                                          
| | 10.6* |  |  | Loan Agreement and Retention Bonus Program
    entered into between Mark R. Costello and the Registrant,
    and Promissory Note executed by Mr. Costello, dated as of
    July 23, 2001, incorporated herein by reference to
    Exhibit 10.5 to the Registrants Annual Report on
    Form 10-K filed on September 28, 2001.

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| |        |  |  |                                                                                                                                                                                                                                                                                                      
| | ------ |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.7*  |  |  | Separation Agreement entered into between
    Mark R. Costello and the Registrant, and General Release
    executed by Mr. Costello, dated as of July 12, 2002
    incorporated herein by reference to Exhibit 10.6 to the
    Registrants Annual Report on Form 10-K filed on
    October 15, 2002.
| | 10.8*  |  |  | Employment Agreement entered into between
    Ian Y. Bress and the Registrant dated as of June 18,
    2001, incorporated herein by reference to Exhibit 10.6 to
    the Registrants Annual Report on Form 10-K, filed on
    September 28, 2001.                                                   
| | 10.9*  |  |  | First Amendment to Employment Agreement entered
    into between Ian Y. Bress and the Registrant dated as of
    October 3, 2001, incorporated herein by reference to
    Exhibit 10.1 to the Registrants Quarterly Report on
    Form 10-Q, filed on November 14, 2001.                            
| | 10.10* |  |  | Separation Agreement entered into between
    Ian Y. Bress and the Registrant dated February 28,
    2003, incorporated herein by reference to Exhibit 4 to the
    Registrants Current Report on Form 8-K filed on
    March 27, 2003.                                                             
| | 10.11* |  |  | Employment Agreement entered into between
    Robert J. Walner and the Registrant dated as of
    December 14, 2001, incorporated herein by reference to
    Exhibit 10.1 to the Registrants Quarterly Report on
    Form 10-Q, filed on February 14, 2002.                                         
| | 10.12* |  |  | Separation Agreement entered into between
    Robert J. Walner and the Registrant dated March 10,
    2003, incorporated herein by reference to Exhibit 10.3 to
    the Registrants Quarterly Report on Form 10-Q, filed
    on May 20, 2003.                                                       
| | 10.13* |  |  | Change of Status and Separation Agreement entered
    into between Blake Harbaugh and the Registrant dated as of
    July 26, 2001.                                                                                                                                                                  
| | 10.14* |  |  | Employment Agreement entered into between
    Brian D. Parker and the Registrant dated March 1,
    2003, incorporated herein by reference to Exhibit 5 to the
    Registrants Current Report on Form 8-K filed on
    March 27, 2003.                                                              
| | 10.15* |  |  | First Amendment to Employment Agreement entered
    into between Brian D. Parker and the Registrant dated
    April 1, 2003.                                                                                                                                                                         
| | 10.16* |  |  | Employment Agreement with First Amendment entered
    into between Richard L. Fulton and the Registrant dated
    September 1, 2002 and April 1, 2003, respectively.                                                                                                                                 
| | 10.17* |  |  | Employment Agreement with First and Second
    Amendments entered into between Robert Osbrink and the
    Registrant dated December 21, 2001, August 16, 2002
    and April 1, 2003, respectively.                                                                                                   
| | 10.18* |  |  | Compensation Arrangement Letter between
    Maureen A. Ehrenberg and the Registrant dated May 22,
    2003.                                                                                                                                                                                          
| | 10.19* |  |  | Grubb & Ellis 1990 Amended and Restated Stock
    Option Plan, as amended effective as of June 20, 1997,
    incorporated herein by reference to Exhibit 4.6 to the
    Registrants Registration Statement on Form S-8 filed
    on December 19, 1997 (Registration No. 333-42741).                 
| | 10.20* |  |  | 1993 Stock Option Plan for Outside Directors,
    incorporated herein by reference to Exhibit 4.1 to the
    Registrants registration statement on Form S-8 filed
    on November 12, 1993 (Registration No. 33-71484).                                                                             
| | 10.21* |  |  | First Amendment to the 1993 Stock Option Plan for
    Outside Directors, effective November 19, 1998,
    incorporated herein by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on Form 10-Q filed on
    February 12, 1999.                                                     
| | 10.22* |  |  | Grubb & Ellis 1998 Stock Option Plan,
    effective as of January 13, 1998, incorporated herein by
    reference to Exhibit 10.6 to the Registrants Annual
    Report on Form 10-K filed on September 28, 1999.                                                                                     
| | 10.23* |  |  | First Amendment to the Grubb & Ellis 1998
    Stock Option Plan, effective as of February 10, 2000,
    incorporated herein by reference to Exhibit 10.7 to the
    Registrants Quarterly Report on Form 10-Q filed on
    May 12, 2000.                                                            
| | 10.24* |  |  | Grubb & Ellis Company 2000 Stock Option Plan,
    effective November 16, 2000, incorporated by herein by
    reference to Exhibit 10.2 to the Registrants
    Quarterly Report on Form 10-Q filed on February 14,
    2001.                                                                         

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| |        |  |  |                                                                                                                                                                                                                                                                                                                                             
| | ------ |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.25* |  |  | Description of Grubb & Ellis Company
    Executive Officer Incentive Compensation Plan, incorporated
    herein by reference to Exhibit 10.4 to the
    Registrants Annual Report on Form 10-K filed on
    September 28, 1999.                                                                                                            
| | 10.26* |  |  | Executive Change of Control Plan, effective as of
    May 10, 1999 and attached form of Acknowledgement
    Agreement, incorporated herein by reference to Exhibit 10.7
    to the Registrants Annual Report on Form 10-K filed
    on September 28, 1999.                                                                                 
| | 10.27* |  |  | First Amendment to the Executive Change of
    Control Plan, effective as of February 10, 2000,
    incorporated herein by reference to Exhibit 10.6 to the
    Registrants Quarterly Report on Form 10-Q filed on
    May 12, 2000.                                                                                                       
| | 10.28* |  |  | Second Amendment to the Executive Change of
    Control Plan, effective as of June 1, 2000, and attached
    form of Acknowledgement Agreement, incorporated herein by
    reference to Exhibit 10.12 to the Registrants Annual
    Report on Form 10-K filed on September 28, 2000.                                                       
| | 10.29* |  |  | Executive Incentive Bonus and Severance Plan,
    effective as of June 1, 2000, incorporated herein by
    reference to Exhibit 10.13 to the Registrants Annual
    Report on Form 10-K filed on September 28, 2000.                                                                                                                       
| | 10.30  |  |  | Pledge Agreement between Landauer Realty Group,
    Inc. and Bank of America, N.A., as Administrative Agent, dated
    as of December 31, 2000, incorporated herein by reference
    to Exhibit 10.3 to the Registrants Quarterly Report
    on Form 10-Q filed on February 14, 2001.                                                      
| | 10.31  |  |  | Pledge Agreement between the Registrant and Bank
    of America, N.A., as Administrative Agent, dated as of
    October 15, 1999, incorporated herein by reference to
    Exhibit 10.1 to the Registrants Quarterly Report on
    Form 10-Q filed on November 12, 1999.                                                                    
| | 10.32  |  |  | Pledge Agreement between Grubb & Ellis
    Management Services, Inc. and Bank of America, N.A., as
    Administrative Agent, dated as of October 15, 1999
    incorporated herein by reference to Exhibit 10.2 to the
    Registrants Quarterly Report on Form 10-Q filed on
    November 12, 1999.                                        
| | 10.33  |  |  | Pledge Agreement between HSM Inc. and Bank of
    America, N.A., as Administrative Agent, dated as of
    October 15, 1999 incorporated herein by reference to
    Exhibit 10.3 to the Registrants Quarterly Report on
    Form 10-Q filed on November 12, 1999.                                                                           
| | 10.34  |  |  | Guarantee and Collateral Agreement by the
    Registrant and certain of its Subsidiaries in favor of Bank of
    America, N.A., as Administrative Agent, dated as of
    October 15, 1999 incorporated herein by reference to
    Exhibit 10.4 to the Registrants Quarterly Report on
    Form 10-Q filed on November 12, 1999.            
| | 10.35  |  |  | Collateral Trademark Security Agreement by the
    Registrant in favor of Bank of America, N.A., as Administrative
    Agent, dated as of October 15, 1999 incorporated herein by
    reference to Exhibit 10.5 to the Registrants
    Quarterly Report on Form 10-Q filed on November 12,
    1999.                                       
| | 10.36  |  |  | Letter Agreement dated April 14, 2002 by and
    between the Registrant and Kojaian Ventures, L.L.C.,
    incorporated herein by reference to Exhibit 1 to the
    Registrants Current Report on Form 8-K filed
    April 19, 2002.                                                                                                        
| | 10.37  |  |  | Letter Amendment dated May 13, 2002 by and
    between Grubb & Ellis Company and Kojaian Ventures, L.L.C.,
    incorporated herein by reference to Exhibit 1 to the
    Registrants Current Report on Form 8-K filed
    May 14, 2002.                                                                                                     
| | 10.38  |  |  | Transition Agreement entered into as of
    April 1, 2003, portions of which were omitted pursuant to a
    request for Confidential Treatment under Rule 24(b) of the
    Securities Act of 1934, as amended, incorporated herein by
    reference to Exhibit 2 to the Registrants Current
    Report on Form 8-K filed on April 16, 2003.

* Management contract or compensatory plan
or arrangement.

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(21) Subsidiaries of the
Registrant

(23) Consent of Independent
Auditors

(24) Powers of Attorney

(31) Section 302
Certifications

(32) Section 906
Certification

(99) Other Information

(b) Reports filed on
Form 8-K



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A Current Report on Form 8-K dated
    May 30, 2003, was filed with the Securities and Exchange
    Commission on June 13, 2003, reporting under Item 5
    (a) the further extension of the waiver to the
    Companys amended and restated term loan and revolving
    credit facility (the Credit Facility) dated as of
    December 5, 2000, (b) the acquisition of the Credit
    Facility by an affiliated entity of C. Michael Kojaian, the
    Companys controlling stockholder and Chairman of the Board
    (the New Lender) and (c) the further extension
    of the waiver to the Credit Facility from the New Lender.
|
| | A Current Report on Form 8-K dated
    June 20, 2003, was filed with the Securities and Exchange
    Commission on June 23, 2003, reporting under Item 5
    the summary of the terms of the sixth amendment dated as of
    June 20, 2003 to the amended and restated term loan and
    revolving credit facility dated as of December 5, 2000.                                                                                                                                                                                                                                                                                        

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SIGNATURES


Pursuant to the requirements of Section 13
or 15 (d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Grubb & Ellis Company

(Registrant)


|                                                                                                                        |  |                 
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------
|/s/ Brian D. ParkerBrian D. Parker
    Chief Financial Officer and
    acting in capacity of co-Chief Executive Officer |  | October 10, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

Principal Executive Officers

|                                                                                                                               |  |                 
|------------------------------------------------------------------------------------------------------------------------------ |  | ----------------
|/s/ Maureen A. EhrenbergMaureen A. Ehrenberg
    Executive Vice President
    acting in capacity of co-Chief Executive Officer |  | October 10, 2003
|/s/ Richard L. FultonRichard L. Fulton
    Executive Vice President
    acting in capacity of co-Chief Executive Officer       |  | October 10, 2003
|/s/ Robert OsbrinkRobert Osbrink
    Executive Vice President
    acting in capacity of co-Chief Executive Officer             |  | October 10, 2003

Principal Financial and Accounting
Officer

|                                                                                                                        |  |                 
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------
|/s/ Brian D. ParkerBrian D. Parker
    Chief Financial Officer and
    acting in capacity of co-Chief Executive Officer |  | October 10, 2003

Directors

|                              |  |                 
|----------------------------- |  | ----------------
|*R. David Anacker, Director   |  | October 10, 2003
|*Anthony G. Antone, Director  |  | October 10, 2003
|*C. Michael Kojaian, Director |  | October 10, 2003
|*Rodger D. Young, Director    |  | October 10, 2003
|                             
|/s/ Brian D. Parker           |  |                 
|                              |  |                 

* By: Brian D. Parker,
Attorney-in-Fact, pursuant to Powers Of Attorney

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GRUBB & ELLIS COMPANY AND
SUBSIDIARIES






EXHIBIT INDEX (A)


For the Fiscal Year Ended June 30,
2003


|                                            |       |  |  |                                                                                                                                                                                                   
|------------------------------------------- | ----- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit                                     |       |  | 
|                                            |       |  | 
|(10)    Material
    Contracts             
|                                            | 10.15 |  |  | First Amendment to Employment Agreement entered
    into between Brian D. Parker and the Registrant dated
    April 1, 2003.                                                                      
|                                            | 10.16 |  |  | Employment Agreement with First Amendment entered
    into between Richard L. Fulton and the Registrant dated
    September 1, 2002 and April 1, 2003, respectively.                              
|                                            | 10.17 |  |  | Employment Agreement with First and Second
    Amendments entered into between Robert Osbrink and the
    Registrant dated December 21, 2001, August 16, 2002
    and April 1, 2003, respectively.
|                                            | 10.18 |  |  | Compensation Arrangement Letter entered into
    between Maureen A. Ehrenberg and the Registrant dated
    May 22, 2003.                                                                          
|(21)    Subsidiaries of
    the Registrant 
|(23)    Consent of
    Independent Auditors
|(24)    Powers of
    Attorney             
|(31)    Section 302
    Certifications     
|(32)    Section 906
    Certification      
|(99)    Other
    Information              

(A) Exhibits incorporated by reference are
listed in Item 14(a)3 of this Report

56