##### 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,
2004


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, 60062


(Address of principal executive offices) (Zip
Code)


(847) 753-7500

(Registrants telephone number, including
area code)


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 20, 2004 was approximately $15,834,577.

The number of shares outstanding of the
registrants common stock as of September 20, 2004 was
15,114,871 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, 2004) are
incorporated by reference into Part III of this Report.



---






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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 Price of and
    Dividends on 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               |   |      | 8  | 
|Item 7A.                                                 |  | Quantitative and Qualitative
    Disclosures About Market Risk                                          |   |      | 15 | 
|Item 8.                                                  |  | Financial Statements and
    Supplementary Data                                                         |   |      | 17 | 
|Item 9.                                                  |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                |   |      | 43 | 
|Item 9A.                                                 |  | Controls and Procedures                                                                                 |   |      | 43 | 
|Part III.                                                |  |                                                                                                         |   |      |    | 
|Item 10.                                                 |  | Directors and Executive
    Officers of the Registrant                                                  |   |      | 43 | 
|Item 11.                                                 |  | Executive Compensation                                                                                  |   |      | 43 | 
|Item 12.                                                 |  | Security Ownership of
    Certain Beneficial Owners and Management and Related
    Stockholders Matters |   |      | 43 | 
|Item 13.                                                 |  | Certain Relationships and
    Related Transactions                                                      |   |      | 43 | 
|Item 14.                                                 |  | Principal Accountant Fees
    and Services                                                              |   |      | 43 | 
|Part IV.                                                 |  |                                                                                                         |   |      |    | 
|Item 15.                                                 |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                    |   |      | 44 | 
|Signatures                                               |  |                                                                                                         |   |      | 51 | 
|Exhibit Index                                            |  |                                                                                                         |   |      | 52 | 
|Subsidiaries of the Registrant                          
|Consent of Independent Registered Public Accounting Firm
|Powers of Attorney                                      
|Section 302 Certification                               
|Section 906 Certification                               



2



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##### Table of Contents



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 a total of 4,100 employees as of June 30, 2004.
The Company employs more than 750 transaction professionals
in 41 owned offices, and has access to over 400 additional
transaction professionals in 53 affiliate offices.
Including its alliance with Knight Frank, one of Europes
leading real estate consulting firms, it has the collective
resources of over 9,000 individuals in more than
200 offices in 30 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 office, industrial and
retail buildings, as well as the acquisition and disposition of
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, exit
strategies, market forecasts, strategic planning 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 151 million square
feet of property under management as of June 30, 2004.

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% and dispositions and acquisitions
accounting for the remaining 25% of that revenue. The leasing
activity represents a 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 17 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 2004 represented 57% 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.

3



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##### Table of Contents



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 2004, these management services
represented the remaining 43% of the Companys total
revenue.

New Credit Facility

Effective June 11, 2004, the Company entered
into a $40 million senior secured credit agreement with
Deutsche Bank, which has a three-year term with a one-year
extension option and is comprised of a $25 million term
loan facility and a $15 million revolving credit facility.
Repayment of the credit agreement is collateralized by
substantially all of the Companys assets. The new credit
arrangement replaced the Companys $27.3 million
senior credit facility and $4 million subordinated loan
held by affiliated entities of the Companys controlling
stockholder and Chairman.

The Company used proceeds from the
$25 million term loan portion of the new credit facility,
along with cash reserves of approximately $7.6 million, to
pay off all of its outstanding credit obligations and closing
costs. The interest rate for revolving or long-term advances
under the credit facility will be, at the election of the
Company, either (i) Deutsche Banks prime lending rate
plus 2.50%, or (ii) the London interbank offered rate of
major banks for deposits in U.S. dollars (LIBOR), plus
3.50%. The Company will not be subject to principal amortization
under the term loan for the first two years. The credit
agreement also contains customary covenants related to
limitations on indebtedness, acquisition, investments and
dividends, and maintenance of certain financial ratios and
minimum cash flow levels.

Strategic Initiatives

Over the past year, the Company has dedicated its
resources to those core businesses that offer the highest return
potential and value to its clients. This focus has led to
increased recruiting and retention of professionals, an increase
in the size and volume of transactions and strengthened client
relationships.

As the Company looks to the future, it continues
to build on its core strengths. The Company is also focused on
building its presence in key markets such as Chicago,
San Francisco, New York, Atlanta and Washington, D.C.
Management is committed to embracing programs that will lead to
increased productivity and retention of its professionals. These
programs include continuing education and training for its most
successful and tenured professionals and knowledge sharing. The
Company recently launched its Specialty Council system, which is
designed to encourage professionals in a particular specialty to
gain information and share knowledge with their peers on a
local, regional and national level. Since the creation of the
Specialty Councils in the first quarter of 2004, the Company has
witnessed increased collaboration among its professionals and
more efficient prospecting of new clients.

Also in early 2004, the Company created Global
Client Services to provide a single point of contact and
strategic account management for clients with multi-market and
multi-product needs. Global Client Services is comprised of
Grubb & Ellis Management Services, Inc., the
Institutional Investment Group, the Corporate Services Group,
the Grubb & Ellis Affiliate Program and the
Companys strategic alliances, including Knight Frank in
Europe, Africa and Asia Pacific and Avison Young in Canada.
Shortly after forming Global Client Services, the Company
repositioned the Institutional Investment Group and added staff
to focus on the needs of a targeted group of strategic
investment clients. The initiative is expected to result in more
property management and leasing assignments, which ultimately
should translate into increased disposition opportunities at the
end of the hold cycle on these assets.

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.

4



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##### Table of Contents



On a national basis, the commercial brokerage
industry is highly fragmented with the half-dozen leading firms
generating approximately 10% of the revenue.


Leasing commissions in most of the markets where
the Company competes improved over the past 12 months,
fueled by an increase in business capital spending and hiring
compared with the prior three years. Investment market
conditions remained very strong as low interest rates, improved
leasing conditions and the questionable outlook for stocks and
bonds attracted buyer interest. These factors contributed to an
industry-wide increase in commission revenue. Leasing commission
rates have held firm recently, although sales commission rates
remain under pressure, especially for larger institutional-grade
properties.

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 national 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, regional or national 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 impact the management, development, use,
and/or sale of real estate. The Companys financial results
and competitive position for the fiscal year 2004 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 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 always 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, 2004, 2003 and
2002, as a percentage of total annual revenue, ranged from a
high of 30.1% to a low of 20.8%.

5



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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 brand 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.



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, 2004, the Company leased approximately
664,000 square feet of office space in 68 locations under
leases which expire at various dates through February 28,
2014. For those leases that are not renewable, the Company
believes that there are adequate alternatives 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 2004.

6



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##### Table of Contents



GRUBB & ELLIS COMPANY



PART II







|        |                                                                                                        
|------- | -------------------------------------------------------------------------------------------------------
|Item 5. | Market Price of and Dividends on 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 each quarter of the
fiscal year ended June 30, 2004 and 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.

|               |  |      |      |  |      |   |      |      |  |   |      |  |  |   |      | 
|-------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|               |  |      |      | 
|               |  | 2004 |      |  | 2003 |  
|               |  |      |      |  |      |  
|               |  | High |      |  | Low  |   |      | High |  |   | Low  | 
|               |  |      |      |  |      |   |      |      |  |   |      | 
|First Quarter  |  | $    | 1.50 |  |      | $ | 1.01 |      |  | $ | 2.75 |  |  | $ | 1.20 | 
|Second Quarter |  | $    | 1.20 |  |      | $ | 0.80 |      |  | $ | 2.50 |  |  | $ | 1.01 | 
|Third Quarter  |  | $    | 1.20 |  |      | $ | 0.87 |      |  | $ | 1.75 |  |  | $ | 0.80 | 
|Fourth Quarter |  | $    | 2.00 |  |      | $ | 0.90 |      |  | $ | 2.05 |  |  | $ | 1.17 | 

As of September 20, 2004, there were 1,132
registered holders of the Companys common stock and
15,114,871 shares of common stock outstanding, of which
11,252,779 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, 2004 or 2003.

Sales of Unregistered Securities

The Company did not effect the sale of any
unregistered securities during the 2004 fiscal year. Information
with respect to the sale of unregistered securities in prior
fiscal years can be found in Note 8 of Notes to
Consolidated Financial Statements in Item 8 of this Report,
and such disclosure is incorporated herein by reference.

Equity Compensation Plan Information

The following table provides information on
equity compensation plans of the Company as of June 30,
2004.

|                                                               |  |                            |           |  |                      |                         |      |                         |  |  |           | 
|-------------------------------------------------------------- |  | -------------------------- | --------- |  | -------------------- | ----------------------- | ---- | ----------------------- |  |  | --------- | 
|                                                               |  |                            |           |  |                      | 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     |  |                            | 511,629   |  |                      | $                       | 5.55 |                         |  |  | 2,615,345 | 
|Equity compensation plans not approved by
    security holders |  |                            | 817,394   |  |                      | $                       | 7.87 |                         |  |  | 1,129,219 | 
|Total                                                          |  |                            | 1,329,023 |  |                      | $                       | 6.98 |                         |  |  | 3,744,564 | 

7



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##### Table of Contents



Equity Compensation Plans Not Approved by
Stockholders

Information regarding Grubb & Ellis 1998
Stock Option Plan 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,      |        
|                                                                  |           |                                   |        
|                                                                  |           | 2004                              |         |            | 2003 |   |         | 2002       |   |   | 2001    |            |   | 2000 |        
|                                                                  |           |                                   |         |            |      |   |         |            |   |   |         |            |   |      |        
|                                                                  |           |                                  
|                                                                  |           | (in thousands, except share data) |        
|Total services revenue                                            |           | $                                 | 440,554 |            |      | $ | 425,946 |            |   | $ | 431,446 |            |   | $    | 516,610 |            |  | $ | 508,540 |           
|Net income (loss) to common stockholders                          |           |                                   | 12,576  |            |      |   | (17,902 | )          |   |   | (15,477 | )          |   |      | 1,369   |            |  |   | 16,290  |           
|Benefit (provision) for income taxes                              |           |                                   | 2,821   |            |      |   | (2,432  | )          |   |   | 1,187   |            |   |      | (5,102  | )          |  |   | (9,598  | )         
|(Increase) decrease in deferred tax asset
    valuation allowance |           |                                   | 7,853   |            |      |   | (7,707  | )          |   |   | (5,214  | )          |   |      |        |            |  |   |        |           
|Income (loss) from continuing operations(1)                       |           |                                   | 14,194  |            |      |   | (16,772 | )          |   |   | (15,477 | )          |   |      | 4,502   |            |  |   | 16,290  |           
|Income (loss) from continuing operations per
    common share(1)  |           |                                   |         |            |      |   |         |            |   |   |         |            |   |      |         |            |  |   |         |           
|                                                                  |  Basic   |                                   |         | 0.83       |      |   |         | (1.19      | ) |   |         | (1.09      | ) |      |         | 0.26       |  |   |         | 0.82       | 
|                                                                  |  Diluted |                                   |         | 0.83       |      |   |         | (1.19      | ) |   |         | (1.09      | ) |      |         | 0.25       |  |   |         | 0.77       | 
|Weighted average common shares                                    |           |                                   |         |            |      |   |         |            |   |   |         |            |   |      |         |            |  |   |         |           
|                                                                  |  Basic   |                                   |         | 15,097,371 |      |   |         | 15,101,625 |   |   |         | 14,147,618 |   |      |         | 17,051,546 |  |   |         | 19,779,220 | 
|                                                                  |  Diluted |                                   |         | 15,101,183 |      |   |         | 15,101,625 |   |   |         | 14,147,618 |   |      |         | 17,975,351 |  |   |         | 21,037,311 | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Income and per share data reported on the above
    table reflect special charges in the amount of
    $3.2 million, $9.5 million, $1.75 million,
    $6.2 million and $2.65 million for the fiscal years
    ended June 30, 2004, 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, and 15 of the Notes to
    Consolidated Financial Statements in Item 8 of this Report.

|                                 |  |                                   |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 
|-------------------------------- |  | --------------------------------- | ---------- |  | ---- | - | ---------- | ---- |  | - | ---------- |  |  | ---- | ---------- |  |  | - | ---------- | 
|                                 |  |                                  
|                                 |  | As of June 30,                    |           
|                                 |  |                                   |           
|                                 |  | 2004                              |            |  | 2003 |   |            | 2002 |  |   | 2001       |  |  | 2000 |           
|                                 |  |                                   |            |  |      |   |            |      |  |   |            |  |  |      |           
|                                 |  |                                  
|                                 |  | (in thousands, except share data) |           
|Consolidated Balance Sheet Data: |  |                                   |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 
|Total assets                     |  | $                                 | 73,715     |  |      | $ | 75,102     |      |  | $ | 90,377     |  |  | $    | 92,426     |  |  | $ | 115,942    | 
|Working capital                  |  |                                   | 8,622      |  |      |   | (2,723     | )    |  |   | 4,251      |  |  |      | 1,216      |  |  |   | 11,883     | 
|Long-term debt                   |  |                                   | 25,000     |  |      |   |           |      |  |   | 36,660     |  |  |      | 29,000     |  |  |   |           | 
|Long-term debtaffiliate         |  |                                   |           |  |      |   | 31,300     |      |  |   |           |  |  |      |           |  |  |   |           | 
|Other long-term liabilities      |  |                                   | 7,551      |  |      |   | 10,323     |      |  |   | 10,396     |  |  |      | 9,734      |  |  |   | 10,422     | 
|Stockholders equity             |  |                                   | 14,623     |  |      |   | 255        |      |  |   | 5,866      |  |  |      | 16,316     |  |  |   | 61,620     | 
|Book value per common share      |  |                                   | 0.97       |  |      |   | 0.02       |      |  |   | 0.39       |  |  |      | 1.22       |  |  |   | 3.11       | 
|Common shares outstanding        |  |                                   | 15,097,371 |  |      |   | 15,097,371 |      |  |   | 15,028,839 |  |  |      | 13,358,615 |  |  |   | 19,810,894 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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
forward looking and as such are not historical facts. Rather,
these statements 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. Such
statements can be identified 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,

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intend, estimate,
anticipate or similar expressions. When the Company
discusses its strategies or plans, it is 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 stockholder 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 or 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 favorable results and maintain
or increase stockholder value include, among other things:

     Decline in
the Volume of Real Estate Transactions and Prices of Real
Estate. Approximately 60% of the Companys revenue is
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
$25.0 million of outstanding debt in the form of a senior
credit facility. Any material downturn in the Companys
revenue or increase in its costs and expenses could impair the
Companys ability to meet its debt obligations.

     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, its
business and operating results could be materially and adversely
affected.

     Risks
Associated with Strategic Alliances and Acquisitions.As
discussed in Part I, Item I of this Annual Report
under Strategic Initiatives, the Company has
established certain strategic alliances. 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 any integration will ultimately be
successful, that the Companys management will be able to
effectively manage any acquired business or strategic alliance
or that any acquisition or strategic alliance will benefit the
Company overall.

     The
Company Faces Intense Competition. Part I, Item I
of this Annual Report under Industry and 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.

     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.

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     Control by
Existing Stockholders. A single investor has a majority of
the voting power of the Company at June 30, 2004. 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
U.S. generally accepted accounting principles, 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.

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, 2004 and 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

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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 net income of
$14.2 million for the year ended June 30, 2004,
reflecting a significant improvement over fiscal 2003 results.
Modest improvements in transaction and management services
revenue were realized along with substantial reductions in
salaries, wages and benefits expense, and selling, general and
administrative expense resulting from the Companys cost
control initiatives. Lower severance, office closure and other
special charges were also incurred in fiscal 2004 compared to
2003.

Fiscal Year 2004 Compared to Fiscal Year
2003

Revenue

The Company earns revenue from the delivery of
transaction and management services to the commercial real
estate industry. Transaction fees include commissions from
leasing, acquisition and disposition, and agency leasing
assignments as well as fees from appraisal and consulting
services. Management fees, which include reimbursed salaries,
wages and benefits, comprise the remainder of the Companys
services revenues, and include fees related to both property and
facilities management outsourcing and business services.

Total services revenue of $440.6 million was
recognized for fiscal year 2004 as compared to revenue of
$425.9 million for fiscal year 2003. Transaction fees
increased by $8.4 million in the current fiscal year over
the same period in 2003 due to the improving revenues in certain
markets, primarily the investment sales market in Southern
California and higher leasing activity in the Northeast United
States. This increase was partially offset by the change in
ownership structure of the Companys transaction services
operations in Phoenix, Arizona to an affiliated entity. The
Company now earns revenue comprised solely of the fees received
under the affiliate agreement, as opposed to including the full
operations of the office in its financial statements in periods
prior to the change in ownership structure in April 2003. The
Company also realized a similar decrease in transaction
commissions expense due to these factors, and, to a lesser
extent, decreases in salaries, wages and benefits expense and
selling, general and administrative expense due to the Phoenix
ownership change. Management services fees increased by
$6.2 million or 3.3% during that same period due to
increased fees, as well as reimbursed revenues related to
salaries, wages and benefits, as described below.

Costs of Services

Transaction commissions expense has historically
been 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 transaction commissions at rates that increase upon
achievement of certain levels of production. As a percentage of
gross transaction revenue, related commission expense remained
relatively flat at 60.3% for each of fiscal years 2004 and 2003.

Reimbursable expenses, related to salaries, wages
and benefits, increased by $3.5 million, or 2.6%, in the
current fiscal year over the same period in 2003, primarily due
to the staffing requirements of new facility management
assignments.

Salaries and other direct costs increased by
$4.3 million, or 13.4%, in the current fiscal year over the
same period in 2003 primarily due to the staffing requirements
and other direct costs of increased business services contracts.

Costs and Expenses

Salaries, wages and benefits decreased by
$8.6 million, or 15.6%, during fiscal year 2004 as compared
to 2003 primarily from cost savings related to a reduction in
workforce in March 2003. The Company also realized decreases
related to lower health and workers compensation insurance
claims during the fiscal year ended June 30, 2004. These

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decreases were partly offset by slightly higher
bonus and incentive salary expense in the fiscal year ended
June 30, 2004. Selling, general and administrative expenses
decreased by $7.5 million, or 14.2%, for the same period,
as the Company decreased its discretionary spending beginning in
the fourth quarter of fiscal year 2003. Reduced lease space
needs resulting from a number of office closures also
contributed to this decrease in expenses.


Depreciation and amortization expense for fiscal
year 2004 decreased by 13.7% to $6.7 million from
$7.8 million in the comparable fiscal year 2003 as the
Company continued to monitor its investments in equipment,
software and leasehold improvements. In addition 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
$1.3 million was recognized in fiscal year 2004, compared
to $1.6 million in the prior year.

During fiscal year 2004, the Company recorded
special charges totaling $3.2 million, consisting primarily
of $2.4 million related to the disposition of the
Wadley-Donovan Group, and office closure costs of $855,000. The
special charges related primarily to the write-off of
unamortized goodwill recorded when the Wadley-Donovan Group was
acquired in February 2002. See Note 15 of Notes to
Condensed Consolidated Financial Statements for additional
information.

Interest income decreased during fiscal year 2004
as compared to fiscal year 2003 as a result of lower investment
yield rates.

Interest expense incurred during fiscal year 2004
and 2003 was due primarily to the Companys term loan
borrowings under the credit facility which was purchased from a
bank group in June 2003 by an affiliated entity of the
Companys controlling stockholder and Chairman. The Company
refinanced this facility with an unaffiliated financial
institution in June 2004. Interest expense was also incurred due
to the note payable-affiliate funded in March 2002 and
subsequently converted to preferred stock in September 2002, and
a second note payable-affiliate funded in May 2003 and
subsequently repaid in June 2004. See Note 8 of Notes to
Consolidated Statements in Item 8 of this Report for
additional information.

Income Taxes

As of June 30, 2004, the Company had gross
deferred tax assets of $15.9 million, with
$10.1 million of the deferred tax assets relating to net
operating loss carryforwards which will be available to offset
future taxable income through 2023. Management believes that the
Company will generate sufficient future taxable income to
realize a portion of these net deferred tax assets in the
foreseeable short term future; therefore, the Company has
recorded a valuation allowance for $9.6 million against the
deferred tax assets as of June 30, 2004 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 future events, the Company will continue to review its
operations periodically to assess whether and when the remaining
deferred tax assets may be realized and adjust the valuation
allowance accordingly. The net income tax provision recorded in
2004 reflects a benefit for the decrease in the valuation
allowance of $7.9 million, compared to a charge of
$7.7 million for an increase in the allowance 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 income to common stockholders for fiscal
year 2004 was $12.6 million, or $0.83 per common share
on a diluted basis, as compared to a net loss of
$17.9 million, or $(1.19) per common share for fiscal year
2003. Dividends accrued on the Series A Preferred Stock
issued by the Company were $1.6 million in fiscal year 2004
and $1.1 million in fiscal year 2003. See Note 8 of
Notes to Consolidated Financial Statements for additional
information.

Stockholders Equity

During fiscal year 2004, stockholders
equity increased by $14.4 million, to $14.6 million
from $255,000 at June 30, 2003, as a result of net income
generated during the fiscal year. The book value per common
share issued and outstanding increased to $0.97 at June 30,
2004 from $0.02 at June 30, 2003.

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Fiscal Year 2003 Compared to Fiscal Year
2002

Revenue

Total revenue of $425.9 million was
recognized for fiscal 2003 as compared to revenue of
$431.4 million for fiscal year 2002. Transaction services
fees decreased by $21.2 million for the fiscal year 2003
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
$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
increased assignments.

Costs of Services

As a percentage of gross transaction revenue,
related commission expense increased slightly to 60.3% for
fiscal year 2003 as compared to 59.9% for fiscal year 2002.

Reimbursable expenses, related to salaries, wages
and benefits, increased by $16.9 million, or 14.4% during
fiscal year 2003 as compared to 2002 due to the staffing
requirements of new assignments.

Salaries and other direct costs increased
slightly by $557,000, or 1.8% during fiscal year 2003 as
compared 2002.

Costs and Expenses

Salaries, wages and benefits decreased by
$16.2 million or 22.3%, 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
$2.6 million, or 4.7%, 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 to $7.8 million from $10.5 million
in fiscal year 2002. 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.

During fiscal year 2002, the Company concluded
long standing litigation proceedings on a 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 litigation 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

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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 in that venture, 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.


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.

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. The Company recorded a valuation
allowance for $17.4 million against the deferred tax assets
as of June 30, 2003. 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.

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. The book value per
common share issued and outstanding decreased to $0.02 at
June 30, 2003 from $0.39 at June 30, 2002.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal year 2004, cash and cash
equivalents increased by $1.0 million. Cash generated by
operating activities totaled $14.5 million, and was offset
by cash used in investing activities of $1.1 million and
financing activities of $12.4 million. Cash used in
investing activities related primarily to $1.2 million of
purchases of equipment, software and leasehold improvements. Net
financing activities related primarily to the repayments of
credit facility debt of $32.3 million, $4.0 million
loan from an affiliate, and $1.1 million of financing fees.
The majority of the funds needed for this refinancing were
provided by the funding of a new $25.0 million credit
facility debt from an unaffiliated financial institution.

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 typically peak
during the quarter ending December 31. Deferred commissions
balances of approximately $10.1 million, related to
revenues earned in calendar year 2003, were paid in January
2004, and production and incentive bonuses of approximately
$4.8 million were paid in March 2004.

See Note 17 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, the Company may find
it necessary to reduce expenditure levels or undertake other
actions as may be appropriate under the circumstances. The

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Company has no current principal payment
obligations due under the $25.0 million term portion of its
Credit Facility as of June 30, 2004. The Company also has a
revolving line of credit of $15 million which is fully
available as of June 30, 2004.


Interest on outstanding borrowings under the
credit facility is based upon Deutsche Bank 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 all credit
facility obligations during fiscal year 2004 was 5.3%.

Scheduled principal payments on the term loan
portion of the Credit Agreement total $2.0 million in the
fiscal year ending June 30, 2006 and $23.0 million in
the fiscal year ending June 30, 2007 when the term loan is
scheduled to mature. The Company also has an option to extend
the term loan maturity for an additional year.

In addition, the Company has contractual
obligations under leases related to office space which it
occupies throughout the country. In total the Companys
lease and debt obligations which are due over the next five
years are as follows (in thousands):

|            |  |        |        | 
|----------- |  | ------ | ------ | 
|Year Ending |  |       
|June 30     |  | Amount |       
|            |  |        |       
|2005        |  | $      | 17,422 | 
|2006        |  |        | 14,932 | 
|2007        |  |        | 31,547 | 
|2008        |  |        | 6,825  | 
|2009        |  |        | 4,711  | 
|Thereafter  |  |        | 4,710  | 
|            |  |        |       
|            |  | $      | 80,147 | 
|            |  |        |       




Item 7A. Quantitative and
Qualitative Disclosures About Market Risk

Interest Rate Risk Derivatives

The Companys credit facility debt
obligations are floating rate obligations whose interest rate
and related monthly interest payments vary with the movement in
LIBOR. As of June 30, 2004, the outstanding principal
balances on these debt obligations totaled $25.0 million.
Since interest payments on this obligation 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 previous 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. Through
March 31, 2004, the expiration date of the agreements, the
Company had varying notional amount interest rate swaps
outstanding in which the Company paid a fixed rate of 5.18% and
received a three-month LIBOR based rate from the counter-parties.

The terms of the new credit agreement executed by
the Company in June 2004 required the Company to enter into
interest rate protection agreements to effectively cap the
variable interest rate exposure on a portion of the obligations
for a period of two years. The Company executed such an interest
agreement with Deutsche Bank AG in July 2004, which will provide
for quarterly payments to the Company whenever the interest rate
on the underlying notional amounts exceeds 3.5%, equal to the
interest amount paid in excess of the 3.5% rate.

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

Interest rate risk Debt

The Companys earnings are affected by
changes in short term interest rates as a result of the variable
interest rates incurred on the Companys credit facility
obligations. However, due to its purchase of the interest rate
cap agreement described above, the effects of interest rate
changes are limited. If LIBOR borrowing rates increase by

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50 basis points, over the average levels
incurred by the Company during fiscal 2004, the Companys
interest expense would increase, and income before income taxes
would decrease, by $125,000. Comparatively, if LIBOR borrowing
rates decrease by 50 basis points below the average levels
incurred by the Company during fiscal 2004, the Companys
interest expense would decrease, and income before income taxes
would increase, by $125,000. These amounts are determined by
considering the impact of the hypothetical interest rates on the
Companys borrowing cost and interest rate cap agreement.
They do not consider the effects that such an environment could
have on the level of overall economic activity. These
sensitivity analyses also assume no changes in the
Companys future or past years financial structure.


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Item 8. Financial Statements and
Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

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, 2004 and 2003, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
June 30, 2004. 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 the
standards of the Public Company Accounting Oversight Board
(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, 2004 and 2003,
and the consolidated results of its operations and its cash
flows for each of the three years in the period ended
June 30, 2004, in conformity with U.S. generally
accepted accounting principles.

ERNST & YOUNG LLP

Chicago, Illinois

August 23, 2004


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GRUBB & ELLIS COMPANY

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2004 AND 2003

(In thousands, except share data)


|                                         |                                                                                                                                                      |                                            |   |         |        |  |   |         |        | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------- | ------ |  | - | ------- | ------ | 
|                                         |                                                                                                                                                      | 2004                                       |   |         | 2003   | 
|                                         |                                                                                                                                                      |                                            |   |         |        | 
|ASSETS                                  
|Current assets:                          |                                                                                                                                                      |                                            |   |         |        |  |   |        
|                                         | Cash and cash equivalents, including restricted
    deposits of $3,340 and $3,315 in June 30, 2004 and 2003,
    respectively                        |                                            | $ | 14,971  |        |  | $ | 13,938  |       
|                                         | Services fees receivable, net                                                                                                                        |                                            |   | 10,810  |        |  |   | 11,452  |       
|                                         | Other receivables                                                                                                                                    |                                            |   | 2,968   |        |  |   | 2,726   |       
|                                         | Professional service contracts, net                                                                                                                  |                                            |   | 1,184   |        |  |   | 1,159   |       
|                                         | Prepaid income taxes                                                                                                                                 |                                            |   | 251     |        |  |   | 669     |       
|                                         | Prepaid and other current assets                                                                                                                     |                                            |   | 1,979   |        |  |   | 557     |       
|                                         | Deferred tax assets, net                                                                                                                             |                                            |   | 3,000   |        |  |   |        |       
|                                         |                                                                                                                                                      |                                            |   |         |        | 
|                                         |                                                                                                                                                      | Total current assets                       |   |         | 35,163 |  |   |         | 30,501 | 
|Noncurrent assets:                       |                                                                                                                                                      |                                            |   |         |        |  |   |        
|                                         | Equipment, software and leasehold improvements,
    net                                                                                              |                                            |   | 9,865   |        |  |   | 13,959  |       
|                                         | Goodwill, net                                                                                                                                        |                                            |   | 24,763  |        |  |   | 26,958  |       
|                                         | Other assets                                                                                                                                         |                                            |   | 3,924   |        |  |   | 3,684   |       
|                                         |                                                                                                                                                      |                                            |   |         |        | 
|                                         |                                                                                                                                                      | Total assets                               |   | $       | 73,715 |  |   | $       | 75,102 | 
|                                         |                                                                                                                                                      |                                            |   |         |        | 
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                      |                                            |   |         |        |  |   |        
|                                         | Accounts payable                                                                                                                                     |                                            | $ | 4,756   |        |  | $ | 4,107   |       
|                                         | Commissions payable                                                                                                                                  |                                            |   | 6,433   |        |  |   | 3,465   |       
|                                         | Credit facility debt affiliate                                                                                                                      |                                            |   |        |        |  |   | 5,000   |       
|                                         | Accrued compensation and employee benefits                                                                                                           |                                            |   | 9,072   |        |  |   | 14,889  |       
|                                         | Other accrued expenses                                                                                                                               |                                            |   | 6,280   |        |  |   | 5,763   |       
|                                         |                                                                                                                                                      |                                            |   |         |        | 
|                                         |                                                                                                                                                      | Total current liabilities                  |   |         | 26,541 |  |   |         | 33,224 | 
|Long-term liabilities:                   |                                                                                                                                                      |                                            |   |         |        |  |   |        
|                                         | Credit facility debt                                                                                                                                 |                                            |   | 25,000  |        |  |   |        |       
|                                         | Credit facility debt affiliate                                                                                                                      |                                            |   |        |        |  |   | 27,300  |       
|                                         | Note payable affiliate, net                                                                                                                         |                                            |   |        |        |  |   | 4,000   |       
|                                         | Accrued claims and settlements                                                                                                                       |                                            |   | 5,523   |        |  |   | 7,374   |       
|                                         | Other liabilities                                                                                                                                    |                                            |   | 2,028   |        |  |   | 2,949   |       
|                                         |                                                                                                                                                      |                                            |   |         |        | 
|                                         |                                                                                                                                                      | Total liabilities                          |   |         | 59,092 |  |   |         | 74,847 | 
|                                         |                                                                                                                                                      |                                            |   |         |        | 
|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, 2004 and 2003 |                                            |   | 11,725  |        |  |   | 11,725  |       
|                                         | Common stock, $.01 par value:
    50,000,000 shares authorized; 15,097,371 shares issued
    and outstanding at June 30, 2004 and 2003               |                                            |   | 151     |        |  |   | 151     |       
|                                         | Additional paid-in capital                                                                                                                           |                                            |   | 71,410  |        |  |   | 71,410  |       
|                                         | Accumulated other comprehensive loss                                                                                                                 |                                            |   |        |        |  |   | (174    | )     
|                                         | Retained deficit                                                                                                                                     |                                            |   | (68,663 | )      |  |   | (82,857 | )     
|                                         |                                                                                                                                                      |                                            |   |         |        | 
|                                         |                                                                                                                                                      | Total stockholders equity                 |   |         | 14,623 |  |   |         | 255    | 
|                                         |                                                                                                                                                      |                                            |   |         |        | 
|                                         |                                                                                                                                                      | Total liabilities and stockholders equity |   | $       | 73,715 |  |   | $       | 75,102 | 
|                                         |                                                                                                                                                      |                                            |   |         |        | 

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, 2004, 2003
AND 2002

(In thousands, except share data)


|                                                                     |                                                                        |                                   |        |            |         |  |         |            |         |   |         |            |         |  
|-------------------------------------------------------------------- | ---------------------------------------------------------------------- | --------------------------------- | ------ | ---------- | ------- |  | ------- | ---------- | ------- | - | ------- | ---------- | ------- | -
|                                                                     |                                                                        | 2004                              |        |            | 2003    |  |         | 2002       |        
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|Services revenue:                                                    |                                                                        |                                   |        |            |         |  |         |            |         |   |         |           
|                                                                     | Transaction fees                                                       |                                   |        | $249,344   |         |  |         | $240,916   |         |   |         | $262,077   |        
|                                                                     | Management fees, including reimbursed salaries,
    wages and benefits |                                   |        | 191,210    |         |  |         | 185,030    |         |   |         | 169,369    |        
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|                                                                     |                                                                        | Total services revenue            |        |            | 440,554 |  |         |            | 425,946 |   |         |            | 431,446 |  
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|Costs of services:                                                   |                                                                        |                                   |        |            |         |  |         |            |         |   |         |           
|                                                                     | Transaction commissions                                                |                                   |        | 150,233    |         |  |         | 145,287    |         |   |         | 156,865    |        
|                                                                     | Reimbursable salaries, wages and benefits                              |                                   |        | 138,383    |         |  |         | 134,913    |         |   |         | 117,970    |        
|                                                                     | Salaries, wages, benefits and other direct costs                       |                                   |        | 36,381     |         |  |         | 32,073     |         |   |         | 31,516     |        
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|                                                                     |                                                                        | Total costs of services           |        |            | 324,997 |  |         |            | 312,273 |   |         |            | 306,351 |  
|Costs and expenses:                                                  |                                                                        |                                   |        |            |         |  |         |            |         |   |         |           
|                                                                     | Salaries, wages and benefits                                           |                                   |        | 46,639     |         |  |         | 55,288     |         |   |         | 71,503     |        
|                                                                     | Selling, general and administrative                                    |                                   |        | 45,380     |         |  |         | 52,899     |         |   |         | 55,533     |        
|                                                                     | Depreciation and amortization                                          |                                   |        | 6,736      |         |  |         | 7,802      |         |   |         | 10,514     |        
|                                                                     | Severance, office closure and other special
    charges                |                                   |        | 3,224      |         |  |         | 9,500      |         |   |         | 1,749      |        
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|                                                                     |                                                                        | Total costs                       |        |            | 426,976 |  |         |            | 437,762 |   |         |            | 445,650 |  
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|                                                                     |                                                                        | Total operating income (loss)     |        |            | 13,578  |  |         |            | (11,816 | ) |         |            | (14,204 | )
|Other income and expenses:                                           |                                                                        |                                   |        |            |         |  |         |            |         |   |         |           
|                                                                     | Interest income                                                        |                                   |        | 179        |         |  |         | 245        |         |   |         | 401        |        
|                                                                     | Interest expense                                                       |                                   |        | (447       | )       |  |         | (2,271     | )       |   |         | (2,681     | )      
|                                                                     | Interest expense affiliate                                            |                                   |        | (1,937     | )       |  |         | (498       | )       |   |         | (180       | )      
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|                                                                     |                                                                        | Income (loss) before income taxes |        |            | 11,373  |  |         |            | (14,340 | ) |         |            | (16,664 | )
|Benefit (provision) for income taxes                                 |                                                                        |                                   | 2,821  |            |         |  | (2,432  | )          |         |   | 1,187   |           
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|Net income (loss)                                                    |                                                                        |                                   | 14,194 |            |         |  | (16,772 | )          |         |   | (15,477 | )         
|Preferred stock dividends accrued                                    |                                                                        |                                   | (1,618 | )          |         |  | (1,130  | )          |         |   |        |           
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|                                                                     | Net income (loss) to common stockholders                               |                                   |        | $ 12,576   |         |  |         | $(17,902   | )       |   |         | $(15,477   | )      
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|Net income (loss) per weighted average common
    share outstanding: |                                                                        |                                   |        |            |         |  |         |            |         |   |         |           
|                                                                     | Basic-                                                                 |                                   |        | $   0.83   |         |  |         | $  (1.19   | )       |   |         | $  (1.09   | )      
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|                                                                     | Diluted-                                                               |                                   |        | $   0.83   |         |  |         | $  (1.19   | )       |   |         | $  (1.09   | )      
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|Weighted average common shares outstanding:                          |                                                                        |                                   |        |            |         |  |         |            |         |   |         |           
|                                                                     | Basic-                                                                 |                                   |        | 15,097,371 |         |  |         | 15,101,625 |         |   |         | 14,147,618 |        
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        
|                                                                     | Diluted-                                                               |                                   |        | 15,101,183 |         |  |         | 15,101,625 |         |   |         | 14,147,618 |        
|                                                                     |                                                                        |                                   |        |            |         |  |         |            |        

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

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GRUBB & ELLIS COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

FOR THE YEARS ENDED JUNE 30, 2004, 2003
AND 2002

(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, 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     |  
|Net income                                                            |  |           |       |              |             |  |           |        |             |          |        |   |               |      |       |          |           |   |              |               |  |               | 14,194  |   |  | $ | 14,194  |   |  |   | 14,194  |  
|Change in value of cash flow hedge, net of tax                        |  |           |        |              |             |  |            |        |             |          |         |   |               |      |        |          |           |   | 174           |               |  |               |         |   |  |   | 174     |   |  |   | 174     |  
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |        |          |           |   |               |               |  |               |         |  
|Total comprehensive income                                            |  |           |        |              |             |  |            |        |             |          |         |   |               |      |        |          |           |   |               |               |  |               |         |   |  | $ | 14,368  |   |  |   |         |  
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |        |          |           |   |               |               |  |               |         |  
|Balance as of June 30, 2004                                           |  | $         | 11,725 |              |             |  | 15,097,371 |        |             | $        | 151     |   |               | $    | 71,410 |          |           | $ |              |               |  | $             | (68,663 | ) |  |   |         |   |  | $ | 14,623  |  
|                                                                      |  |           |        |              |             |  |            |        |             |          |         |   |               |      |        |          |           |   |               |               |  |               |         |  

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

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##### Table of Contents



GRUBB & ELLIS COMPANY

CONSOLIDATED STATEMENTS OF CASH
FLOWS

FOR THE YEARS ENDED JUNE 30, 2004, 2003
AND 2002

(in thousands, except share data)


|                                                                                                                                   |                                                                            |                                                         |         |        |         |   |         |        |        |   |         |        |        |  
|---------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------------------------- | ------- | ------ | ------- | - | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                                                                                                                   |                                                                            | 2004                                                    |         |        | 2003    |   |         | 2002   |       
|                                                                                                                                   |                                                                            |                                                         |         |        |         |   |         |        |       
|Cash Flows from Operating Activities:                                                                                              |                                                                            |                                                         |         |        |         |   |         |        |        |   |         |       
|Net income (loss)                                                                                                                  |                                                                            | $                                                       | 14,194  |        |         | $ | (16,772 | )      |        | $ | (15,477 | )     
|Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities:                             |                                                                            |                                                         |         |        |         |   |         |        |        |   |         |       
|                                                                                                                                   | Deferred tax benefit                                                       |                                                         |         |       |         |   |         | (5,197 | )      |   |         | (2,893 | )     
|                                                                                                                                   | Increase (decrease) in deferred tax asset
    valuation allowance          |                                                         |         | (3,000 | )       |   |         | 7,707  |        |   |         | 5,214  |       
|                                                                                                                                   | Depreciation and amortization                                              |                                                         |         | 6,736  |         |   |         | 7,802  |        |   |         | 10,706 |       
|                                                                                                                                   | Accrued severance, office closure and other
    special charges            |                                                         |         | 3,224  |         |   |         | 9,500  |        |   |         | 374    |       
|                                                                                                                                   | Payment of accrued severance                                               |                                                         |         | (3,235 | )       |   |         | (3,007 | )      |   |         |       |       
|                                                                                                                                   | Payment of office closure costs                                            |                                                         |         | (998   | )       |   |         | (1,157 | )      |   |         | (107   | )     
|                                                                                                                                   | Provision (recovery) for services fees receivable
    valuation allowances |                                                         |         | 25     |         |   |         | 84     |        |   |         | (229   | )     
|Net receipt of tax refunds                                                                                                         |                                                                            |                                                         | 398     |        |         |   | 6,473   |        |        |   | 1,576   |       
|Funding of multi-year service contracts                                                                                            |                                                                            |                                                         | (903    | )      |         |   | (2,361  | )      |        |   | (793    | )     
|Decrease in services fees receivable                                                                                               |                                                                            |                                                         | 637     |        |         |   | 1,727   |        |        |   | 4,724   |       
|(Increase) decrease in prepaid income taxes                                                                                        |                                                                            |                                                         | 21      |        |         |   | (252    | )      |        |   | (3,868  | )     
|(Increase) decrease in prepaid and other assets                                                                                    |                                                                            |                                                         | (1,830  | )      |         |   | 1,061   |        |        |   | 1,662   |       
|Increase (decrease) in accounts and commissions
    payable                                                                        |                                                                            |                                                         | 3,599   |        |         |   | (3,370  | )      |        |   | (255    | )     
|Increase (decrease) in accrued compensation and
    employee benefits                                                              |                                                                            |                                                         | (2,585  | )      |         |   | (3,770  | )      |        |   | 2,828   |       
|Increase (decrease) in accrued claims and
    settlements                                                                          |                                                                            |                                                         | (1,851  | )      |         |   | (449    | )      |        |   | 1,328   |       
|Increase (decrease) in other liabilities                                                                                           |                                                                            |                                                         | 99      |        |         |   | 736     |        |        |   | (471    | )     
|                                                                                                                                   |                                                                            |                                                         |         |        |         |   |         |        |       
|                                                                                                                                   |                                                                            | Net cash provided by (used in) operating
    activities |         |        | 14,531  |   |         |        | (1,245 | ) |         |        | 4,319  |  
|                                                                                                                                   |                                                                            |                                                         |         |        |         |   |         |        |       
|Cash Flows from Investing Activities:                                                                                              |                                                                            |                                                         |         |        |         |   |         |        |        |   |         |       
|Purchases of equipment, software and leasehold
    improvements                                                                    |                                                                            |                                                         | (1,222  | )      |         |   | (2,933  | )      |        |   | (5,147  | )     
|Cash received (paid) related to acquired
    businesses, net of cash acquired                                                      |                                                                            |                                                         | 125     |        |         |   | (400    | )      |        |   | (2,295  | )     
|                                                                                                                                   |                                                                            |                                                         |         |        |         |   |         |        |       
|                                                                                                                                   |                                                                            | Net cash used in investing activities                   |         |        | (1,097  | ) |         |        | (3,333 | ) |         |        | (7,442 | )
|                                                                                                                                   |                                                                            |                                                         |         |        |         |   |         |        |       
|Cash Flows from Financing Activities:                                                                                              |                                                                            |                                                         |         |        |         |   |         |        |        |   |         |       
|Repayment of credit facility debt                                                                                                  |                                                                            |                                                         |        |        |         |   | (4,450  | )      |        |   | (11,250 | )     
|Borrowings on credit facility debt                                                                                                 |                                                                            |                                                         | 25,000  |        |         |   | 5,000   |        |        |   | 6,000   |       
|Repayment of borrowings from affiliate                                                                                             |                                                                            |                                                         | (32,300 | )      |         |   |        |        |        |   | (5,000  | )     
|Borrowings on note payableaffiliate                                                                                               |                                                                            |                                                         |        |        |         |   | 4,000   |        |        |   | 16,237  |       
|Repayment on note payableaffiliate                                                                                                |                                                                            |                                                         | (4,000  | )      |         |   |        |        |        |   |        |       
|Proceeds from issuance of common stock, net                                                                                        |                                                                            |                                                         |        |        |         |   | 273     |        |        |   | 1,079   |       
|Proceeds from stock warrant exercises, net                                                                                         |                                                                            |                                                         |        |        |         |   |        |        |        |   | 4,163   |       
|Repurchase of common stock                                                                                                         |                                                                            |                                                         |        |        |         |   | (163    | )      |        |   |        |       
|Issuance costs and deferred financing fees                                                                                         |                                                                            |                                                         | (1,101  | )      |         |   | (229    | )      |        |   | (1,269  | )     
|                                                                                                                                   |                                                                            |                                                         |         |        |         |   |         |        |       
|                                                                                                                                   |                                                                            | Net cash provided by (used in) financing
    activities |         |        | (12,401 | ) |         |        | 4,431  |   |         |        | 9,960  |  
|                                                                                                                                   |                                                                            |                                                         |         |        |         |   |         |        |       
|Net increase (decrease) in cash and cash
    equivalents                                                                           |                                                                            |                                                         | 1,033   |        |         |   | (147    | )      |        |   | 6,837   |       
|Cash and cash equivalents at beginning of the year                                                                                 |                                                                            |                                                         | 13,938  |        |         |   | 14,085  |        |        |   | 7,248   |       
|                                                                                                                                   |                                                                            |                                                         |         |        |         |   |         |        |       
|Cash and cash equivalents at end of the year,
    including restricted deposits of $3,340 and $3,315 in
    June 30, 2004 and 2003 |                                                                            | $                                                       | 14,971  |        |         | $ | 13,938  |        |        | $ | 14,085  |       
|                                                                                                                                   |                                                                            |                                                         |         |        |         |   |         |        |       

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

21



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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 does not have an impact on the Companys financial
condition and results of operations.

(c) Basis of Presentation

The financial statements have been prepared in
conformity with U.S. generally accepted accounting
principles, 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
$138.4 million, $134.9 million and $118.0 million
during the fiscal years ended June 30, 2004, 2003 and 2002,
respectively. See Note 1(p) of Notes to Consolidated
Financial Statements for additional information.

22



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



|   |                                                           
|-- | ----------------------------------------------------------
|1. | Summary of Significant Accounting
    Policies(Continued)

(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 carryforwards, 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 relate to the Companys insurance policies,
totaled $3,340,000 and $3,315,000 as of June 30, 2004 and
2003, respectively.

Cash payments for interest were approximately
$2,435,000, $2,721,000 and $2,892,000 for each of the fiscal
years ended June 30, 2004, 2003 and 2002, respectively.
Cash payments for income taxes for the fiscal years ended
June 30, 2004, 2003 and 2002 were approximately $164,000,
$180,000 and $360,000, respectively. Cash refunds for income
taxes totaling approximately $398,000, $6,473,000 and $1,576,000
were received in the fiscal years ended June 30, 2004, 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 $1.3 million,
$1.6 million and $2.1 million was recognized in fiscal
years 2004, 2003 and 2002, respectively.

(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

23



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



|   |                                                           
|-- | ----------------------------------------------------------
|1. | Summary of Significant Accounting
    Policies(Continued)

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, 2004 and 2003. The Company wrote-off
$2.2 million of unamortized goodwill in 2004 related to the
disposition of a consulting services group. See Note 15 of
Notes to Consolidated Financial Statements for additional
information.

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.

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, 2004 and
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.

(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

24



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



|   |                                                           
|-- | ----------------------------------------------------------
|1. | Summary of Significant Accounting
    Policies(Continued)

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.

(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 the then existing 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.

(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.

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 and any termination penalties, and is
reduced by estimated sublease rentals.

(p) Reclassifications

Certain expenses related to salaries, wages and
benefits, and selling, general and administrative costs are
direct costs incurred to generate services revenues. The Company
has reclassified those costs incurred during the fiscal years
ended June 30, 2003 and 2002 to salaries, wages, benefits
and other direct costs to conform to the current year
presentation.

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.

25



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)

2. Services Fees Receivable,
net

Services fees receivable at June 30, 2004
and 2003 consisted of the following (in thousands):

|                                     |                                      |                                                |       |        |        |   |       |        |        | 
|------------------------------------ | ------------------------------------ | ---------------------------------------------- | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|                                     |                                      | 2004                                           |       |        | 2003   |  
|                                     |                                      |                                                |       |        |        |  
|Transaction services fees receivable |                                      | $                                              | 4,205 |        |        | $ | 5,246 |       
|Management services fees receivable  |                                      |                                                | 7,561 |        |        |   | 7,157 |       
|                                     | Allowance for uncollectible accounts |                                                |       | (714   | )      |   |       | (689   | )     
|                                     |                                      |                                                |       |        |        |  
|                                     |                                      | Total                                          |       |        | 11,052 |   |       |        | 11,714 | 
|                                     | Less portion classified as current   |                                                |       | 10,810 |        |   |       | 11,452 |       
|                                     |                                      |                                                |       |        |        |  
|                                     |                                      | Non-current portion (included in other assets) |       | $      | 242    |   |       | $      | 262    | 
|                                     |                                      |                                                |       |        |        |  

The following is a summary of the changes in the
allowance for uncollectible services fees receivable for the
fiscal years ended June 30, 2004, 2003 and 2002 (in
thousands):

|                             |  |      |     |  |      |   |     |      |  |   |      |  
|---------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | ---- | -
|                             |  | 2004 |     |  | 2003 |   |     | 2002 | 
|                             |  |      |     |  |      |   |     |      | 
|Balance at beginning of year |  | $    | 689 |  |      | $ | 605 |      |  | $ | 834  |  
|Provision for bad debt       |  |      | 25  |  |      |   | 84  |      |  |   |     |  
|Recovery of allowance        |  |      |    |  |      |   |    |      |  |   | (229 | )
|                             |  |      |     |  |      |   |     |      | 
|Balance at end of year       |  | $    | 714 |  |      | $ | 689 |      |  | $ | 605  |  
|                             |  |      |     |  |      |   |     |      | 

3. Equipment, Software and Leasehold
Improvements, net

Equipment, software and leasehold improvements at
June 30, 2004 and 2003 consisted of the following (in
thousands):

|                                                        |       |      |        |        |      |   |        |        | 
|------------------------------------------------------- | ----- | ---- | ------ | ------ | ---- | - | ------ | ------ | 
|                                                        |       | 2004 |        |        | 2003 |  
|                                                        |       |      |        |        |      |  
|Furniture, equipment and software systems               |       | $    | 42,580 |        |      | $ | 43,423 |       
|Leasehold improvements                                  |       |      | 5,966  |        |      |   | 6,734  |       
|                                                        |       |      |        |        |      |  
|                                                        | Total |      |        | 48,546 |      |   |        | 50,157 | 
|Less accumulated depreciation and amortization          |       |      | 38,681 |        |      |   | 36,198 |       
|                                                        |       |      |        |        |      |  
|Equipment, software and leasehold improvements,
    net |       | $    | 9,865  |        |      | $ | 13,959 |       
|                                                        |       |      |        |        |      |  

The Company wrote off approximately
$2.8 million of furniture and equipment during the fiscal
years ended June 30, 2004 and 2003. Approximately
$2.6 million and $2.4 million of accumulated
depreciation and amortization expense had been recorded on these
assets prior to their disposition in the fiscal years ended
June 30, 2004 and 2003, 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.

26



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



4. Earnings (Loss) Per Common
Share(Continued)


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, |  
|                                   |                                                              |                                    |  
|                                   |                                                              | 2004                               |   |        | 2003 |  |   | 2002    |  
|                                   |                                                              |                                    |   |        |      |  |   |         |  
|Basic earnings per common share:   |                                                              |                                    |   |        |      |  |   |         |   |  |   |        
|                                   | Net income (loss)                                            |                                    | $ | 14,194 |      |  | $ | (16,772 | ) |  | $ | (15,477 | )
|                                   | Preferred stock dividends accrued                            |                                    |   | (1,618 | )    |  |   | (1,130  | ) |  |   |        |  
|                                   |                                                              |                                    |   |        |      |  |   |         |  
|                                   | Net income (loss) to common stockholders                     |                                    | $ | 12,576 |      |  | $ | (17,902 | ) |  | $ | (15,477 | )
|                                   |                                                              |                                    |   |        |      |  |   |         |  
|                                   | Weighted average common shares outstanding                   |                                    |   | 15,097 |      |  |   | 15,102  |   |  |   | 14,148  |  
|                                   |                                                              |                                    |   |        |      |  |   |         |  
|                                   | Net income (loss) per common share
    outstanding  basic   |                                    | $ | 0.83   |      |  | $ | (1.19   | ) |  | $ | (1.09   | )
|                                   |                                                              |                                    |   |        |      |  |   |         |  
|Diluted earnings per common share: |                                                              |                                    |   |        |      |  |   |         |   |  |   |        
|                                   | Net income (loss)                                            |                                    | $ | 14,194 |      |  | $ | (16,772 | ) |  | $ | (15,477 | )
|                                   | Preferred stock dividends accrued                            |                                    |   | (1,618 | )    |  |   | (1,130  | ) |  |   |        |  
|                                   |                                                              |                                    |   |        |      |  |   |         |  
|                                   | Net income (loss) to common stockholders                     |                                    | $ | 12,576 |      |  | $ | (17,902 | ) |  | $ | (15,477 | )
|                                   |                                                              |                                    |   |        |      |  |   |         |  
|                                   | Weighted average common shares outstanding                   |                                    |   | 15,097 |      |  |   | 15,102  |   |  |   | 14,148  |  
|                                   | Effect of dilutive securities:                               |                                    |   |        |      |  |   |         |   |  |   |         |  
|                                   |                                                              | Stock options and warrants         |   |        | 4    |  |   |         |  |  |   |         |  | 
|                                   |                                                              |                                    |   |        |      |  |   |         |  
|                                   | Weighted average common shares outstanding                   |                                    |   | 15,101 |      |  |   | 15,102  |   |  |   | 14,148  |  
|                                   |                                                              |                                    |   |        |      |  |   |         |  
|                                   | Net income (loss) per common share
    outstanding  diluted |                                    | $ | 0.83   |      |  | $ | (1.19   | ) |  | $ | (1.09   | )
|                                   |                                                              |                                    |   |        |      |  |   |         |  

Additionally, options outstanding to purchase
shares of common stock, the effect of which would be
anti-dilutive, were 1,179,023, 1,601,091, and 2,816,861 at
June 30, 2004, 2003 and 2002, respectively, and were not
included in the computation of diluted earnings per share either
because an operating loss was reported or, in 2004, the option
exercise price was greater than the average market price of the
common shares.

5. Credit Facility Debt

Fiscal 2004

Effective June 11, 2004, the Company entered
into a $40 million senior secured credit agreement with
Deutsche Bank, which has a three-year term with a one-year
extension option and is comprised of a $25 million term
loan facility and a $15 million revolving credit facility.
Repayment of the credit agreement is collateralized by
substantially all of the Companys assets. The new credit
arrangement replaced the Companys $27.3 million
senior credit facility and $4 million subordinated loan
held by Kojaian Capital, LLC and Kojaian Funding, LLC,
respectively.

The Company used proceeds from the
$25 million term loan portion of the new credit facility,
along with cash reserves of approximately $7.6 million, to
pay off all of its outstanding credit obligations and closing
costs which totaled $1.1 million. The interest rate for
revolving or long-term advances under the credit facility will
be, at the election of the Company, either (i) Deutsche
Banks prime lending rate plus 2.50%, or (ii) the
London interbank offered rate of major banks for deposits in
U.S. dollars (LIBOR), plus 3.50%. The Company will not be
subject to principal amortization under the term loan for the
first two years. The credit agreement also contains customary
covenants related to limitations on indebtedness, acquisition,
investments and dividends, and maintenance of certain financial
ratios and minimum cash flow levels.

27



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



5. Credit Facility
Debt(Continued)


The Company has no borrowings outstanding on the
revolving credit facility. Scheduled principal payments on the
term loan, excluding the exercise of the one year extension
option, are as follows (in thousands):

|            |  |        |        | 
|----------- |  | ------ | ------ | 
|Year Ending |  |       
|June 30     |  | Amount |       
|            |  |        |       
|2005        |  | $      |       | 
|2006        |  |        | 2,000  | 
|2007        |  |        | 23,000 | 
|            |  |        |       
|            |  | $      | 25,000 | 
|            |  |        |       

Fiscal 2002

Effective March 8, 2002, the Company
completed a restructuring of its credit arrangements with Bank
of America, N.A. as agent and lender, along with various other
financial institutions, that was effected in accordance with the
terms and conditions of a third amendment to the then existing
credit agreement. Among other things, the third amendment
deferred payment of $5,000,000 of principal amortization,
revised certain financial covenants relating to the
Companys cash flows and operations, and ultimately reduced
the credit revolver portion of the facility 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 whereby Warburg Pincus funded
a $5,000,000 subordinated promissory note and the Company had
the right to require Warburg Pincus to deliver an additional
$6,000,000 in the form of a subordinated promissory note in June
2002. 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.

The Company also received the right to replace
and terminate all debt and equity securities issued and issuable
under the above Warburg Pincus financing arrangements, 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 of (i) the entire principal amount of any
outstanding subordinated notes, up to $11,000,000, 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. On May 13, 2002, the
Company exercised these rights 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 cash flow 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 cash flow 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.)

28



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



|   |                                
|-- | -------------------------------
|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 then existing credit agreement from the banks on
June 6, 2003. On June 20, 2003, the Company and the
New Lender entered into a sixth amendment to the credit
agreement which, among other things, deferred further
amortization of principal until September 30, 2004, and
eliminated certain minimum cash flow and fixed charge ratio
covenant requirements through June 30, 2004.

Borrowings under the credit revolver portion of
the facility, totaling $5.0 million, were repaid on
October 31, 2003 from cash generated by the Companys
operations, while the term loan portion of the facility was
repaid in conjunction with the refinancing of the Companys
credit arrangements in June 2004. See Note 5 of Notes to
Consolidated Financial Statements for additional information.

Interest on outstanding borrowings under this
credit facility were 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. The average interest rate incurred by the
Company on outstanding borrowings during fiscal years 2004 and
2003, was 5.5% and 5.70% respectively. Direct expenses related
to this facility totaled approximately $1,273,000 and were
recorded as deferred financing fees and amortized over the term
of the agreement. Unamortized fees totaling $317,000 were
written off upon repayment of the term loan in June 2004.

The variable interest rate structure of this
credit agreement exposed 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 Company entered into
two interest rate swap agreements for a three year term, with
banks that were original parties to the Credit Agreement.
Interest rate swaps generally involve the exchange of fixed and
floating rate interest payments on an underlying notional
amount. Through March 31, 2004, the expiration date of the
agreements, the Company had varying notional amount interest
rate swaps outstanding in which the Company paid a fixed rate of
5.18% and received a three-month LIBOR based rate from the
counter-parties.

7. Note Payable Affiliate

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 for working capital purposes. The
Company was 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 was due on July 15, 2004, although it was
prepaid without penalty in connection with the refinancing of
the Companys credit with Deutsche Bank effective
June 11, 2004. See Note 5 of Notes to Consolidated
Financial Statements for additional information.

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

29



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



8. Issuance of Preferred
Stock(Continued)


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 a $5,000,000
subordinated note, accrued interest thereon of $137,500 and
out-of-pocket expenses of $100,000, (ii) 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 purchase
price of $4,158,431, and (iii) pay down $6,000,000 of
revolving debt under the Companys then existing 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. The form of KVs financing was
substantially identical to the form of the Warburg Pincus
financing arrangements, 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 preference with respect to the Series A
Preferred Stock that KV received was more favorable to the
holders of the Companys Common Stock than the
Series A Preferred Stock that was to be issued to Warburg
Pincus. Specifically, the holder of the Series A Preferred
Stock has a preference over the Companys Common Stock in
the event that the Company undergoes a liquidation, dissolution
or certain change in control transactions. That is, the holder
of the Series A Preferred Stock is entitled to be paid with
respect to its Series A Preferred Stock prior to holders of
Common Stock are entitled to be paid with respect to their
Common Stock in the event of a liquidation, dissolution or
certain change in control transactions involving the Company.
The preference on liquidation, dissolution and certain change in
control transactions with respect to the Series A Preferred
Stock issued to KV is the greater of (i) 2 times the face
value of the Series A Preferred Stock, 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 on an Adjusted
Outstanding Basis (as defined in the underlying
documents). Contrastingly, the Senior A Preferred Stock
that was to be issued to Warburg Pincus was to have a preference
on liquidation, dissolution and certain change in control
transactions equal to the greater of (i) 2 times the
face value of the Series A Preferred Stock, plus the
accrued dividends thereon at the rate of 15% per annum, or
(ii) the equivalent of 50% of the consideration to be paid
to all equity holders of the Company on a fully diluted basis.

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
compound quarterly on the preferred stock and totaled
approximately $2.7 million at June 30, 2004.

As noted above, the Series A Preferred Stock
has a preference over the Companys Common Stock upon
liquidation, dissolution and certain change of control
transactions. In addition, although the Series A Preferred
Stock is not convertible into Common Stock (or any other
securities of the Company) it votes along with the Common Stock
on all matters that are subject to the vote of common
stockholders. The voting power of the Series A Preferred
Stock, after final contractual adjustments, is equal to
952 shares of Common Stock for each share of Series A
Preferred Stock, or a total of 11,162,200 Common Stock
equivalents. As a consequence, upon the issuance of the
Series A Preferred Stock to KV on September 19, 2002,
there was a change in the voting control of the Company, as the
voting power of the Series A Preferred Stock (11,162,200
Common Stock equivalents), along with the 3,762,884 shares
of outstanding Common Stock now owned by KV and its affiliates
(approximately 25% of the outstanding Common Stock of the
Company), represents approximately 57% of the total voting power
of the Company. The Series A Preferred Stock is not 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.

30



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)

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, 2004, 2003 and
2002, consisted of the following (in thousands):

|         |                         |      |        |        |      |  |       |       |   |  |        |        |  
|-------- | ----------------------- | ---- | ------ | ------ | ---- |  | ----- | ----- | - |  | ------ | ------ | -
|         |                         | 2004 |        |        | 2003 |  |       | 2002  |  
|         |                         |      |        |        |      |  |       |       |  
|Current  |                         |      |        |        |      |  |       |       |   |  |        |       
|         | Federal                 |      | $      | 1,371  |      |  | $     | (245  | ) |  | $      | (4,051 | )
|         | State and local         |      |        | 150    |      |  |       | 167   |   |  |        | 381    |  
|         |                         |      |        |        |      |  |       |       |  
|         |                         |      | 1,521  |        |      |  | (78   | )     |   |  | (3,670 | )     
|Deferred |                         |      | (4,342 | )      |      |  | 2,510 |       |   |  | 2,483  |       
|         |                         |      |        |        |      |  |       |       |  
|         | Net provision (benefit) |      | $      | (2,821 | )    |  | $     | 2,432 |   |  | $      | (1,187 | )
|         |                         |      |        |        |      |  |       |       |  

The Company recorded prepaid taxes totaling
approximately $251,000 and $669,000 as of June 30, 2004 and
2003, respectively. Included in these assets are tax refund
receivables resulting from filed state returns totaling
approximately $109,000 and $476,000 at June 30, 2004 and
2003, respectively. Also included are tax effected operating
loss carrybacks totaling approximately $142,000 and $193,000 at
June 30, 2004 and 2003, respectively, which the Company
will realize or has realized primarily against state tax
liability payments made in prior tax years. The Company also
received net tax refunds of approximately $398,000 and
$6,473,000, during fiscal years 2004 and 2003, primarily related
to its state and federal tax carrybacks, respectively.

At June 30, 2004, federal income tax
operating loss carryforwards (NOLs) were
available to the Company in the amount of approximately
$23.2 million, which expire from 2008 to 2023. Utilization
of certain of these net operating loss carryforwards totaling
$3.4 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:

|                                                               |                           |      |       |       |      |  |       |       |    |  |       |     |  
|-------------------------------------------------------------- | ------------------------- | ---- | ----- | ----- | ---- |  | ----- | ----- | -- |  | ----- | --- | -
|                                                               |                           | 2004 |       |       | 2003 |  |       | 2002  |   
|                                                               |                           |      |       |       |      |  |       |       |   
|Federal statutory rate                                         |                           |      | 34.0  | %     |      |  | 35.0  | %     |    |  | 34.0  | %  
|State and local income taxes (net of federal tax
    benefits) |                           |      | 5.3   |       |      |  | 5.2   |       |    |  | 5.2   |    
|Meals and entertainment                                        |                           |      | 2.9   |       |      |  | (2.2  | )     |    |  | (2.2  | )  
|Change in valuation allowance                                  |                           |      | (26.4 | )     |      |  | (53.8 | )     |    |  | (31.3 | )  
|Utilization of net operating loss carryforwards                |                           |      | (11.8 | )     |      |  |      |       |    |  |      |    
|Insurance claim payment                                        |                           |      | (15.6 | )     |      |  |      |       |    |  |      |    
|Severance and office closure payments                          |                           |      | (8.6  | )     |      |  |      |       |    |  |      |    
|Goodwill amortization and other                                |                           |      | (4.6  | )     |      |  | 2.6   |       |    |  | 1.4   |    
|Non-deductible executive compensation                          |                           |      |      |       |      |  | (3.8  | )     |    |  |      |    
|                                                               |                           |      |       |       |      |  |       |       |   
|                                                               | Effective income tax rate |      |       | (24.8 | )%   |  |       | (17.0 | )% |  |       | 7.1 | %
|                                                               |                           |      |       |       |      |  |       |       |   

31



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)

10. Income
Taxes(Continued)

The Company recorded a decrease of approximately
$7.9 million and an increase of approximately
$7.7 million in the valuation allowance it carries against
its deferred tax assets during fiscal 2004 and 2003,
respectively. The current year decrease related to the
realization of temporary differences which had previously been
fully reserved, as well as the likelihood the Company would
realize a portion of the deferred assets in future periods.

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, 2004 and 2003 (in
thousands):

|                         |                              |                     |        |        |        |  |         |        |        | 
|------------------------ | ---------------------------- | ------------------- | ------ | ------ | ------ |  | ------- | ------ | ------ | 
|                         |                              | 2004                |        |        | 2003   | 
|                         |                              |                     |        |        |        | 
|Deferred tax assets:     |                              |                     |        |        |        |  |         |       
|                         | NOL and credit carryforwards |                     | $      | 10,135 |        |  | $       | 11,764 |       
|                         | Insurance reserves           |                     |        | 2,376  |        |  |         | 3,788  |       
|                         | Commission and fee reserves  |                     |        | 777    |        |  |         | 745    |       
|                         | Office closure reserves      |                     |        | 1,072  |        |  |         | 1,232  |       
|                         | Claims and settlements       |                     |        | 331    |        |  |         | 697    |       
|                         | Other                        |                     |        | 1,207  |        |  |         | 2,105  |       
|                         |                              |                     |        |        |        | 
|                         |                              | Deferred tax assets |        |        | 15,898 |  |         |        | 20,331 | 
|Less valuation allowance |                              |                     | (9,599 | )      |        |  | (17,452 | )     
|                         |                              |                     |        |        |        | 
|                         |                              |                     | 6,299  |        |        |  | 2,879   |       
|Deferred tax liabilities |                              |                     | (3,299 | )      |        |  | (2,879  | )     
|                         |                              |                     |        |        |        | 
|                         | Net deferred tax assets      |                     | $      | 3,000  |        |  | $       |       |       
|                         |                              |                     |        |        |        | 
|                         |                              | Current             |        | $      | 3,000  |  |         | $      |       | 
|                         |                              |                     |        |        |        | 
|                         |                              | Long Term           |        | $      |       |  |         | $      |       | 
|                         |                              |                     |        |        |        | 



|    |                                                             
|--- | ------------------------------------------------------------
|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, 2004, 2003, and 2002:

|                                                           |  |        |           |   |                |  |                 |        |  |  |                |   |  |        |                 |  |                |  |           |  |  |  |                 | 
|---------------------------------------------------------- |  | ------ | --------- | - | -------------- |  | --------------- | ------ |  |  | -------------- | - |  | ------ | --------------- |  | -------------- |  | --------- |  |  |  | --------------- | 
|                                                           |  |        |           |   |                | 
|                                                           |  | 2004   |           |   | 2003           |  |                 | 2002   | 
|                                                           |  |        |           |   |                |  |                 |        | 
|                                                           |  | Shares |           |   | Exercise Price |  |                 | Shares |  |  | Exercise Price |   |  | Shares |                 |  | Exercise Price | 
|                                                           |  |        |           |   |                |  |                 |        |  |  |                |   |  |        |                 |  |                | 
|Stock options outstanding at the beginning 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 | 
|Granted                                                    |  |        | 150,000   |   |                |  | $0.92           |        |  |  | 10,000         |   |  |        | $2.00           |  |                |  | 868,000   |  |  |  | $2.60 to $4.95  | 
|Lapsed or canceled                                         |  |        | (422,068  | ) |                |  | $2.85 to $13.50 |        |  |  | (1,225,770     | ) |  |        | $1.88 to $13.50 |  |                |  | (577,777) |  |  |  | $4.25 to $13.50 | 
|Exercised                                                  |  |        |          |   |                |  |                |        |  |  |               |   |  |        |                |  |                |  | (27,877)  |  |  |  | $1.88 to $4.25  | 
|                                                           |  |        |           |   |                |  |                 |        |  |  |                |   |  |        |                 |  |                | 
|Stock options outstanding at the end of the year           |  |        | 1,329,023 |   |                |  | $0.92 to $16.44 |        |  |  | 1,601,091      |   |  |        | $2.00 to $16.44 |  |                |  | 2,816,861 |  |  |  | $1.88 to $16.44 | 
|                                                           |  |        |           |   |                |  |                 |        |  |  |                |   |  |        |                 |  |                | 
|Exercisable at end of the year                             |  |        | 1,103,356 |   |                |  |                 |        |  |  | 1,129,466      |   |  |        |                 |  |                |  | 1,267,861 |  |  |  |                 | 
|                                                           |  |        |           |   |                |  |                 |        |  |  |                |   |  |        |                 |  |                | 

32



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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, 2004 is as follows:

|         |                  |  |        |          |           |      |          |                   |        |          |                   |        |       |  |  |  |       | 
|-------- | ---------------- |  | ------ | -------- | --------- | ---- | -------- | ----------------- | ------ | -------- | ----------------- | ------ | ----- |  |  |  | ----- | 
|         |                  |  |        | Weighted |           |      | Weighted |                   |        | Weighted |                  
|         |                  |  |        | Average  |           |      | Average  |                   |        | Average  |                  
|         |                  |  |        | Years    |           |      | Exercise |                   |        | Exercise |                  
|Exercise |                  |  |        |          | Remaining |      |          | Price-Outstanding |        |          | Price-Exercisable |       
|Price    |                  |  | Shares |          |           | Life |          |                   | Shares |          |                   | Shares |      
|         |                  |  |        |          |           |      |          |                   |        |          |                   |        |      
|         | $ 0.92 to $ 3.05 |  |        |          | 415,500   |      |          |                   | 8.37   |          |                   |        | 2.20  |  |  |  | 2.43  | 
|         | $ 3.75 to $ 8.94 |  |        |          | 464,023   |      |          |                   | 4.61   |          |                   |        | 6.49  |  |  |  | 6.50  | 
|         | $11.13 to $16.44 |  |        |          | 449,500   |      |          |                   | 3.13   |          |                   |        | 11.90 |  |  |  | 11.90 | 
|         |                  |  |        |          |           |      |          |                   |        |          |                   |        |      
|         |                  |  |        |          | 1,329,023 |      |          |                   |        |          |                   |        |       |  |  |  |       | 
|         |                  |  |        |          |           |      |          |                   |        |          |                   |        |      

Weighted average information per share with
respect to stock options for fiscal years ended June 30,
2004 and 2003 is as follows:

|                |                        |      |      |       |      |  |      |       | 
|--------------- | ---------------------- | ---- | ---- | ----- | ---- |  | ---- | ----- | 
|                |                        | 2004 |      |       | 2003 | 
|                |                        |      |      |       |      | 
|Exercise price: |                        |      |      |       |      |  |      |      
|                | Granted                |      | $    | 0.92  |      |  | $    | 2.00  | 
|                | Lapsed or canceled     |      |      | 5.30  |      |  |      | 5.36  | 
|                | Outstanding at June 30 |      |      | 6.98  |      |  |      | 7.00  | 
|Remaining life  |                        |      | 5.28 | years |      |  | 6.03 | 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, 2004, 2003 and 2002, the
number of shares available for the grant of options under the
plan were 1,029,345, 904,517 and 795,371, 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, 2004,
2003 and 2002.

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 1,129,219, 971,979, and
755,355 shares available for grant as of June 30,
2004, 2003 and 2002, 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 1,350,000, 1,360,000 and
470,000 shares available for grant as of June 30,
2004, 2003 and 2002, 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

33



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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 had a five-year life which
expired in July 2004.

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 and 178,012 during the fiscal years ended
June 30, 2003 and 2002, 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 $519,000 and $1,209,000 for the plan years ended
December 31, 2003 and 2001, 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 2004, 2003 and 2002, respectively, are
as follows:

|                                                                        |  |      |             |   |      |  |             |      |  |  |             |  
|----------------------------------------------------------------------- |  | ---- | ----------- | - | ---- |  | ----------- | ---- |  |  | ----------- | -
|                                                                        |  | 2004 |             |   | 2003 |  |             | 2002 | 
|                                                                        |  |      |             |   |      |  |             |      | 
|Risk free interest rates                                                |  |      | 3.40        | % |      |  | 3.83        | %    |  |  | 4.43        | %
|Dividend yields                                                         |  |      | 0           | % |      |  | 0           | %    |  |  | 0           | %
|Volatility factors of the expected market price
    of the common stock |  |      | .795        |   |      |  | .393        |      |  |  | .607        |  
|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 2004, 2003 and 2002 using this model were $0.65, $0.88 and
$2.24, respectively.

34



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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, |       
|                                                                                                                                                        |                       |                                    |       
|                                                                                                                                                        |                       | 2004                               |        |      | 2003 |   |         | 2002  |  
|                                                                                                                                                        |                       |                                    |        |      |      |   |         |       |  
|Net income (loss) to common stockholders, as
    reported                                                                                               |                       | $                                  | 12,576 |      |      | $ | (17,902 | )     |   | $ | (15,477 | )    
|Add: Total stock-based employee compensation
    expense determined under the intrinsic value method for all
    awards, net of related tax effects     |                       |                                    |       |      |      |   | 228     |       |   |   |        |      
|Deduct: Total stock-based employee
    compensation expense determined under the fair value based
    method for all awards, net of related tax effects |                       |                                    | (172   | )    |      |   | (340    | )     |   |   | (1,781  | )    
|                                                                                                                                                        |                       |                                    |        |      |      |   |         |       |  
|Pro forma net income to common stockholders                                                                                                             |                       | $                                  | 12,404 |      |      | $ | (18,014 | )     |   | $ | (17,258 | )    
|                                                                                                                                                        |                       |                                    |        |      |      |   |         |       |  
|Net earnings per weighted average common share
    outstanding:                                                                                         |                       |                                    |        |      |      |   |         |       |   |   |         |      
|                                                                                                                                                        | Basic  as reported   |                                    | $      | 0.83 |      |   | $       | (1.19 | ) |   | $       | (1.09 | )
|                                                                                                                                                        |                       |                                    |        |      |      |   |         |       |  
|                                                                                                                                                        | Basic  pro forma     |                                    | $      | 0.82 |      |   | $       | (1.19 | ) |   | $       | (1.22 | )
|                                                                                                                                                        |                       |                                    |        |      |      |   |         |       |  
|                                                                                                                                                        | Diluted  as reported |                                    | $      | 0.83 |      |   | $       | (1.19 | ) |   | $       | (1.09 | )
|                                                                                                                                                        |                       |                                    |        |      |      |   |         |       |  
|                                                                                                                                                        | Diluted  pro forma   |                                    | $      | 0.82 |      |   | $       | (1.19 | ) |   | $       | (1.22 | )
|                                                                                                                                                        |                       |                                    |        |      |      |   |         |       |  

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, 2004, 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 2004, 2003 or 2002.

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

35



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)

12. Related Party Transactions 
(Continued)

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, 2004, 2003 and 2002 (in thousands):

|                 |                             |      |        |        |      |  |        |        |  |  |        |        | 
|---------------- | --------------------------- | ---- | ------ | ------ | ---- |  | ------ | ------ |  |  | ------ | ------ | 
|                 |                             | 2004 |        |        | 2003 |  |        | 2002   | 
|                 |                             |      |        |        |      |  |        |        | 
|Transaction fees |                             |      |        |        |      |  |        |        |  |  |        |       
|                 | Kojaian Companies           |      | $      | 330    |      |  | $      | 291    |  |  | $      | 700    | 
|                 | Archon                      |      |        | 1,819  |      |  |        | 1,663  |  |  |        | 4,176  | 
|                 | Others                      |      |        |       |      |  |        | 277    |  |  |        | 481    | 
|                 |                             |      |        |        |      |  |        |        | 
|                 |                             |      | 2,149  |        |      |  | 2,231  |        |  |  | 5,357  |       
|                 |                             |      |        |        |      |  |        |        | 
|Management fees  |                             |      |        |        |      |  |        |        |  |  |        |       
|                 | Kojaian Companies           |      |        | 10,468 |      |  |        | 10,274 |  |  |        | 11,957 | 
|                 | Archon                      |      |        | 3,613  |      |  |        | 5,291  |  |  |        | 8,122  | 
|                 |                             |      |        |        |      |  |        |        | 
|                 |                             |      | 14,081 |        |      |  | 15,565 |        |  |  | 20,079 |       
|                 | Less: asset management fees |      |        |        |      |  |        |        |  |  |        |        | 
|                 | Kojaian Companies           |      |        | 3,191  |      |  |        | 3,295  |  |  |        | 2,750  | 
|                 | Archon                      |      |        | 174    |      |  |        | 239    |  |  |        | 242    | 
|                 |                             |      |        |        |      |  |        |        | 
|                 |                             |      | 10,716 |        |      |  | 12,031 |        |  |  | 17,087 |       
|                 |                             |      |        |        |      |  |        |        | 
|                 | Total                       |      | $      | 12,865 |      |  | $      | 14,262 |  |  | $      | 22,444 | 
|                 |                             |      |        |        |      |  |        |        | 

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) guaranteed initial year bonuses totaling
$810,000, ii) loans totaling $1.8 million with
repayment terms tied to retention bonuses and continued
employment, iii) retention bonuses, net of taxes,
sufficient to repay the executive loan obligations in
(ii) above, and iv) options to
purchase 850,000 shares of the Companys common
stock, exercisable at current market prices. All payments
related to 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 15 of Notes to Consolidated Financial Statements
for additional information.) None of the options to
purchase 850,000 common stock shares were exercised and the
option grants were cancelled upon the officers employment
terminations.

In the fourth quarter of fiscal year 2004, the
Company accrued for the payment of $100,000 in legal fees on
behalf of C. Michael Kojaian and Kojaian Ventures, L.L.C.
(collectively, the Kojaian Parties) and $60,000 in
legal fees on behalf of Warburg Pincus Investors, L.P.
(Warburg Pincus) in connection with each of them
being named in a law suit filed in March 2004. Although the
Company is not party to the litigation, the litigation expenses
of the Kojaian Parties and Warburg Pincus are being paid by the
Company pursuant to contractual indemnification obligations
contained in various credit and security agreements entered into
during fiscal 2002. Mr. Kojaian is the Chairman of the
Board of the Company, and has majority-voting control of the
Company, and Warburg Pincus owns approximately 39% of the issued
and outstanding shares of the common stock of the Company. In
addition, of the legal fees accrued on behalf of the Kojaian
Parties, $20,000 are payable to the law firm of Young and
Susser. Rodger D. Young, a member of the Companys Board of
Directors since April 2003, is a partner of Young and Susser. The

36



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



12. Related Party Transactions 
(Continued)


litigation is presently ongoing and the ultimate
dollar amount of the Companys indemnity obligations to the
Kojaian Parties and Warburg Pincus cannot be determined at this
time.

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.

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, 2004 (in thousands):

|                     |            |  |                   |   |        | 
|-------------------- | ---------- |  | ----------------- | - | ------ | 
|Year Ending June 30, |            |  | Lease Obligations |  
|                     |            |  |                   |  
|                     | 2005       |  |                   | $ | 16,331 | 
|                     | 2006       |  |                   |   | 12,430 | 
|                     | 2007       |  |                   |   | 9,160  | 
|                     | 2008       |  |                   |   | 6,878  | 
|                     | 2009       |  |                   |   | 4,711  | 
|                     | Thereafter |  |                   |   | 4,710  | 

Subsequent to June 30, 2004, the Company
also entered into lease amendment agreements which resulted in
additional future minimum net lease obligations totaling
$1.1 million for the fiscal year ending June 30, 2005
and a reduction in future minimum net lease obligations totaling
$164,000 thereafter.

Lease and rental expense for the fiscal years
ended June 30, 2004, 2003 and 2002 amounted to $20,187,000,
$21,678,000, and $22,695,000, respectively.

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 by a former bankrupted
tenant of dry cleaning solvent in the soil and groundwater of
the partnerships property and adjacent properties. The
Company has no financial recourse available against the former
tenant due to its insolvency. 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 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 $1,057,000,
based upon a comprehensive project plan prepared by an
independent third party environmental remediation firm. As of
June 30, 2004, approximately $724,000 of this amount has
been paid and the remaining $333,000 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.

37



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



13. Commitments and
Contingencies(Continued)


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 four open claims that
were covered by Reliance policies in which defense and/or
settlement costs exceeded 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 established loss reserves for the
estimated settlement costs of the claims and all of the claims
have now been resolved. The Company is seeking reimbursement for
the costs of defense, settlement and/or judgment in excess of
the self-insured retention 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.

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 reached a compromise settlement
agreement with the Department of Revenue Services covering all
time periods through October 31, 2003 related to this
issue. Final closing documents were signed, and the lawsuit was
dismissed, as of December 31, 2003. The settlement amount
was paid and recorded against previously established loss
reserves in the Companys consolidated financial statements
during the third fiscal quarter of 2004. The closing agreement
provides guidance for future tax treatment of purchases made on
behalf of the Companys clients in Connecticut.

General

The Company is involved in various 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.



|    |                             
|--- | ----------------------------
|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.

38



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



|    |                                                        
|--- | -------------------------------------------------------
|15. | Severance, Office Closure and Other Special
    Charges

During the fiscal year ended June 30, 2004,
the Company completed the disposition of the Wadley-Donovan
Group, through which the Company provided relocation and
economic development consulting services. As a result of the
disposition, the Company recorded a loss totaling approximately
$2.4 million related primarily to the write-off of
unamortized goodwill recorded when the original business was
acquired in February 2002. The Company closed certain
non-performing offices and recorded additional special charges
of $855,000 related to office closure costs which 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, 2004,
remaining future net lease obligations, including those which
arose in prior years, totaled approximately $2.2 million.
The cumulative amount of special charges incurred by the Company
during the fiscal year ended June 30, 2004 totaled
$3.2 million.

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 Operating
Officer, and General Counsel, and to a reduction of other
salaried personnel, and office closure costs of
$3.2 million.

During the fiscal year ended June 30, 2002,
the Company concluded long standing litigation proceedings on a
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). (See Note 13 of Notes to Consolidated
Financial Statements.) The positive outcome of the litigation
proceedings, 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 $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 as
to 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.



|    |                                                   
|--- | --------------------------------------------------
|16. | 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 a 20% minority interest in this entity for $400,000.

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. With substantially all of the purchase price
allocated to goodwill, the Company recorded the acquisition
under the purchase method of accounting. All operations
subsequent to the acquisition date are reflected in the

39



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)

16. Business Acquisitions and Related
Indebtedness(Continued)

Companys financial statements. See
Note 15 of Notes to Consolidated Financial Statements for
additional information.



|    |                    
|--- | -------------------
|17. | 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.

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

40



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



17. Segment
Information(Continued)


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, 2004 |                |                        |   |         |            |  |   |         |   |  |   |        
|                                | Total Revenues |                        | $ | 249,344 |            |  | $ | 191,210 |   |  | $ | 440,554 |  
|                                | EBITDA         |                        |   | 20,766  |            |  |   | 2,772   |   |  |   | 23,538  |  
|                                | Total Assets   |                        |   | 52,672  |            |  |   | 17,792  |   |  |   | 70,464  |  
|                                | Goodwill, net  |                        |   | 18,376  |            |  |   | 6,387   |   |  |   | 24,763  |  
|Fiscal year ended June 30, 2003 |                |                        |   |         |            |  |   |         |   |  |   |        
|                                | Total Revenues |                        | $ | 240,916 |            |  | $ | 185,030 |   |  | $ | 425,946 |  
|                                | EBITDA         |                        |   | 4,893   |            |  |   | 593     |   |  |   | 5,486   |  
|                                | Total Assets   |                        |   | 56,191  |            |  |   | 18,242  |   |  |   | 74,433  |  
|                                | Goodwill, net  |                        |   | 20,571  |            |  |   | 6,387   |   |  |   | 26,958  |  
|Fiscal year ended June 30, 2002 |                |                        |   |         |            |  |   |         |   |  |   |        
|                                | Total Revenues |                        | $ | 262,077 |            |  | $ | 169,369 |   |  | $ | 431,446 |  
|                                | EBITDA         |                        |   | 598     |            |  |   | (2,347  | ) |  |   | (1,749  | )

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

|                            |                                   |                            |        |        |      |   |        |         |   |   |         |         |  
|--------------------------- | --------------------------------- | -------------------------- | ------ | ------ | ---- | - | ------ | ------- | - | - | ------- | ------- | -
|                            |                                   |                           
|                            |                                   | Fiscal Year Ended June 30, |       
|                            |                                   |                            |       
|                            |                                   | 2004                       |        |        | 2003 |   |        | 2002    |  
|                            |                                   |                            |        |        |      |   |        |         |  
|Total Segment EBITDA        |                                   | $                          | 23,538 |        |      | $ | 5,486  |         |   | $ | (1,749  | )      
|Less:                       |                                   |                            |        |        |      |   |        |         |   |   |         |        
|Depreciation & amortization |                                   |                            | (6,736 | )      |      |   | (7,802 | )       |   |   | (10,706 | )      
|Special charges             |                                   |                            | (3,224 | )      |      |   | (9,500 | )       |   |   | (1,749  | )      
|Net interest expense        |                                   |                            | (2,205 | )      |      |   | (2,524 | )       |   |   | (2,460  | )      
|                            |                                   |                            |        |        |      |   |        |         |  
|                            | Income (loss) before income taxes |                            | $      | 11,373 |      |   | $      | (14,340 | ) |   | $       | (16,664 | )
|                            |                                   |                            |        |        |      |   |        |         |  

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

|                     |              |                |        |        |      |   |        |        | 
|-------------------- | ------------ | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                     |              |               
|                     |              | As of June 30, |       
|                     |              |                |       
|                     |              | 2004           |        |        | 2003 |  
|                     |              |                |        |        |      |  
|Total segment assets |              | $              | 70,464 |        |      | $ | 74,433 |       
|Current tax assets   |              |                | 251    |        |      |   | 669    |       
|Deferred tax assets  |              |                | 3,000  |        |      |   |       |       
|                     |              |                |        |        |      |  
|                     | Total Assets |                | $      | 73,715 |      |   | $      | 75,102 | 
|                     |              |                |        |        |      |  

41



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##### Table of Contents



GRUBB & ELLIS COMPANY


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)



|    |                                                  
|--- | -------------------------------------------------
|18. | Selected Quarterly Financial Data
    (unaudited)

|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |        |  |   |              |        | 
|----------------------------------------------- | ---------------------------------------------- | ---------------------------------------- | ------------ | ------ | -------------- | - | ------------ | ------------- |  | - | -------------- | ------ |  | - | ------------ | ------ | 
|                                                |                                                |                                         
|                                                |                                                | Fiscal Year Ended June 30, 2004          |             
|                                                |                                                | (in thousands, except per share amounts) |             
|                                                |                                                |                                          |             
|                                                |                                                | First Quarter                            |              |        | Second Quarter |   |              | Third Quarter |  |   | Fourth Quarter |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Operating revenue                               |                                                | $                                        | 101,884      |        |                | $ | 123,789      |               |  | $ | 102,402        |        |  | $ | 112,479      |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Operating income (loss)                         |                                                | $                                        | 870          |        |                | $ | 8,576        |               |  | $ | (2,748         | )      |  | $ | 6,880        |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Net (loss) income to common stockholders        |                                                | $                                        | (150         | )      |                | $ | 7,447        |               |  | $ | (3,690         | )      |  | $ | 8,969        |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Income (loss) per common share:                 |                                                |                                          |              |        |                |   |              |               |  |   |                |        |  |   |              |       
|Basic                                          |                                                | $                                        | (0.01        | )      |                | $ | 0.49         |               |  | $ | (0.24          | )      |  | $ | 0.59         |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|                                                | Weighted average common
    shares outstanding |                                          |              | 15,097 |                |   |              | 15,097        |  |   |                | 15,097 |  |   |              | 15,097 | 
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Diluted                                        |                                                | $                                        | (0.01        | )      |                | $ | 0.49         |               |  | $ | (0.24          | )      |  | $ | 0.59         |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|                                                | Weighted average common
    shares outstanding |                                          |              | 15,097 |                |   |              | 15,098        |  |   |                | 15,097 |  |   |              | 15,105 | 
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|EBITDA                                          |                                                | $                                        | 2,599        |        |                | $ | 10,385       |               |  | $ | 1,176          |        |  | $ | 9,378        |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Common stock market
    price range (high: low) |                                                | $                                        | 1.50 : $1.01 |        |                | $ | 1.20 : $0.80 |               |  | $ | 1.20 : $0.87   |        |  | $ | 2.00 : $0.90 |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       

|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |        |  |   |              |        | 
|----------------------------------------------- | ---------------------------------------------- | ---------------------------------------- | ------------ | ------ | -------------- | - | ------------ | ------------- |  | - | -------------- | ------ |  | - | ------------ | ------ | 
|                                                |                                                |                                         
|                                                |                                                | 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                                          |                                                | $                                        | 140          |        |                | $ | 6,203        |               |  | $ | (2,853         | )      |  | $ | 1,996        |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       
|Common stock market
    price range (high: low) |                                                | $                                        | 2.75 : $1.20 |        |                | $ | 2.50 : $1.01 |               |  | $ | 1.75 : $0.80   |        |  | $ | 2.05 : $1.17 |       
|                                                |                                                |                                          |              |        |                |   |              |               |  |   |                |       

During the fiscal year ended June 30, 2004,
material adjustments were recorded relating to i) the loss
on disposition of the Wadley Donovan Group, totaling
$2.4 million in the third fiscal quarter, and ii) a
$1.0 million decrease in salaries and benefits expense due
to a reduction in the related self-insurance reserves, and a
$3.0 million deferred tax benefit due to a reduction in the
valuation allowance related to deferred tax assets, both of
which occurred in the fourth fiscal quarter.

42



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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, 2004, 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 2004
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 2004 fiscal year.






|         |                                                                                                    
|-------- | ---------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholders Matters

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 2004 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 2004 fiscal year.




Item 14. Principal Accountant Fees
and Services

The information called for by Item 14 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 2004 fiscal year.

43



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##### Table of Contents






GRUBB & ELLIS COMPANY

PART IV




Item 15. 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 Registered
    Public Accounting Firm and Consolidated Financial Statements are
    submitted herewith:

Report of Independent Registered Public
Accounting Firm

Consolidated Balance Sheets at June 30, 2004
and June 30, 2003

Consolidated Statements of Operations for the
years ended June 30, 2004, 2003 and 2002

Consolidated Statements of Stockholders
Equity for the years ended June 30, 2004, 2003 and 2002

Consolidated Statements of Cash Flows for the
years ended June 30, 2004, 2003 and 2002

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 November 1, 1994, 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.                                                                                                    

44



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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.

45



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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.                                                                                                                                                                                                                                                                                                                                                                    
|4.36 |  | Copy of Credit Agreement, dated as of
    June 11, 2004, entered into by and among the Registrant,
    certain of its subsidiaries, the Lenders (as defined
    in the Credit Agreement), Deutsche Bank Securities, Inc., as
    sole book-running manager and sole lead arranger, and Deutsche
    Bank Trust Company Americas, as initial swing line bank, the
    initial issuer of letters of credit and administrative agent for
    the lender parties, incorporated herein by reference to
    Exhibit 1 to the Registrants Current Report on
    Form 8-K filed on June 21, 2004.
|4.37 |  | Security Agreement, dated as of June 11,
    2004, by and among the Registrant, certain of its subsidiaries
    and Deutsche Bank Trust Company Americas, as administrative
    agent, for the Secured Parties (as defined in the
    Security Agreement), incorporated herein by reference to
    Exhibit 2 to the Registrants Current Report on
    Form 8-K filed on June 21, 2004.                                                                                                                                                                                                   

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.

47



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|       |  |                                                                                                                                                                                                                                                                                                                                       
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.        
|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, incorporated herein by reference to
    Exhibit 10.11 to the Registrants Annual Report on
    Form 10-K filed on September 28, 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, incorporated herein by reference to
    Exhibit 10.15 to the Registrants Annual Report on
    Form 10-K filed on October 10, 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,
    incorporated herein by reference to Exhibit 10.16 to the
    Registrants Annual Report on Form 10-K filed on
    October 10, 2003.                          
|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, incorporated herein by
    reference to Exhibit 10.17 to the Registrants Annual
    Report on Form 10-K filed on October 10, 2003.
|10.18* |  | Compensation Arrangement Letter between Maureen
    A. Ehrenberg and the Registrant dated May 22, 2003,
    incorporated herein by reference to Exhibit 10.18 to the
    Registrants Annual Report on Form 10-K filed on
    October 10, 2003.                                                                                       

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|       |  |                                                                                                                                                                                                                                                                                                                                 
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                    
|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.

49



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|      |  |                                                                                                                                                                                                                                                                                                                                             
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.

(21) Subsidiaries of the
Registrant

(23) Consent of Independent Registered
Public Accounting Firm

(24) Powers of Attorney

(31) Section 302
Certifications

(32) Section 906
Certification

(b) Reports filed on
Form 8-K



| |                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A Current Report on Form 8-K dated
    June 11, 2004, was filed with the Securities and Exchange
    Commission on June 21, 2004, reporting under Item 5
    the summary of the terms of the Credit Agreement for term loan
    facility and revolving credit facility from Deutsche Bank.

50



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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 |  | September 28, 2004

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 |  | September 28, 2004
|/s/ Robert H. OsbrinkRobert H. Osbrink
    Executive Vice President
    acting in capacity of co-Chief Executive Officer       |  | September 28, 2004

Principal Financial and Accounting
Officer

|                                                                                                                        |  |                   
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------
|/s/ Brian D. ParkerBrian D. Parker
    Chief Financial Officer and
    acting in capacity of co-Chief Executive Officer |  | September 28, 2004

Directors

|                                |  |                   
|------------------------------- |  | ------------------
|*R. David Anacker, Director     |  | September 28, 2004
|*Anthony G. Antone, Director    |  | September 28, 2004
|*C. Michael Kojaian, Director   |  | September 28, 2004
|*Robert J. McLaughlin, Director |  | September 28, 2004
|*Rodger D. Young, Director      |  | September 28, 2004
|                               
|/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,
2004


|                                                                     |  |  |  | 
|-------------------------------------------------------------------- |  |  |  | 
|Exhibit                                                              |  |  | 
|                                                                     |  |  | 
|(21)    Subsidiaries of
    the Registrant                          
|(23)    Consent of
    Independent Registered Public Accounting Firm
|(24)    Powers of
    Attorney                                      
|(31)    Section 302
    Certifications                              
|(32)    Section 906
    Certification                               

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

52