Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

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 þ     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 a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

The aggregate market value of voting common stock held by non-affiliates of the registrant as of June 30, 2007 was approximately $177,270,167.

The number of shares outstanding of the registrant’s common stock as of March 7, 2008 was 65,094,777 shares.

Grubb & Ellis Company (“the Company” or “Grubb & Ellis”), a Delaware corporation founded 50 years ago in Northern California, is one of the country’s largest and most respected commercial real estate services and investment management firms. As more fully described below, on December 7, 2007, the Company effected a stock merger (the “Merger”) with NNN Realty Advisors, Inc. (“NNN”), a real estate asset management company and nationally recognized sponsor of tax deferred tenant in common (“TIC”) 1031 property exchanges as well as a sponsor of public non-traded real estate investment trusts (“REITs”) and other investment programs. Upon the closing of the Merger, a change of control of the Company occurred. The former stockholders of NNN acquired approximately 60% of the Company’s issued and outstanding common stock.

With 130 owned and affiliate offices worldwide (57 owned and approximately 73 affiliates) and more than 6,000 professionals, including a brokerage sales force of more than 1,800 brokers, the Company offers property owners, corporate occupants and program investors comprehensive integrated real estate solutions, including transactions, management, consulting and investment advisory services supported by proprietary market research and extensive local market expertise. The combination of the established Grubb & Ellis brand with the innovative real estate investment programs sponsored by the Company’s subsidiary Grubb & Ellis Realty Investors, LLC (“GERI”) (formerly Triple Net Properties, LLC) broadens and strengthens the overall strategic and financial platform of the Company. As a result, the Company is now more balanced and diversified in its product and service offerings, which enhances its financial stability and better positions the Company to pursue growth opportunities, both domestically and internationally, as well as to better serve its clients.

In certain instances throughout this Annual Report phrases such as “legacy Grubb & Ellis” or similar descriptions are used to reference, when appropriate, the Company prior to the Merger. Similarly, in certain instances throughout this Annual Report the term NNN, “legacy NNN”, or similar phrases are used to reference, when appropriate, NNN Realty Advisors, Inc. prior to the Merger.

As a result of the Merger in December 2007, the newly combined Company’s operating segments were evaluated for reportable segments. As a result, the legacy NNN reportable segments were realigned into a single operating and reportable segment called Investment Management. This realignment had no impact on the Company’s consolidated balance sheet, results of operations or cash flows.

The Company reports its revenue by three business segments in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures about Segments of an Enterprise and Related Information: Investment Management, which includes providing acquisition, financing and disposition services with respect to its programs, asset management services related to its programs, and dealer-manager services by its securities broker-dealer, which facilitates capital raising transactions for its TIC, REIT and other investment programs; Transaction Services, which comprises its real estate brokerage operations; Management Services, which includes property management, corporate facilities management, project management, client accounting, business services and engineering services for unrelated third parties and the properties owned by the programs it sponsors, and additional information on these business segments can be found in Note 18 of Notes to Consolidated Financial Statements in Item 8 of this Report.

For the year ended December 31, 2007, the Company, after giving pro forma effect to the Merger, as well as other acquisitions completed during the year, generated combined revenue of approximately $732.8 million and income from continuing operations of approximately $2.7 million.

Grubb & Ellis has a 50 year track record of proven performance in the commercial real estate industry and is one of the largest real estate brokerage firms in the country, offering clients the experience of thousands of successful transactions and the expertise that comes from a nationwide platform. By focusing on the overall business objectives of its clients, Grubb & Ellis utilizes its research capabilities, extensive properties database and expert negotiation skills to create, buy, sell and lease opportunities for both users and owners of commercial real estate. With a comprehensive approach to transactions, Grubb & Ellis offers a full suite of services to clients, from site selection and sale negotiations to needs analysis, occupancy projections, prospect qualification, pricing recommendations, long-term value consultation, tenant representation and consulting services. As one of the most active and largest commercial real estate brokerages in the United States, Grubb & Ellis’ traditional real estate services provide added value to the real estate investment programs of its affiliates by offering a comprehensive market view and local area expertise. This powerful business combination allows the company to identify attractive investment properties and quickly acquire them for the benefit of its program investors. In addition, select brokers will have the opportunity to cross-sell product through the investment management platform.

The Company actively engages its brokerage force in the execution of its marketing strategy. Regional and metro-area managing directors, who are responsible for operations in each major market, facilitate the development of brokers. Through the Company’s specialty practice groups, known as “Specialty Councils,” key personnel share information regarding local, regional and national industry trends and participate in national marketing activities, including trade shows and seminars. This ongoing dialogue among brokers serves to increase their level of expertise as well as their network of relationships, and is supplemented by other more formal education, including recently expanded training programs offering sales and motivational training and cross-functional networking and business development opportunities.

In some local markets where the Company does not have owned offices, it has affiliation agreements with independent real estate service providers that conduct business under the Grubb & Ellis brand. The Company’s affiliation agreements provide for exclusive mutual referrals in their respective markets, generating referral fees. The Company’s affiliation agreements are generally multi-year contracts. Through its affiliate offices, the Company has access to more than 900 brokers with local market research capabilities.

The Company’s Corporate Services Group provides comprehensive coordination of all required Grubb & Ellis services to realize the needs of client’s real estate portfolios and to maximize their business objectives. These services include consulting services, lease administration, strategic planning, project management, account management and international services. As of December 31, 2007, Grubb & Ellis had in excess of 1,800 brokers at its owned and affiliate offices, of which 927 brokers were at its owned offices, up from 917 at December 31, 2006. Approximately 47% and 53% of legacy Grubb & Ellis transaction services revenue were from leasing and sale transactions, respectively, during 2007.

Grubb & Ellis delivers integrated property, facility, asset, construction, business and engineering management services to a host of corporate and institutional clients. The Company offers customized programs that focus on cost-efficient operations and tenant retention.

The Company manages a comprehensive range of properties including headquarters, facilities and class A office space for major corporations, including many Fortune 500 companies. Grubb & Ellis’ skills extend to management of industrial, manufacturing and warehousing facilities as well as data centers, retail outlets and multi-family properties for real estate users and investors.

Additionally, Grubb & Ellis provides consulting services, including site selection, feasibility studies, exit strategies, market forecasts, appraisals, strategic planning and research services.

The Company is committed to providing unparalleled client service. In addition to expanding the scope of products and services offered, it is also focused on ensuring that it can support client relationships with

Grubb & Ellis Management Services, the Company’s management services subsidiary, was recognized as Microsoft Corporation’s top vendor of 2007 from among more than 15,000 vendors. At December 31, 2007, Grubb & Ellis managed approximately 216 million square feet, of which 175 million were from third parties and 41 million related to its investment management programs.

The Company and its subsidiaries are leading sponsors of real estate investment programs that provide individuals and institutions the opportunity to invest in a broad range of real estate investment vehicles, including tax-deferred 1031 TIC exchanges; public REITs and real estate investment funds. As of December 31, 2007, more than $3 billion in investor equity has been raised for these investment programs; the Company has more than $5.7 billion of assets under management related to the various programs that it sponsors. The Company has completed transaction acquisition and disposition volume totaling approximately $10.0 billion on behalf of more than 34,000 program investors since its founding in 1998.

Investment management products are distributed through the Company’s broker-dealer subsidiary, Grubb & Ellis Securities Inc. (“GBE Securities”) (formerly NNN Capital Corp.). GBE Securities is registered with the Securities and Exchange Commission (the “SEC”), the Financial Industry Regulatory Authority (“FINRA”) and all 50 states. GBE Securities has agreements with an extensive network of broker dealers with more than 150 selling agreements and over 40,000 registered representatives as of December 31, 2007. Part of the Company’s strategy is to expand its network of broker-dealers to increase the amount of equity that it raises in its various investment programs.

GERI, a subsidiary of the Company, is a recognized market leader in the securitized TIC industry as measured by total equity raised according to published reports of OMNI Research and Consulting. This product strategy allows investors to fractionally own large, institutional-quality real estate assets with the added advantage of qualifying for deferred tax benefits on real estate capital gains. The aggregate amount of equity that has been invested in the TIC industry has grown from less than $200 million in 2001 to approximately $2.4 billion in 2007, according to published reports of Omni Research and Consulting. The Company currently sponsors more than 150 TIC programs and has taken more than 50 programs full cycle (from acquisition through disposition). The Company raised more than $450 million of TIC equity in 2007.

Public non-traded REITs are registered with the SEC but are not listed on any of the securities exchanges like a traded REIT. According to the published Stanger Report, Winter 2008, by Robert A. Stanger and Co., an independent financial advisor, approximately $11.5 billion was raised in this sector in 2007. The Company sponsors two demographically focused programs that are actively raising capital, the Grubb & Ellis Healthcare REIT, Inc. and the Grubb & Ellis Apartment REIT, Inc. which raised more than $280 million in combined capital in 2007.

On February 12, 2008, the Company launched its Wealth Management Platform for high net worth investors. This platform provides comprehensive real estate investment and advisory services to high net worth investors, offering qualified individuals, entities and corporations, the opportunity to benefit from the potential advantages of real estate investment through a passive, sole-ownership vehicle that delivers discretion to the investor. The Wealth Management Platform is open to all qualified investors seeking to build or expand their commercial real estate portfolio, whether their investment objectives are tax-deferred 1031 exchange driven or not. The Company had $180 million of committed investments through this platform at the time it was initiated.

The Company intends to start a family of U.S. and global open and closed end mutual funds that focus on real estate securities and manage private investment funds exclusively for qualified investors through its 51% ownership in Grubb & Ellis Alesco Global Advisors, LLC. The Company also looks for joint venture opportunities and currently manages over $475 million of real estate for which it maintains a minority ownership interest. Through its multi-family platform, the Company provides investment management services

The Company seamlessly integrates its traditional transaction and management services with the innovative investment programs of GERI. All functions of the new Company work together to provide comprehensive service to clients and program investors. Teamed with a forward-looking investment strategy that seeks to capitalize on the nation’s changing demographics, the Company’s various service offerings support its investment programs to provide clients and program investors with a full array of solutions for multiple needs. The proprietary research and demographic investing strategy of the Company establishes a foundation upon which its investment programs are based. The real estate brokerage network of the Company offers keen insight into the available pool of assets nationwide, in order to maximize acquisition opportunities for program investors. The professional property and asset management services of the Company drive value to each of the investment programs from acquisition through ultimate disposition. Additionally, the business platform of the post-merger Company is designed to offer consistent and reliable growth and better withstand the fluctuations and turbulence of commercial real estate market cycles. The Company’s management believes that it has the vision, financial strength, discipline and strategy to deliver innovative solutions across the full spectrum of commercial real estate, whether it is a need for space, strategic planning or a real estate investment product that meets specific return criteria.

The Company has re-branded its investment programs as Grubb & Ellis subsequent to the Merger to capitalize on the strength of the brand name. Its TIC programs are sponsored by GERI, its REIT investment programs are now Grubb & Ellis Healthcare REIT, Inc. and Grubb & Ellis Apartment REIT, Inc. and its FINRA registered broker-dealer, NNN Capital Corp., is now GBE Securities, Inc. The Company expects to achieve $10.0 million of expense synergies in the first twelve months following the Merger and $18.5 million of synergies in the first 18 months as a result of expense and revenue cross-selling opportunities.

Pursuant to an Agreement and Plan of Merger dated May 22, 2007 (the “Merger Agreement”) by and among the Company, NNN, and a wholly-owned merger subsidiary of the Company, upon the effectiveness of the Merger, NNN would become a wholly-owned subsidiary of the Company, and in connection therewith (i) each issued and outstanding share of common stock of NNN would automatically be converted into a 0.88 of a share of common stock of the Company, and (ii) each issued and outstanding stock option of NNN, exercisable for common stock of NNN, would automatically be converted into the right to receive stock option exercisable for common stock of the Company based on the same 0.88 share conversion ratio.

Unless otherwise indicated, all pre-merger NNN share data has been adjusted to reflect the conversion as a result of the Merger (see Note 9 of Notes to Consolidated Financial Statements in Item 8 of this Report for additional information).

At a special meeting of each of the Company’s and NNN’s stockholders, both of which were held on December 6, 2007, stockholders of both companies representing a majority of each company’s issued and outstanding common stock voted to adopt the Merger Agreement. In addition, the stockholders of the Company representing a majority of the issued and outstanding shares of the Company’s common stock voted in favor of each of the following proposals, subject to the consummation of the Merger, to (i) amend the Company’s amended and restated certificate of incorporation to increase the authorized number of shares of the Company’s common stock from 50 million to 100 million; (ii) issue common stock to the NNN stockholders in connection with the Merger, (iii) amend the Company’s amended and restated certificate of incorporation to increase the authorized number of shares of the Company’s preferred stock from one million to 10 million; (iv) provide for a classified board of directors comprising three classes of directors, the first class of directors, Class A directors, having a term that would initially expire on the Company’s next annual meeting of stockholders after the effective date of the Merger, the second class of directors, Class B directors, having a term that would initially expire on the Company’s second annual meeting of stockholders after the

Accordingly, upon the closing of the Merger, which occurred on December 7, 2007, the 43,779,740 shares of common stock of NNN that were issued and outstanding immediately prior to the Merger were automatically converted into 38,526,171 shares of common stock of the Company, and the 2,249,850 NNN restricted stock and stock options that were issued and outstanding immediately prior to the Merger were automatically converted into 1,979,868 shares of restricted stock and stock options of the Company. The shares of the Company’s common stock issued in connection with the Merger were registered under the Securities Act of 1933, as amended (the “Securities Act”), and the Company’s common stock, including the shares of common stock issued pursuant to the Merger, continue to trade on the New York Stock Exchange (the “NYSE”) under the symbol “GBE”.

Upon the closing of the Merger, each of Mark E. Rose, Anthony G. Antone and F. Joseph Moravec (a former member of the Audit Committee) resigned from the Company’s board of directors. Scott D. Peters became Chief Executive Officer and President and Andrea Biller became General Counsel, Executive Vice President and Corporate Secretary. In addition, upon the closing of the merger C. Michael Kojaian resigned from the position of chairman of the board of directors of the Company (without resigning or otherwise affecting his position as a director of the Company) upon the closing of the merger and Anthony W. Thompson became chairman of the Company’s board of directors. Mr. Thompson subsequently resigned as chairman of the board of directors effective February 8, 2008 and Glenn L. Carpenter was appointed the Company’s chairman of the board of directors.

Effective December 7, 2007, the Company amended its amended and restated certificate of incorporation and bylaws as contemplated by the Merger Agreement. In addition, the Company’s bylaws were also amended to comply with the regulations of the NYSE that before January 1, 2008, the Company’s by-laws expressly provide for uncertified shares of stock to be evidenced by a book-entry system, by stock certificates, or by a combination of both.

Finally, subsequent to the closing of the Merger, in December 2007, the Company relocated its headquarters from Chicago, Illinois to Santa Ana, California, changed its fiscal year from June 30 to December 31, and appointed Ernst & Young LLP (“Ernst & Young”) as its independent registered public accounting firm to audit financial statements of the Company going forward.

On December 7, 2007, in connection with the Merger, the Company replaced its existing amended and restated $60 million senior secured revolving credit facility (the “Prior Credit Facility”) with a Second Amended and Restated Credit Agreement (the “New Credit Facility”) by and among the Company, certain of the Company’s subsidiaries (the “Guarantors”), the initial lender named therein, Deutsche Bank Trust Company Americas, as syndication agent, Deutsche Bank Securities, Inc., as sole book-running manager and sole lead arranger, and Deutsche Bank Trust Company Americas (“Deutsche Bank”), as the initial issuing bank, swing line bank and administrative agent for the Lenders. Deutsche Bank was the lead bank in the Prior Credit Facility.

The New Credit Facility increased the overall size of the Prior Credit Facility from $60 million to $75 million, and eliminated the currently outstanding $20 million term loan portion of the Prior Credit Facility. Proceeds from the New Credit Facility may be used for general corporate purposes, including the repayment of amounts borrowed under the Company’s Prior Credit Facility. As of December 31, 2007, there was $8.0 million outstanding under the New Credit Facility. As a condition to the closing of the New Credit Facility, the existing $25 million unsecured credit facility of NNN with LaSalle Bank, N.A. was terminated. The New Credit Facility extends the terms of the Prior Credit Facility to December 7, 2010 subject to the

As a condition to entering into the New Credit Facility, the Company and certain subsidiaries simultaneously entered into a Second Amended and Restated Security Agreement, dated December 7, 2007, with Deutsche Bank, in its capacity as administrative agent, pursuant to which the Company granted a first priority security interest in substantially all of the Company’s assets to the “Secured Parties” as that term is defined in such Second Amended and Restated Security Agreement.

During the first half of 2007, the Company acquired three commercial properties — the Danbury Corporate Center in Danbury, Connecticut, Abrams Center in Dallas, Texas and 6400 Shafer Court in Rosemont, Illinois — for an aggregate contract price of $122.2 million, along with acquisition costs of approximately $1.3 million, and assumed obligations of approximately $542,000. The Company acquired the three properties pursuant to its warehousing strategy to accumulate these assets with the intention to hold them for future sale to Grubb & Ellis Realty Advisors, Inc. (“GERA”), the Company’s investment management affiliate which is a publicly traded special purpose acquisition company (“SPAC”) formed by the Company in September 2005. The Company funded its equity position in these acquisitions primarily with borrowings from its Prior Credit Facility.

Simultaneous with the acquisition of the third property in June 2007, the Company closed two non-recourse mortgage loan financings with Wachovia Bank, National Association in an aggregate amount of $120.5 million. The proceeds of the mortgage loans were used to finance the purchase of this third property, to fund certain required reserves for all three properties, to pay the lender’s fees and costs and to repay certain amounts borrowed by the Company through its credit facility with respect to the first two properties purchased.

On June 18, 2007, the Company, along with its wholly owned subsidiary, GERA Property Acquisition, LLC, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with GERA which contemplated the transfer of the three commercial office properties from the Company to GERA and, if consummated, would constitute GERA’s business combination. Pursuant to the Purchase Agreement, the Company was to sell the properties to GERA on a “cost neutral basis,” plus reimbursement for the actual costs and expenses paid by the Company with respect to the purchase of the properties and imputed interest on cash advanced by the Company with respect to the properties.

Under the terms of the Purchase Agreement, the Purchase Agreement was subject to termination under certain circumstances, including but not limited to if GERA failed to obtain the requisite stockholder consents required under the laws of the State of Delaware and GERA’s charter to approve the transactions contemplated by the Purchase Agreement.

On February 28, 2008, at a special meeting of the stockholders of GERA held to vote on, among other things, the proposed transaction with the Company, GERA failed to obtain the requisite consents of its stockholders to approve its proposed business combination (the transactions contemplated by the Purchase Agreement). Specifically, of the 23,958,334 shares of GERA common stock eligible to vote with respect to the proposed transaction, stockholders holding an aggregate of 22,695,082 shares voted on the transaction. Of those stockholders voting, 17,144,944 shares were cast against the proposed business combination, and the holders of all such 17,144,944 shares also elected to convert their shares into a pro rata share of GERA’s trust account. 4,860,127 shares voted in favor of the proposed business combination, and the remaining shares did not vote with respect to the proposed transaction.

As a result thereof, GERA, in accordance with Section 8.1(f) of the Purchase Agreement, advised the Company in a letter effective February 28, 2008, that it was terminating the Purchase Agreement in accordance with its terms.

As a result of its failure to obtain the requisite stockholder approvals, GERA is unable to effect a business combination within the proscribed deadline of March 3, 2008 in accordance with its charter. Consequently, GERA filed a proxy statement with the SEC on March 11, 2008 with respect to a special meeting of its stockholders to vote on the dissolution and liquidation of GERA. The Company will write-off in the first quarter of 2008 its investment in GERA of approximately $5.6 million, including its stock and warrant purchases, operating advances and third party costs. The Company will also pay any third-party legal, accounting, printing and other costs (other than monies to be paid to stockholders of GERA on liquidation) associated with the dissolution and liquidation of GERA. In addition to the Company bearing the dissolution and liquidation costs of GERA, the various exclusive service agreements that the Company had previously entered into with GERA for transaction services, property and facilities management, and project management, will no longer be of any force or effect. The Company presently intends to market the three commercial properties so as to effect their sale on or before September 30, 2008, as required under the terms of its credit facility.

The U.S. commercial real estate services industry is large and highly fragmented, with thousands of companies providing asset management, investment management and brokerage services. In recent years the industry has experienced substantial consolidation, a trend that is expected to continue.

The top 25 brokerage companies collectively completed nearly $842 billion in investment sales and leasing transactions globally in 2006, according to the latest available survey published by National Real Estate Investor, which is the most recent available survey. The Company ranked 12th in this survey, including transactions in its affiliate offices.

Within the management services business, according to a recent survey published in 2007 by National Real Estate Investor, the top 25 companies in the industry manage over 7.5 billion square feet of commercial property. The Company ranks as the eighth largest property management company in this survey with 210 million square feet under management at year end 2006, including property under management in its affiliate offices. The largest company in the survey had 1.7 billion square feet under management.

The Company competes in a variety of service businesses 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 regional and national service providers, but also from global real estate providers, boutique real estate advisory firms and appraisal firms. Although many of the Company’s competitors are local or regional firms that are substantially smaller than the Company, some competitors are substantially larger than the Company on a local, regional, national and/or international basis. The Company’s significant competitors include CB Richard Ellis, Jones Lang LaSalle and Cushman & Wakefield, all of which have global platforms. The Company believes that it needs such a platform in order to effectively compete for the business of large multi-national corporations that are increasingly seeking a single real estate services provider. While there can be no assurances that the Company will be able to continue to compete effectively, maintain current fee levels or margins, or maintain or increase its market share, based on its competitive strengths, the Company believes that it can operate successfully in the future in this highly competitive industry.

The Company believes there are only limited barriers to entry in its asset management business. Its programs face competition generally from REITs, institutional pension plans and other public and private real estate companies and private real estate investors for the acquisition of properties and for raising capital to create programs to make these acquisitions. In investment management services, it faces competition with other real estate firms in the acquisition and disposition of properties, and it also competes with other sponsors of real estate investment programs for investors to provide the capital to allow it to make these investments. It also competes against other real estate companies who may be chosen by a broker-dealer as an investment platform instead of the Company and with other broker-dealers and other properties for viable tenants for its programs’ properties. Finally, GBE Securities faces competition from institutions that provide or arrange for

Federal, state and local laws and regulations impose environmental zoning restrictions, use controls, disclosure obligations and other restrictions that impact the management, development, use, and/or sale of real estate. Such laws and regulations tend to discourage sales and leasing activities, as well as the willingness of mortgage lenders to provide financing, with respect to some properties. If transactions in which the Company is involved are delayed or abandoned as a result of these restrictions, the brokerage business could be adversely affected. In addition, a failure by the Company to disclose known environmental concerns in connection with a real estate transaction may subject the Company to liability to a buyer or lessee of property.

The Company generally undertakes a third-party Phase I investigation of potential environmental risks when evaluating an acquisition for a sponsored program. A Phase I investigation is an investigation for the presence or likely presence of hazardous substances or petroleum products under conditions that indicate an existing release, a post release or a material threat of a release. A Phase I investigation does not typically include any sampling. The Company’s programs may acquire a property with environmental contamination, subject to a determination of the level of risk and potential cost of remediation.

Various environmental laws and regulations also can impose liability for the costs of investigating or remediation of hazardous or toxic substances at sites currently or formerly owned or operated by a party, or at off-site locations to which such party sent wastes for disposal. As a property manager, the Company could be held liable as an operator for any such contamination, even if the original activity was legal and the Company had no knowledge of, or did not cause, the release or contamination. Further, because liability under some of these laws is joint and several, the Company could be held responsible for more than its share, or even all, of the costs for such contaminated site if the other responsible parties are unable to pay. The Company could also incur liability for property damage or personal injury claims alleged to result from environmental contamination, or from asbestos-containing materials or lead-based paint present at the properties that it manages. Insurance for such matters may not always be available, or sufficient to cover the Company’s losses. Certain requirements governing the removal or encapsulation of asbestos-containing materials, as well as recently enacted local ordinances obligating property managers to inspect for and remove lead-based paint in certain buildings, could increase the Company’s costs of legal compliance and potentially subject the Company to violations or claims. Although such costs have not had a material impact on the Company’s financial results or competitive position in 2007, the enactment of additional regulations, or more stringent enforcement of existing regulations, could cause the Company to incur significant costs in the future, and/or adversely impact the brokerage and management services businesses. See Note 20 of Notes to Consolidated Financial Statements in Item 8 of this Report for additional information.

Notwithstanding the Company’s expanded business platform as a consequence of the Merger, a substantial portion of the Company’s revenues are derived from brokerage transaction services, which are seasonal in nature. As a consequence, 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 from transaction services 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. Transaction services revenue represented 42.6% of the $732.8 million pro forma combined revenue for 2007.

The Company and its brokers, salespersons and, in some instances, property managers are regulated by the states in which it does business. These regulations may include licensing procedures, prescribed professional responsibilities and anti-fraud provisions. The Company’s activities are also subject to various local, state, national and international jurisdictions’ fair advertising, trade, housing and real estate settlement laws and regulations and are affected bylaws and regulations relating to real estate and real estate finance and development. Because the size and scope of real estate sales transactions have increased significantly during the past several years, both the difficulty of ensuring compliance with the numerous state statutory requirements and licensing regimes and the possible liability resulting from non-compliance have increased.

The securities industry is subject to extensive regulation under federal and state law. Broker-dealers are subject to regulations covering all aspects of the securities business. In general, broker-dealers are required to register with the SEC and to be members of FINRA or the NYSE. As a member of FINRA, GBE Securities’ broker-dealer business is subject to the requirements of the Securities Exchange Act of 1934 as amended (the “Exchange Act”) and the rules promulgated thereunder relating to broker-dealers and to the Rules of Fair Practice of FINRA. These regulations establish, among other things, the minimum net capital requirements for GBE Securities’ broker-dealer business. Such business is also subject to regulation under various state laws in all 50 states and the District of Columbia, including registration requirements.

The Company has registered trade names and service marks for the “Grubb & Ellis” name and logo and certain other trade names. 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.

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.

As of December 31, 2007, the Company had approximately 4,700 employees including more than 900 transaction professionals working in 55 owned offices. Nearly 2,400 employees serve as property and facilities management staff at the Company’s client-owned properties and the Company’s clients reimburse the Company fully for their salaries and benefits. The Company considers its relationship with its employees to be good and has not experienced any interruptions of its operations as a result of labor disagreements.

The Company’s internet address is www.grubb-ellis.com. On the Investor Relations page on this web site, the Company posts its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its Current Reports on Form 8-K and its proxy statements as soon as reasonably practicable after it files them electronically with the SEC. All such filings on the Investor Relations web page are available to be viewed free of charge. In addition, a copy of this Annual Report on Form 10-K is available without charge by contacting Investor Relations, Grubb & Ellis Company, 1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705.

The Company’s business is negatively impacted by periods of economic slowdown or recession, rising interest rates and declining demand for real estate. These economic conditions could have a number of effects, including the following:

The real estate market tends to be cyclical and related to the condition of the economy overall and to the perceptions of investors and users as to the economic outlook. A downturn in the economy or the real estate markets could have a material adverse effect on the Company’s business and results of operations.

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 on a regional and local level. The Company faces competition not only from other national real estate service providers, but also from global real estate service providers, boutique real estate advisory firms, consulting and appraisal firms. Depending on the product or service, the Company also faces competition from other real estate service providers, institutional lenders, insurance companies, investment banking firms, investment managers and accounting firms, some of which may have greater financial resources than the Company does. The Company is also subject to competition from other large national firms and from multi-national firms that have similar service competencies to it. Although many of the Company’s competitors are local or regional firms that are substantially smaller than it, some of its competitors are substantially larger than it on a local, regional, national or international basis. In general, there can be no assurance that the Company will be able to continue to compete effectively, to maintain current fee levels or margins, or maintain or increase its market share.

The Company depends on its ability to attract and retain highly skilled personnel. The Company believes that its future success in developing its business and maintaining a competitive position will depend in large part on its ability to identify, recruit, hire, train, retain and motivate highly skilled executive, managerial, sales, marketing and customer service personnel. Competition for these personnel is intense, and the Company may not be able to successfully recruit, assimilate or retain sufficiently qualified personnel. The Company’s ability to attract new employees may be limited by certain restrictions in its senior secured credit facility, including limitations on cash bonus payments to new hires and may only make cash payments that exceed those limits if it receives approval from the administrative agent, which cannot be guaranteed. The Company’s failure to recruit and retain necessary executive, managerial, sales, marketing and customer service personnel could harm its business and its ability to obtain new customers.

Any material downturn in the Company’s revenue or increase in its costs and expenses could impair its ability to meet its debt obligations. The Company’s lenders under a senior secured credit facility have a lien on substantially all of its assets, including its accounts receivable, cash, general intangibles, investment property and future acquired material property. If the Company fails to meet its payment or other obligations under the senior secured credit facility, the lenders under such credit facility will be entitled to foreclose on substantially all of the Company’s assets and liquidate these assets.

Although the Company has previously announced that it intends to declare quarterly dividends, future cash dividends will depend upon the Company’s results of operations, financial condition, capital requirements, general business conditions and other factors that the Company’s board of directors may deem relevant. Also, there can be no assurance the Company will pay dividends even if the necessary financial conditions are met and sufficient cash is available for distribution.

Additionally, certain provisions in the Company credit facility prohibit the making of distributions or payments of dividends on its common stock in the event the Company fails to maintain certain financial covenants.

Although the Company does not currently conduct significant business outside the United States, the Company intends to expand its business to include international operations. Circumstances and developments related to international operations that could negatively affect the Company’s business or results of operations include, but are not limited to, the following factors:

Additionally, the Company may establish joint ventures with foreign entities for the provision of brokerage services abroad, which may involve the purchase or sale of the Company’s equity securities or the equity securities of the joint venture participant(s). In these joint ventures, the Company may not have the right or power to direct the management and policies of the joint venture and other participants may take action contrary to the Company’s instructions or requests and against the Company’s policies and objectives. In addition, the other participants may become bankrupt or have economic or other business interests or goals

The anti-takeover provisions of Delaware law impose various impediments on the ability or desire of a third party to acquire control of the Company, even if a change of control would be beneficial to its existing stockholders, and the Company will be subject to these Delaware anti-takeover provisions. Additionally, the Company’s amended and restated certificate of incorporation and its restated bylaws contain provisions that might enable its management to resist a proposed takeover of the Company. These provisions could discourage, delay or prevent a change of control of the Company or an acquisition of the Company at a price that its stockholders may find attractive. These provisions also may discourage proxy contests and make it more difficult for the Company’s stockholders to elect directors and take other corporate actions. The existence of these provisions could limit the price that investors might be willing to pay in the future for shares of the Company’s common stock. The provisions include:

Even though the Company does not have any preferred stock issued and outstanding, it has the right to issue so-called “blank check” preferred stock, which may affect the voting rights of holders of common stock and could deter or delay an attempt to obtain control of the Company. There are ten million shares of preferred stock authorized. The Company’s board of directors will be authorized, without any further stockholder approval, to issue one or more additional series of preferred stock. The Company will be authorized to fix and state the voting rights, powers, designations, preferences and relative participation or other special rights of each such series of preferred stock and any qualifications, limitations and restrictions thereon. Preferred stock typically ranks prior to the common stock with respect to dividend rights, liquidation preferences, or both, and may have full, limited, or expanded voting rights. Accordingly, additional issuances of preferred stock could further adversely affect the voting power and other rights of the holders of common stock.

Pursuant to the Company’s registration rights agreement with Kojaian Ventures, L.L.C. and Kojaian Holdings, LLC, these entities could, in the future, cause the Company to file additional registration statements with respect to its shares of common stock, which could have a negative impact on the Company’s share price.

As a consequence of the Merger, an aggregate of 24,180,483 shares of the Company’s common stock are “restricted securities” as that term is defined by Rule 144 of the Securities Act and may be sold only in compliance with Rule 144 of the Securities Act or pursuant to an effective registration statement. Such restricted securities are held by the Company’s directors, officers, and their affiliates and 22,957,737 are currently eligible for sale in accordance with Rule 144. Ordinarily, under Rule 144, as recently amended, a person who is an “affiliate” (as that term is defined in Rule 144) and has beneficially owned restricted securities for a period of six months may, every three months, sell in brokerage transactions an amount that

In addition, as a consequence of the Merger, there are an aggregate of 1,755,759 Company shares subject to issuance upon the exercise of outstanding options. Accordingly, these shares will be available for sale in the open market, subject to vesting restrictions, and, in the case of affiliates, certain volume limitations. The sale of shares either present to the exercise of outstanding options or as a consequence of the application of the vesting of certain restricted stock could also cause the price of the combined company’s common stock to decline.

The Company’s amended and restated certificate of incorporation provides that its board of directors be divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. As a result, at any annual meeting, only a minority of the board of directors will be considered for election. Since the Company’s “staggered board” would prevent its stockholders from replacing a majority of its board of directors at any annual meeting, it may entrench management and discourage unsolicited stockholder proposals that may be in the best interests of stockholders.

In the event that the Company experiences rapid growth in its operations, a significant strain may be placed upon management, administrative, operational and financial infrastructure. In addition to managing the successful integration of the two companies’ operations, the Company’s success will depend in part upon the ability of the executive officers to manage future growth effectively. The Company’s ability to grow also depends upon its ability to successfully hire, train, supervise and manage new employees, obtain financing for its capital needs, expand its systems effectively, allocate its human resources optimally, maintain clear lines of communication between its transactional and management functions and its finance and accounting functions, and manage the pressures on its management and administrative, operational and financial infrastructure. Additionally, managing future growth may be difficult due to the new geographic locations and business lines of the Company. There can be no assurance that the Company will be able to accurately anticipate and respond to the changing demands it will face as it integrates and continues to expand its operations, and it may not be able to manage growth effectively or to achieve growth at all. Any failure to manage the future growth effectively could have a material adverse effect on the Company’s business, financial condition and results of operations.

There can be no assurance that the anticipated cash flow from operations will be sufficient to meet all of the Company’s cash requirements. The Company intends to continue to make investments to support the Company’s business growth and may require additional funds to respond to business challenges. Accordingly, the Company may need to complete additional equity or debt financings to secure additional funds. The

The Company cannot provide assurance that its common stock will continue to be listed on the NYSE in the future. If the NYSE delists the Company’s common stock from trading on its exchange, then the Company could face significant material adverse consequences, including:

Although it would otherwise be required to do so, as a consequence of the Merger, the Company has received a waiver from the SEC to comply with the SEC’s rules under Section 404 of the Sarbanes-Oxley Act of 2002 that it furnish a report from its independent registered public accounting firm on its internal control over financial reporting with respect to the fiscal year ended December 31, 2007, and it will not have to do so until it files its Annual Report on Form 10-K for the fiscal year ending December 31, 2008.

Achieving the anticipated benefits of the Merger will depend in part upon the success of the two companies integrating their businesses in an efficient and effective manner. The companies may not be able to accomplish this integration process smoothly or successfully and integration may result in additional and unforeseen expenses. The necessity of coordinating geographically separated organizations, systems and facilities and addressing possible differences in business backgrounds, corporate cultures and management philosophies may increase the difficulties of integration. The companies operate numerous systems, including those involving management information, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance.

The integration of certain operations following the Merger will require the dedication of significant management resources, which may temporarily distract management’s attention from the day-to-day business of the Company. Employee uncertainty and lack of focus during the integration process may also disrupt the business of the Company. The companies may not be able to achieve the anticipated long-term strategic benefits of the Merger. An inability to realize the full extent of, or any of, the anticipated benefits of the Merger, as well as any delays encountered, or additional costs incurred, in the integration process, could have a material adverse effect on the business and results of operations of the Company, which may affect the value of the shares of the Company’s common stock.

In accordance with U.S. GAAP, NNN was considered the acquirer of the Company for accounting purposes. NNN accounted for the Merger using the purchase method of accounting, which resulted in charges to the Company’s earnings that could adversely affect the market value of the Company’s common stock. Under the purchase method of accounting, NNN allocated the total purchase price to the assets acquired and liabilities assumed from the Company based on their fair values as of the date of the completion of the Merger, and the Company recorded any excess of the purchase price over those fair values as goodwill. For certain tangible and intangible assets, reevaluating their fair values as of the completion date of the Merger resulted in the Company incurring additional depreciation and/or amortization expense that exceeds the combined amounts recorded by NNN and the Company prior to the Merger. This increased expense will be recorded by the Company over the useful lives of the underlying assets. In addition, to the extent the value of goodwill or intangible assets are to become impaired, the Company may be required to incur charges relating to the impairment of those assets.

The Company incurred a number of non-recurring costs associated with combining the operations of the two companies, the substantial majority of which were the transaction costs related to the Merger, facilities and systems consolidation costs and employment-related costs. Merger related transaction costs of $6.4 million were incurred by the Company as a result of completing the transaction. The Company also incurred transaction fees and costs related to formulating integration plans. Additional unanticipated costs may be incurred in the integration of the two companies’ businesses. Although the Company expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses should allow it to offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all, which could have a material adverse effect on the business and results of operations of the Company.

GERA did not obtain the requisite stockholders’ approvals at its special meeting of stockholders held on February 28, 2008 and did not effect a business combination prior to March 3, 2008, as required by its charter. As a consequence, GERA is required to dissolve and liquidate, which could harm the Company because of its association with that entity. Some of the ways that the Company could be harmed are:

Historically, the majority of the Company’s revenue has been derived from the transaction services that it provides. Such services are typically subject to seasonal fluctuations. The Company typically experiences its lowest quarterly revenue in the quarter ending March 31 of each year with higher and more consistent revenue in the quarters ending June 30 and September 30. The quarter ending December 31 has historically provided the highest quarterly level of revenue due to increased activity caused by the desire of clients to complete transactions by calendar year-end. However, 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. As a result, since a high proportion of these operating expenses are fixed, declines in revenue could disproportionately affect the Company’s operating results in a quarter. In addition, the Company’s quarterly operating results have fluctuated in the past and will likely continue to fluctuate in the future. If the Company’s quarterly operating results fail to meet expectations, the price of the Company’s securities could fluctuate or decline significantly.

The Company’s success partially depends upon the performance of the properties it manages. The revenue the Company generates from its property management business is generally a percentage of aggregate rent collections from the properties. The performance of these properties will depend upon the following factors, among others, many of which are partially or completely outside of the Company’s control:

These or other factors may negatively impact the properties that the Company manages, which could have a material adverse effect on its business and results of operations.

Due to the broad geographic scope of the Company’s operations and the numerous forms of real estate services performed, it is subject to numerous federal, state and local laws and regulations specific to the services performed. For example, the brokerage of real estate sales and leasing transactions requires the Company to maintain brokerage licenses in each state in which it operates. If the Company fails to maintain its licenses or conduct brokerage activities without a license, then it may be required to pay fines (including treble damages in certain states) or return commissions received or have licenses suspended. In addition, because the size and scope of real estate sales transactions have increased significantly during the past several years, both the difficulty of ensuring compliance with the numerous state licensing regimes and the possible loss resulting from non-compliance have increased. Furthermore, the laws and regulations applicable to the Company’s business, both in the United States and in foreign countries, also may change in ways that increase the costs of compliance. The failure to comply with both foreign and domestic regulations could result in significant financial penalties which could have a material adverse effect on the Company’s business and results of operations.

As a licensed real estate broker, the Company and its licensed employees and independent contractors that work for it are subject to statutory due diligence, disclosure and standard-of-care obligations. Failure to fulfill these obligations could subject the Company or its employees to litigation from parties who purchased, sold or leased properties that the Company or they brokered or managed. The Company could become subject to claims by participants in real estate sales claiming that the Company did not fulfill its statutory obligations as a broker.

In addition, in the Company’s property and facilities management businesses, it hires and supervises third-party contractors to provide construction and engineering services for its managed properties. While the Company’s role is limited to that of a supervisor, it may be subject to claims for construction defects or other similar actions. Adverse outcomes of property and facilities management litigation could have a material adverse effect on the Company’s business and results of operations.

Federal, state and local laws and regulations impose various environmental zoning restrictions, use controls, and disclosure obligations which impact the management, development, use, and/or sale of real estate. Such laws and regulations tend to discourage sales and leasing activities, as well as mortgage lending availability, with respect to some properties. A decrease or delay in such transactions may adversely affect the results of operations and financial condition of the Company’s real estate brokerage business. In addition, a failure by the Company to disclose environmental concerns in connection with a real estate transaction may subject it to liability to a buyer or lessee of property.

In addition, in its role as a property manager, the Company could incur liability under environmental laws for the investigation or remediation of hazardous or toxic substances or wastes at properties it currently or formerly managed, or at off-site locations where wastes from such properties were disposed. Such liability can be imposed without regard for the lawfulness of the original disposal activity, or the Company’s knowledge of, or fault for, the release or contamination. Further, liability under some of these laws may be joint and several, meaning that one liable party could be held responsible for all costs related to a contaminated site. The Company could also be held liable for property damage or personal injury claims alleged to result from environmental contamination, or from asbestos-containing materials or lead-based paint present at the properties it manages. Insurance for such matters may not be available.

Certain requirements governing the removal or encapsulation of asbestos-containing materials, as well as recently enacted local ordinances obligating property managers to inspect for and remove lead-based paint in

The Company derives fees for investment management services based on a percentage of the price of the properties acquired or disposed of by its programs and for management services based on a percentage of the rental amounts of the properties in its programs. The Company is responsible for the management of all of the properties owned by its programs, but as of December 31, 2007 it had subcontracted the property management of approximately 28.0% of its programs’ office, healthcare office and retail properties (based on square footage) and of its programs’ multi-family apartment units to third parties. As a result, if any of the Company’s programs are unsuccessful, both its transaction services and management services fees will be reduced, if any are paid at all. In addition, failures of the Company’s programs to provide competitive investment returns could significantly impair its ability to market future programs. The Company’s inability to spread risk among a large number of programs could cause it to be over-reliant on a limited number of programs for its revenues. The Company cannot make an assurance that it will maintain current levels of transaction and management services for its programs’ properties.

A significant element of the Company business strategy is the growth in the number of its programs. The consummation of any future program will be subject to raising adequate capital for the investment, identifying appropriate assets for acquisition and effectively and efficiently closing the transactions. The Company cannot make an assurance that it will be able to identify and invest in additional properties or will be able to raise adequate capital for new programs in the future. If the Company is unable to consummate new programs in the future, it will not be able to continue to grow the revenue it receives from either transaction or management services.

The Company’s ability to source capital for its programs depends significantly on access to the client base of securities broker-dealers and other financial investment intermediaries that may offer competing investment products. The Company believes that its future success in developing its business and maintaining a competitive position will depend in large part on its ability to continue to maintain these relationships as well as finding additional securities broker-dealers to facilitate offerings by its programs or to find investors for the Company’s TIC programs. The Company cannot be sure that it will continue to gain access to these channels. In addition, competition for capital is intense, and the Company may not be able to obtain the capital required to complete a program. The inability to have this access could have a material adverse effect on its business and results of operations.

The Company’s securities programs are sold through third-party broker-dealers who are members of its selling group. While the Company has established relationships with its selling group, it is required to enter into a new agreement with each member of the selling group for each new program it offers. In addition, the

The Company relies on selling broker-dealers and the Company’s sales force to properly offer its securities programs to customers in compliance with its selling agreements and with applicable regulatory requirements. While these persons are responsible for their activities as registered broker-dealers, their actions may nonetheless result in complaints or legal or regulatory action against the Company.

Section 1031 of the Internal Revenue Code provides for the deferral of capital gains taxes which would ordinarily arise from the sale of real estate through a tax-deferred exchange of property, which defers the recognition of capital gains tax until such time as the replacement property is sold in a taxable transaction. These transactions are referred to as 1031 exchanges. In 2002, the Internal Revenue Service, or IRS, issued advance ruling guidelines outlining the requirements for properly structured TIC arrangements, which the Company believes validate the TIC structure generally and as it employs it. However, as recently as May 2006, the Senate Finance Committee proposed a bill in the negotiations over the budget reconciliation tax-cutting package to modify Section 1031 treatment for TICs as a way to raise additional tax revenue. The proposal was unsuccessful, but the Company cannot assure you that in the future there will not be attempts to limit or disallow the tax deferral benefits for TIC transactions. For the year ended December 31, 2007, approximately 12% of the Company’s total revenue was derived from TIC acquisition fees. If the Company were no longer able to structure TIC programs as 1031 exchanges for its investors, it would lose a significant amount of revenue in the future, which would materially affect its results of operations. Moreover, any attempt to limit or disallow the tax deferral benefits of the 1031 exchange generally would have a material adverse effect on the real estate industry generally and on the Company’s business and results of operations.

The Company structures TIC programs and public non-traded REITs to provide favorable tax treatment to investors. For example, its TIC investors are able to defer the recognition of gain on sale of investment or business property if they enter into a 1031 exchange. Similarly, qualified REITs generally are not subject to federal income tax at corporate rates, which permits REITs to make larger distributions to investors (i.e. without reduction for federal income tax imposed at the corporate level). If the Company fails to properly structure a TIC transaction or if a REIT fails to satisfy the complex requirements for qualification and taxation as a REIT under the Internal Revenue Code, the Company could be subject to claims by investors as a result of additional tax they may be required to pay or because they are unable to receive the distributions they

The Company may from time to time invest its capital in certain real estate investments with other real estate firms or with institutional investors such as pension plans. Any co-investment will generally require the Company to make initial capital contributions, and some co-investment entities may request additional capital from the Company and its subsidiaries holding investments in those assets. These contributions could adversely impact the Company’s cash flows and financial condition. Moreover, the failure to provide these contributions could have adverse consequences to the Company’s interests in these investments. These adverse consequences could include damage to the Company’s reputation with its co-investment partners as well as dilution of ownership and the necessity of obtaining alternative funding from other sources that may be on disadvantageous terms, if available at all.

The Company’s programs generally focus on acquiring assets satisfying particular investment criteria, such as type or quality of tenants. There is generally no or little focus on the geographic location of a particular property. The Company cannot guarantee, however, that its programs will have, or will be able to maintain, a significant amount of geographic diversity. Although the Company’s property programs are located in 30 states, a majority of these properties (by square footage) are located in Texas, California, Florida and Colorado. Geographic concentration of properties exposes the Company’s programs to economic downturns in the areas where the properties are located. A regional recession or other major, localized economic disruption in a region, such as earthquakes and hurricanes, in any of these areas could adversely affect the Company’s programs’ ability to generate or increase their operating revenues, attract new tenants or dispose of unproductive properties. Any reduction in program revenues would effectively reduce the fees the Company generates from them, which would adversely affect the Company’s results of operations and financial condition.

Although Realty was required to have real estate licenses in states in which it acted as a broker for NNN’s investment programs and received real estate commissions prior to 2007, Realty did not hold a license in certain of those states when it earned fees for those services. In addition, almost all of GERI’s revenue was based on an arrangement with Realty to share fees from NNN’s programs. GERI did not hold a real estate license in any state, although most states in which properties of NNN’s programs were located may have required GERI to hold a license in order to share fees. As a result, Realty and the Company may be subject to penalties, such as fines (which could be a multiple of the amount received), restitution payments and termination of management agreements, and to the suspension or revocation of certain of Realty’s real estate broker licenses.

The Company has entered into agreements with third-party management companies to provide property management services for a significant number of the Company’s programs’ properties, and the Company expects to enter into similar third-party management agreements with respect to properties the Company’s programs acquire in the future. The Company does not supervise these third-party managers and their personnel on a day-to-day basis and the Company cannot assure you that they will manage the Company’s programs’ properties in a manner that is consistent with their obligations under the Company’s agreements, that they will not be negligent in their performance or engage in other criminal or fraudulent activity, or that these managers will not otherwise default on their management obligations to the Company. If any of the foregoing occurs, the relationships with the Company’s programs’ tenants could be damaged, which may cause the tenants not to renew their leases, and the Company could incur liabilities resulting from loss or injury to the properties or to persons at the properties. If the Company is unable to lease the properties or the Company become subject to significant liabilities as a result of third-party management performance issues, the Company’s operating results and financial condition could be substantially harmed.

One of the Company’s business strategies is to develop new programs. The development of a new program requires the identification and subsequent acquisition of properties when the opportunity arises. In some instances, in order to effectively and efficiently complete a program, the Company may provide deposits for the acquisition of property or actually purchase the property and warehouse it temporarily for the program. If the Company does not have cash on hand available to pay these deposits or fund an acquisition, the Company or the Company’s programs may be required to incur additional indebtedness, which indebtedness may not be available on acceptable terms. If the Company incurs substantial debt, the Company could lose its interests in any properties that have been provided as collateral for any secured borrowing, or the Company could lose its assets if the debt is recourse to it. In addition, the Company’s cash flow from operations may not be sufficient to repay these obligations upon their maturity, making it necessary for the Company to raise additional capital or dispose of some of its assets. The Company cannot assure you that it will be able to borrow additional debt on satisfactory terms, or at all.

From time to time the Company provides guarantees of loans for properties under management. As of December 31, 2007, there were 143 properties under management with loan guarantees of approximately $3.4 billion in total principal outstanding with terms ranging from one to 30 years, secured by properties with a total aggregate purchase price of approximately $4.6 billion at December 31, 2007. The Company’s guarantees consisted of the following as of December 31, 2007.

Management evaluates these guarantees to determine if the guarantee meets the criteria required to record a liability in accordance with FASB Financial Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN No. 45”). The liability was insignificant as of December 31, 2007.

The agreements under which the Company provides advisory and management services to public non-traded REITs may generally be terminated by each REIT following a notice period, with or without cause. The Company cannot assure you that these agreements will not be terminated. In addition, if the Company has a significant amount of TIC programs selling their properties or public non-traded REITs liquidating in the same period, the Company’s revenues would decrease unless it is able to find replacement programs to generate new fees. The Company is currently in the process of liquidating two of its public non-traded REITs and, as a result, the Company’s management fees from these REITs have been reduced due to the number of properties that have been sold. Any decrease in the Company’s fees, as a result of termination of a contract or customary close out or liquidation of a program, could have a material adverse effect on the Company’s business, results of operations and financial condition.

The potential growth in revenue from the Company’s transaction and management services depends in large part on future capital raising in existing or future programs, as well as on the Company’s ability to make resultant acquisitions on behalf of its programs, both of which are subject to uncertainty, including uncertainty with respect to capital market and real estate market conditions. This uncertainty can create volatility in the Company’s earnings because of the resulting increased volatility in transaction and management services revenues. The Company’s revenue may be negatively affected by factors that include not only the Company’s inability to increase its portfolio of properties under management, but also changes in valuation of those properties and sales (through planned liquidation or otherwise) of properties.

The Company has on occasion waived or credited its fees for real estate acquisitions and financings for the Company’s TIC programs to improve projected investment returns and attract TIC investors. There has also been a trend toward lower fees in some segments of the third-party asset management business, and fees paid for the management of properties in the Company’s TIC programs or public non-traded REITs could follow these trends. In order for the Company to maintain its fee structure in a competitive environment, the Company must be able to provide clients with investment returns and service that will encourage them to be willing to pay such fees. The Company cannot assure you that it will be able to maintain its current fee structures. Fee reductions on existing or future new business could have a material adverse impact on the Company’s revenue and profitability.

The securities industry in the United States is subject to extensive regulation under both federal and state laws. Broker-dealers are subject to regulations covering all aspects of the securities business. The SEC, FINRA, and other self-regulatory organizations and state securities commissions can censure, fine, issue cease-and-desist orders to, suspend or expel a broker-dealer or any of its officers or employees. The ability to comply with applicable laws and rules is largely dependent on an internal system to ensure compliance, as well as the ability to attract and retain qualified compliance personnel. The Company could be subject to disciplinary or other actions in the future due to claimed noncompliance with these securities regulations, which could have a material adverse effect on the Company’s operations and profitability.

The Company’s programs are subject to varying degrees of risk that generally arise from the ownership of real estate. For example, the income the Company is able to generate from management fees is derived from the gross rental income on the properties in its programs. The rental income depends upon the ability of the tenants of the Company’s programs’ properties to generate enough income to make their lease payments to the Company. Changes beyond the Company’s control may adversely affect the tenants’ ability to make lease payments or could require them to terminate their leases. Either an inability to make lease payments or a termination of one or more leases could reduce the management fees the Company receives. These changes include, among others, the following:

Due to these changes, among others, tenants and lease guarantors, if any, may be unable to make their lease payments.

Defaults by tenants or the failure of any guarantors of tenants’ guarantor to fulfill their obligations, or other early termination of a lease could, depending upon the size of the leased premises and the Company’s ability as property manager to successfully find a substitute tenant, have a material adverse effect on the Company’s revenue.

These conflicts include but are not limited to the following:

The Company cannot assure you that one or more of these conflicts will not result in claims by investors in its programs, which could have a material adverse effect on its results of operations and financial condition.

On September 16, 2004, Triple Net Properties learned that the SEC Los Angeles Enforcement Division, (the “SEC Staff”), was conducting an investigation referred to as “In the matter of Triple Net Properties, LLC.” The SEC Staff requested information from Triple Net Properties relating to disclosure in public and private securities offerings sponsored by Triple Net Properties and its affiliates prior to 2005 (the “Triple Net Securities Offerings”). The SEC Staff also requested information from NNN Capital Corp., (“Capital Corp”), the dealer-manager for the Triple Net Securities Offerings. The SEC Staff requested financial and other information regarding the Triple Net Securities Offerings and the disclosures included in the related offering documents from each of Triple Net Properties and Capital Corp.

Triple Net Properties and Capital Corp. are engaged in settlement negotiations with the SEC staff regarding this matter. Based on these negotiations, the Company believes that the conclusion to this matter will not result in a material adverse affect to its results of operations, financial condition or ability to conduct its business and NNN accrued a loss contingency of $600,000 at December 31, 2006 on behalf of Triple Net Properties and Capital Corp. on a consolidated basis, compared to $1.0 million accrued for the same period in 2005. The $600,000 is being held in escrow pending final approval of the settlement agreement. The settlement negotiations are continuing, however, and any settlement negotiated with the SEC Staff must be approved by the Commissioners. Since the matter is not concluded, it remains subject to the risk that the SEC may seek additional remedies, including substantial fines and injunctive relief that, if obtained, could materially adversely affect the Company’s ability to conduct its program offerings. Additionally, any resolution of this matter that reflects negatively on the Company’s reputation could materially and adversely affect the willingness of the Company’s existing programs to continue to use the Company’s management services and of potential investors to invest in the Company’s future programs. The matters that are the subject of this investigation could also give rise to claims against the Company by investors in the Company’s programs. At this time, the Company cannot assess how or when the outcome of the matter will be ultimately determined.

To the extent that the Company pays the SEC an amount in excess of $1.0 million in connection with any settlement or other resolution of this matter, Anthony W. Thompson, NNN’s founder and former Chairman of the Company, has agreed to forfeit to the Company up to 1,064,800 shares of the Company’s common stock. In connection with this arrangement, the Company has entered into an escrow agreement with Mr. Thompson and an independent escrow agent, pursuant to which the escrow agent holds these 1,064,800 shares of Company common stock that are otherwise issuable to Mr. Thompson in connection with the NNN formation transactions to secure Mr. Thompson’s obligations to the Company. Mr. Thompson’s liability under this arrangement will not exceed the value of the shares in the escrow. The above indemnification expires upon the entry of a final settlement order in connection with the SEC matter.

The securities of the Company’s TIC programs are offered and sold in reliance upon a private placement offering exemption from registration under the Securities Act and applicable state securities laws. If the Company or its dealer-manager failed to comply with the requirements of the relevant exemption and an

In the last two years, interest rates in the United States have generally increased. If interest rates were to continue to rise, the Company’s financing costs would likely rise and the Company’s net yield to investors may decline. This downward pressure on net yields to investors in the Company’s programs could compare poorly to rising yields on alternative investments. Additionally, as interest rates rise, valuations of commercial real estate properties typically decline. A decrease in both the attractiveness of the Company’s programs and the value of assets held by these programs could cause a decrease in both transaction and management services revenues, which would have an adverse effect on the Company’s results of operations.

The commercial real estate industry is highly competitive on an international, national and regional level. The Company’s programs face competition from REITs, institutional pension plans, and other public and private real estate companies and private real estate investors for the acquisition of properties and for raising capital to create programs to make these acquisitions. Competition may prevent the Company’s programs from acquiring desirable properties or increase the price they must pay for real estate. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase, resulting in increased demand and increased prices paid for these properties. If the Company’s programs pay higher prices for properties, investors may experience a lower return on investment and be less inclined to invest in the Company’s next program which may decrease the Company’s profitability. Increased competition for properties may also preclude the Company’s programs from acquiring properties that would generate the most attractive returns to investors or may reduce the number of properties the Company’s programs could acquire, which could have an adverse effect on the Company’s business.

Because real estate investments are relatively illiquid, the Company’s ability to promptly facilitate a sale of one or more properties or investments in the Company’s programs in response to changing economic, financial and investment conditions may be limited. In particular, these risks could arise from weakness in the market for a property, changes in the financial condition or prospects of prospective purchasers, changes in regional, national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located. Fees from the disposition of properties would be materially affected if the Company were unable to facilitate a significant number of property dispositions for the Company’s programs.

The Company carries commercial general liability, fire and extended coverage insurance with respect to the Company’s programs’ properties. The Company obtains coverage that has policy specifications and insured limits that the Company believes are customarily carried for similar properties. The Company cannot assure you, however, that particular risks that are currently insurable will continue to be insurable on an economic basis or that current levels of coverage will continue to be available. In addition, the Company generally does not obtain insurance against certain risks, such as floods.

Should a property sustain damage or an occupant sustain an injury, the Company may incur losses due to insurance deductibles, co-payments on insured losses or uninsured losses. In the event of a substantial property loss or personal injury, the insurance coverage may not be sufficient to pay the full damages. In the event of an uninsured loss, the Company could lose some or all of its capital investment, cash flow and anticipated profits related to one or more properties. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it not feasible to use insurance proceeds to replace a property after it has been damaged or destroyed. Under these circumstances, the insurance proceeds the Company receives, if any, might not be adequate to restore the Company’s economic position with respect to the property. In the event of a significant loss at one or more of the properties in the Company’s programs, the remaining insurance under the applicable policy, if any, could be insufficient to adequately insure the remaining properties. In this event, securing additional insurance, if possible, could be significantly more expensive than the current policy. A loss at any of these properties or an increase in premium as a result of a loss could decrease the income from or value of properties under management in the Company’s programs, which in turn would reduce the fees the Company receives from these programs. Any decrease or loss in fees could have a material adverse effect on the Company’s financial condition or results of operations.

Not Applicable

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 December 31, 2007, the Company leased over 751,000 square feet of office space in 65 locations under leases which expire at various dates through February 28, 2017. 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 20 of Notes to Consolidated Financial Statements in Item 8 of this Report for additional information, which is incorporated herein by reference.

On September 16, 2004, Triple Net Properties, which became a subsidiary of Grubb & Ellis as part of the merger with NNN, learned that the SEC Staff was conducting an investigation referred to as “In the matter of Triple Net Properties, LLC.” The SEC Staff requested information from Triple Net Properties relating to disclosure in the Triple Net Securities Offerings. The SEC Staff also requested information from Capital Corp., the dealer-manager for the Triple Net Securities Offerings. Capital Corp. also became a subsidiary of Grubb & Ellis as part of the merger with NNN. The SEC Staff requested financial and other information regarding the Triple Net Securities Offerings and the disclosures included in the related offering documents from each of Triple Net Properties and Capital Corp. Triple Net Properties and Capital Corp. believe they have cooperated fully with the SEC Staff’s investigation.

Triple Net Properties and Capital Corp. are engaged in settlement negotiations with the SEC staff regarding this matter. Based on these negotiations, management believes that the conclusion to this matter will not result in a material adverse affect to its results of operations, financial condition or ability to conduct its

To the extent that Triple Net Properties and Capital Corp pay the SEC an amount in excess of $1.0 million in connection with any settlement or other resolution of this matter, Anthony W. Thompson, NNN’s founder and former Chairman of the Board, has agreed to forfeit to NNN up to 1,064,800 shares of the Company’s common stock. In connection with this arrangement, NNN entered into an escrow agreement with Mr. Thompson and an independent escrow agent, pursuant to which the escrow agent holds these 1,064,800 shares of common stock that are otherwise issuable to Mr. Thompson in connection with the NNN formation transactions to secure Mr. Thompson’s obligations to NNN. Mr. Thompson’s liability under this arrangement will not exceed the value of the shares in the escrow.

Grubb & Ellis and its subsidiaries are involved in various claims and lawsuits arising out of the ordinary 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.

The Company held a Special Meeting in Lieu of Annual Meeting of its stockholders on December 6, 2007 (the “Special Meeting”). At the Special Meeting, the Company’s stockholders voted upon and approved each of the following matters:

With respect to matter number 1: 22,107,710 votes were cast in favor; 186,456 votes were cast against; there were 3,001 abstentions; and there were no broker non-votes.

With respect to matter number 2: 16,795,259 votes were cast in favor; 5,331,933 votes were cast against; there were 169,975 abstentions; and there were no broker non-votes.

With respect to matter number 3: 15,933,895 votes were cast in favor; 6,193,322 votes were cast against; there were 169,950 abstentions; and there were no broker non-votes.

With respect to matter number 4: 22,109,777 votes were cast in favor; 183,345 votes were cast against; there were 4,045 abstentions; and there were no broker non-votes.

With respect to matter number 5: 21,781,429 votes were cast in favor; 271,010 votes were cast against; there were 244,728 abstentions; and there were no broker non-votes.

With respect to matter number 6: 17,232,852 votes were cast in favor; 4,907,042 votes were cast against; there were 157,273 abstentions; and there were no broker non-votes.

The principal market for the Company’s common stock is the NYSE. Prior to June 29, 2006, the Company’s common stock traded on the over-the-counter market (“OTC”). The following table sets forth the high and low sales prices of the Company’s common stock on the respective market for each quarter of the years ended December 31, 2007 and 2006.

As of March 7, 2008, there were 1,010 registered holders of the Company’s common stock and 65,094,777 shares of common stock outstanding. 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.

The Company declared quarterly cash dividends in 2007 for an aggregate of $0.36 per share for the year, and a single fourth quarter cash dividend in 2006 of $0.10 per share.

On March 8, 2007, pursuant to an Employment Agreement dated March 8, 2005 and a Restricted Share Agreement dated March 8, 2005, the Company granted to its former Chief Executive Officer, Mark E. Rose, 71,158 restricted shares of the Company’s common stock which vest in equal, annual installments of thirty-three and one-third percent (331/3%) on each of the first, second and third anniversaries of March 8, 2007 and had a fair market value of $750,000 on the trading day immediately preceding the date of grant. On September 20, 2007, pursuant to the Company’s 2006 Omnibus Equity Plan, the Company granted to its then outside directors an aggregate of 21,164 restricted shares of the Company’s common stock which were scheduled to vest one-third on each of the first, second and third anniversaries of the date of grant and had an aggregate fair market value of $200,000 on the trading day immediately preceding the date of grant. These shares, as well as any unvested restricted shares held by Mr. Rose, fully vested on December 7, 2007, as a result of a change in control provisions contained in the awards. Additionally after consummation of the Merger, on December 10, 2007, pursuant to the Company’s 2006 Omnibus Equity Plan, the Company granted to its outside directors an aggregate of 62,972 restricted shares of the Company’s common stock which vest one-third on each of the first, second and third anniversaries of the date of grant and had an aggregate fair market value of $420,000 on the date of grant.

On June 27, 2007, pursuant to its 2006 Long-Term Incentive Plan, NNN granted an aggregate of 576,400
restricted shares of its common stock to NNN’s independent directors and executive officers which are scheduled to vest one-third on each of the first, second and third anniversaries of the date of grant and had an aggregate fair market value of $6,547,904 on the date of grant.

The issuances by the Company and NNN of restricted shares in the transactions described above were exempt from the registration requirements of Section 5 of the Securities Act, as such transactions did not involve a public offering by the Company.

The following table provides information on equity compensation plans of the Company as of December 31, 2007.

The following section entitled, “Grubb & Ellis Stock Performance” is not to be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into any filing under the Securities Act or the Exchange Act.

The graph below compares the cumulative 54-month total return to shareholders on the Company’s common stock versus the cumulative total returns of the S&P 500 index, and a customized peer group of three companies that includes: CB Richard Ellis Group Inc., Grubb & Ellis Company and Jones Lang LaSalle Inc. The graph assumes that the value of the investment in the company’s common stock, in the peer group, and the index (including reinvestment of dividends) was $100 on 6/30/2003 and tracks it through 12/31/2007.

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

The following tables set forth the selected historical consolidated financial data for Grubb & Ellis and its subsidiaries, as of and for the years ended, December 31, 2007, 2006, 2005, 2004 and 2003. GERI (formerly Triple Net Properties) was the accounting acquirer of Realty and Capital Corp. The selected historical consolidated financial data as of and for the years ended December 31, 2007, 2006 and 2005 has been derived from the audited financial statements included in Item 8. of this Report. The selected historical financial data as of and for the years ended December 31, 2004 and 2003 have been derived from the audited consolidated financial statements not included in this Report. Historical results are not necessarily indicative of the results that may be expected for any future period.

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. You should not place undue reliance on these statements. Forward-looking statements include information concerning the Company’s liquidity and possible or assumed future results of operations, including descriptions of the Company’s business strategies. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” “seek,” “will,” “may” or similar expressions. These statements are based on certain assumptions that the Company has made in light of its experience in the industry as well as its perceptions of the historical trends, current conditions, expected future developments and other factors the Company believes are appropriate under these circumstances.

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.

As you read this Annual Report, you should understand that these statements are no guarantees of performance or results. They involve risks, uncertainties and assumptions. You should understand the risks and uncertainties discussed in “Item 1A — Risk Factors” and elsewhere in this Annual Report, could affect the Company’s actual financial results and could cause actual results to differ materially from those expressed in the forward-looking statements. Some important factors include, but are not limited to:

Grubb & Ellis Company (the “Company”), is a commercial real estate services and investment management firm. On December 7, 2007, NNN Realty Advisors, Inc. (“NNN”) effected a stock merger (the “Merger”) with the legacy Grubb & Ellis Company, a 50 year old commercial real estate services firm. Upon the closing of the Merger, a change of control of the Company occurred, as the former stockholders of NNN acquired approximately 60% of the Company’s issued and outstanding common stock. Pursuant to the Merger, each issued and outstanding share of NNN automatically converted into a 0.88 of a share of common stock of the Company. Based on accounting principles generally accepted in the United States of America (“GAAP”), the Merger was accounted for using the purchase method of accounting, and although structured as a reverse merger, NNN is considered the accounting acquirer of legacy Grubb & Ellis. As a consequence, the operating results for the twelve months ended December 31, 2007 includes the full year operating results of NNN and the operating results of legacy Grubb & Ellis for the period from December 8, 2007 through December 31, 2007. The years ended December 31, 2006 and 2005 include solely the operating results of NNN.

Unless otherwise indicated, all pre-merger NNN share data have been adjusted to reflect the conversion as a result of the Merger (see Note 9 of Notes to Consolidated Financial Statements in Item 8 of this Report for additional information).

NNN is a real estate investment management company and sponsor of tax deferred tenant in common (“TIC”) 1031 property exchanges as well as a sponsor of public non-traded real estate investment trusts (“REITs”) and other investment programs. Pursuant to the merger, the Company now sponsors under the Grubb & Ellis brand, Grubb & Ellis Realty Investors, LLC (“GERI”), (formerly Triple Net Properties, LLC), real estate investment programs to provide investors with the opportunity to engage in tax-deferred exchanges of real property and to invest in other real estate investment vehicles and continues to offer full-service real estate asset management services. GERI raises capital for these programs through an extensive network of broker-dealer relationships. GERI structures, acquires, manages and disposes of real estate for these programs, earning fees for each of these services.

Legacy Grubb & Ellis business units provide a full range of real estate services, including transaction, which comprises its brokerage operations, management and consulting services for both local and multi-location clients, which includes third-party property management, corporate facilities management, project management, client accounting, business services and engineering services.

NNN was organized in September 2006 to acquire each of Triple Net Properties, LLC, (“Triple Net Properties”), Triple Net Properties Realty, Inc., (“Realty”), and NNN Capital Corp., or (“Capital Corp”), and to bring the businesses conducted by those companies under one corporate umbrella. On November 30, 2006, NNN completed a $160.0 million private placement of common stock to institutional investors and certain accredited investors with 14.1 million shares of the Company’s common stock sold in the offering at $11.36 per share. Net proceeds from the offering were $146.0 million. Triple Net Properties was the accounting acquirer of Realty and Capital Corp.

In certain instances throughout this Annual Report phrases such as “legacy Grubb & Ellis” or similar descriptions are used to reference, when appropriate, the Company prior to the Merger. Similarly, in certain instances throughout this Annual Report the term NNN, “legacy NNN”, or similar phrases are used to reference, when appropriate, NNN Realty Advisors, Inc. prior to the Merger.

The Company’s consolidated financial statements have been prepared in accordance with GAAP. Certain accounting policies are considered to be critical accounting policies, as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in the accounting estimate are reasonably likely to occur from period to period. The Company believes that the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of its consolidated financial statements.

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 and delivered by the Company to the client, unless future contingencies exist.

The Company earns fees associated with its transactions by structuring, negotiating and closing acquisitions of real estate properties to third-party investors. Such fees include acquisition and disposition fees. Acquisition and disposition fees are earned and recognized when the acquisition or disposition is closed. Organizational marketing expense allowance (“OMEA”), fees are earned and recognized from gross proceeds of equity raised in connection with offerings and are used to pay formation costs, as well as organizational and marketing costs. The Company is entitled to loan advisory fees for arranging financing related to properties under management. These fees are collected and recognized upon the closing of such loans.

The Company earns captive asset and property management fees primarily for managing the operations of real estate properties owned by the real estate programs, REITs and limited liability companies that invest in real estate or value funds it sponsors. Such fees are based on pre-established formulas and contractual arrangements and are earned as such services are performed. The Company is entitled to receive reimbursement for expenses associated with managing the properties; these expenses include salaries for property managers and other personnel providing services to the property. Each property in the Company’s TIC programs is charged an accounting fee for costs associated with preparing financial reports. The Company is also entitled to leasing commissions when a new tenant is secured and upon tenant renewals. Leasing commissions are recognized upon execution of leases.

Through its dealer-manager, the Company facilitates capital raising transactions for its programs its dealer-manager acts as a dealer-manager exclusively for the Company’s programs and does not provide securities services to any third party. The Company’s wholesale dealer-manager services are comprised of raising capital for its programs through its selling broker-dealer relationships. Most of the commissions, fees and allowances earned for its dealer-manager services are passed on to the selling broker-dealers as commissions and to cover offering expenses, and the Company retains the balance.

Management fees are recognized at the time the related services have been performed by the Company, unless future contingencies exist. In addition, 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 on-site employee salaries and related benefit costs. The amounts

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, the purchase price of acquired properties is allocated to tangible and identified intangible assets and liabilities based on their respective fair values. The allocation to tangible assets (building and land) is based upon determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in-place leases and the value of in-place leases and related tenant relationships.

The value allocable to the above or below market component of the acquired in-place leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) the Company’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in identified intangible assets and below market lease values are included in identified intangible liabilities-net in the accompanying consolidated financial statements and are amortized to rental revenue over the weighted-average remaining term of the acquired leases with each property.

The total amount of identified intangible assets acquired is further allocated to in-place lease costs and the value of tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics considered in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors. These allocations are subject to change within one year of the date of purchase based on information related to one or more events identified at the date of purchase that confirm the value of an asset or liability of an acquired property.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets are periodically evaluated for potential impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. In the event that periodic assessments reflect that the carrying amount of the asset exceeds the sum of the undiscounted cash flows (excluding interest) that are expected to result from the use and eventual disposition of the asset, the Company would recognize an impairment loss to the extent the carrying amount exceeded the fair value of the property. The Company estimates the fair value using available market information or other industry valuation techniques such as present value calculations. No impairment losses were recognized for the years ended December 31, 2007, 2006 and 2005.

The Company recognizes goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). Under SFAS No. 142, goodwill is recorded at its carrying value and is tested for impairment at least annually or more frequently if impairment indicators exist at a level of reporting referred to as a reporting unit. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. If a potential impairment exists, then an impairment loss is recognized to the extent the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of its other assets and liabilities. The Company recognizes goodwill in accordance with SFAS No. 142 and tests the carrying value for impairment during the fourth quarter of each year. No impairment indicators were identified for the year ended December 31, 2007.

The Company has maintained partially self-insured and deductible programs for, general liability, workers’ compensation and certain employee health care costs. In addition, the Company assumed liabilities at the date of the Merger representing reserves related to a self insured errors and omissions program of the acquired company. Reserves for all 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. As of the date of the Merger, the Company entered into a premium based insurance policy for all error and omission coverage on claims arising after the date of the Merger. Claims arising prior to the date of the Merger continue to be applied against the previously mentioned liability reserves assumed relative to the acquired company.

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

In September 2006, the FASB issued Statement No. 157 (“SFAS No. 157”), Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (the “FSP”). The FSP amends SFAS 157 to delay the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). For items within its scope, the FSP defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company does not believe adoption will have a material effect on its financial condition, results of operations and cash flow.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunities to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November, 15, 2007. The Company is currently evaluating the effect, if any, the adoption of SFAS No. 159 will have on its financial condition, results of operations and cash flow.

In December 2007, the FASB issued revised Statement No. 141, Business Combinations (“SFAS No. 141R”). SFAS No. 141R will change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R will change the accounting treatment and disclosure for certain specific items in a business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS No. 141R will have an impact on accounting for business combinations once adopted but the effect is dependent upon acquisitions at that time.

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51 (“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The

The Company reported revenue of $231.4 million for the year ended December 31, 2007, compared with revenue of $108.3 million for the same period of 2006. Approximately $53.8 million of the increase was attributed to revenue from Grubb & Ellis’ legacy Transaction Services and Management Services businesses and the operations of the assets warehoused for GERA from December 8 through December 31, 2007. The remaining $69.3 million of the increase was attributed primarily to legacy NNN’s Investment Management business, including $19.0 million from increased rental related revenue, a $17.3 million increase resulting from operations of the Company’s broker-dealer acquired in December 2006, higher captive management revenue from additional assets under management year-over-year and higher investment management fees resulting from a larger period-over-period equity raise.

As a result of the Merger in December 2007, the newly combined Company’s operating segments were evaluated for reportable segments. As a result, the legacy NNN reportable segments were realigned into a single operating and reportable segment called Investment Management. This realignment had no impact on the Company’s consolidated balance sheet, results of operations or cash flows.

The Company reports its revenue by three business segments in accordance with the provisions of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”). Transaction Services, which comprises its real estate brokerage operations; Investment Management which includes providing acquisition, financing and disposition services with respect to its programs, asset management services related to its programs, and dealer-manager services by its securities broker-dealer, which facilitates capital raising transactions for its TIC, REIT and other investment programs; and Management Services, which includes property management, corporate facilities management, project management, client accounting, business services and engineering services for unrelated third parties and the properties owned by the programs it sponsors. Additional information on these business segments can be found in Note 18 of Notes to Consolidated Financial Statements in Item 8 of this Report.

The following summarizes comparative results of operations for the periods indicated.

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 revenue,

Transaction services segment was acquired from the legacy Grubb & Ellis on December 7, 2007 which includes brokerage commission, valuation and consulting revenue. At December 31, 2007, legacy Grubb & Ellis had 927 brokers, up from 917 at December 31, 2006.

Investment management revenue of $149.4 million for the year ended December 31, 2007, which includes transaction, captive management and dealer-manager businesses, was comprised primarily of transaction fees of $81.4 million, asset and property management fees of $45.9 million and dealer-manager fees of $18.0 million.

Transaction related fees increased $24.5 million, or 43.0%, for the year ended December 31, 2007, primarily due to increases of $21.0 million in real estate acquisition fees, $2.5 million in real estate disposition fees and $1.4 million in OMEA fees, partially offset by a net decrease of approximately $400,000 in other transaction related fees.

Acquisition fees increased $21.0 million, or 82.0%, to $46.5 million for the year ended December 31, 2007, compared to $25.5 million for the same period in 2006. Net fees as a percentage of aggregate acquisition price increased to 2.6% for the twelve months ended December 31, 2007, compared to 2.1% for the same period in 2006, which resulted in $7.7 million in additional fees earned during 2007. During the year ended December 31, 2007, the Company acquired 77 properties (including six which were still owned as of December 31, 2007) on behalf of its sponsored programs for an approximate aggregate total of $2.0 billion, compared to 45 properties for an approximate aggregate total of $1.4 billion during the same period in 2006. This increase in acquisition volume in 2007 resulted in an additional $11.9 million in net fees. Also contributing to the increase in net fees during 2007 was $1.6 million in recognition of fees that were deferred in 2006.

The $2.5 million increase in real estate disposition fees for the year ended December 31, 2007 was primarily due to an increase in fees realized from the sales of properties, with $18.2 million in net fees realized from the disposition of 28 properties, with an average sales price of $31.3 million per property for the year ended December 31, 2007, compared to $15.7 million in fees realized from the disposition of 22 properties for the same period in 2006 with an average sales price of $37.9 million per property. Included in the fees realized from the sales of properties were $5.7 million in fees earned as a result of the continuing liquidation of G REIT, Inc. (“G REIT”) for the year ended December 31, 2007, compared to $5.3 million for the same period in 2006. Reducing the disposition fees during the year ended December 31, 2007 and 2006 was $3.2 million and $410,000, respectively, as a result of amortizing the identified intangible contract rights associated with the acquisition of Realty as they represent the right to future disposition fees of a portfolio of real properties under contract. Fees on dispositions as a percentage of aggregate sales price was 2.4% for the year ended December 31, 2007, compared to 1.9% for the same period in 2006 (excluding one property sold in 2006 for which the Company waived the entire amount of the disposition fee), primarily due to a change in the mix of properties sold.

OMEA fees increased $1.4 million, or 18.2%, to $9.1 million for the twelve months ended December 31, 2007, compared to $7.7 million for the same period in 2006. OMEA fees as a percentage of equity raised for the year ended December 31, 2007 was 2.0%, compared to 1.5% for the same period in 2006. The increase in OMEA fees earned was primarily due to $2.5 million in non-recurring credits issued in 2006 partially offset by $0.9 million due to lower TIC equity raised in 2007 of $451.0 million, compared to $510.0 million in TIC equity raised in 2006.

The diversified platform created as a result of the merger is already beginning to generate new revenue opportunities. The Company’s largest TIC investment during the fourth quarter of 2007 was generated from the net proceeds of a Transaction Services client that was re-invested on a tax deferred basis through GERI’s TIC platform.

The Company completed a total of 77 acquisitions and 30 dispositions on behalf of the investment programs it sponsors at values in excess of $2.0 billion and $880.0 million, respectively, during 2007. The net acquisitions from the Investment Management business allowed the Company to grow its captive assets under management by more than 27.0% during 2007. At December 31, 2007, the value of the Company’s assets under management was in excess of $5.7 billion.

The $7.3 million, or 18.8%, increase in captive management revenue was primarily due to an increase in property and asset management fees of $6.2 million, or 18.6%, to $39.5 million for the year ended December 31, 2007, compared to $33.3 million for 2006. This increase was primarily the result of the growth in recurring revenue, as total square footage of assets under management increased to an average of approximately 29.4 million for the year ended December 31, 2007, compared to approximately 26.2 million for the same period in 2006. Property and asset management fees per average square foot were $1.35 for the year ended December 31, 2007, compared to $1.27 for the same period in 2006. The increase in property and asset management fees per average square foot was primarily due to a change in product mix. During 2007, assets managed under TIC programs and within Grubb & Ellis Healthcare REIT, Inc. (“Healthcare REIT”) and Grubb & Ellis Apartment REIT, Inc. (“Apartment REIT”) increased to approximately 83.7% of average assets under management compared to 75.7% in 2006, while assets managed under G REIT and T REIT, Inc. (“T REIT”) decreased to approximately 5.7%, compared to 17.6% in 2006 as a result of the liquidation of those entities. Property and asset management fees in TIC programs earn up to 6% and in Healthcare REIT and Apartment REIT earn up to approximately 4% plus 1% of each REIT’s average invested assets, while G REIT and T REIT programs earn approximately 4%.

Management Services revenue includes asset and property management fees as well as reimbursed salaries, wages and benefits from the Company’s third party property management and facilities outsourcing services, along with business services fees. Revenue was $16.4 million from December 8, 2007 through December 31, 2007. Following the closing of the merger, Grubb & Ellis Management Services assumed management of nearly 23 million square feet of NNN’s 41.7 million-square-foot captive investment management portfolio. The Company expects to transfer 6 million square feet of outsourced property management during the first half of 2008. At December 31, 2007, the Company managed 216 million square feet of property.

Rental revenue includes revenue from the warehousing of properties held for sale primarily to the Company’s Investment Management programs and for GERA. These line items also include pass-through revenue for the master lease accommodations related to the Company’s TIC programs.

Operating expenses increased $101.2 million, or 104.0%, for the year ended December 31, 2007, compared to the same period in 2006. Of the $101.2 million, $49.5 million was due to the Grubb & Ellis legacy business from December 8, 2007 to December 31, 2007. The remaining $51.7 million of the increase was attributed to legacy NNN’s Investment Management business, including $11.4 million in rental related expense, $10.2 million resulting from operations of the Company’s broker-dealer acquired in December 2006, $5.5 million in compensation related costs, $7.5 million in non-cash stock based compensation, $6.4 million in merger related costs, $6.5 million in depreciation and amortization and $4.7 million in interest expense activity primarily related to two properties for sale that are currently reflected in properties held for sale on the balance sheet, offset by a net decrease of approximately $500,000 in other operating costs.

Compensation costs increased $54.7 million, or 110.5%, to $104.1 million for the year ended December 31, 2007, compared to $49.4 million for the same period in 2006. Approximately $41.7 million of

General and administrative expense increased $13.7 million, or 44.9%, to $44.3 million for the year ended December 31, 2007, compared to $30.5 million for the same period in 2006. Approximately $4.7 million of the increase was attributed to general and administration expenses from the legacy Grubb & Ellis operations from December 8, 2007 through December 31, 2007. The remaining $9.0 million of the increase was related to the investment management business which increased to $39.5 million for the year ended December 31, 2007, compared to $30.5 million for the same period in 2006. The increase was primarily due to $10.2 million resulting from operations of the Company’s broker-dealer acquired in December 2006, partially offset by decrease of $1.2 million related to non-recurring credits granted to certain investors in 2006.

Depreciation and amortization increased $7.5 million, or 357.5%, to $9.5 million for the year ended December 31, 2007, compared to $2.1 million for the same period in 2006. Approximately $1.0 million was attributed to depreciation and amortization expense from the legacy Grubb & Ellis operations from December 8 through December 31, 2007. The remaining $6.5 million of the increase was related to the investment management business which increased to $8.6 million for the year ended December 31, 2007, compared to $2.1 million for the same period in 2006. The increase in activity was primarily related to two properties for sale that are currently reflected in properties held for investment on the balance sheet.

Rental expense includes the related expense from the warehousing of properties held for sale primarily to the Company’s Investment Management programs and for GERA. These line items also include pass-through expenses for master lease accommodations related to the Company’s TIC programs.

Interest expense increased $5.4 million, or 85.5%, to $11.6 million for the year ended December 31, 2007, compared to $6.2 million for the same period in 2006. Approximately $607,000 was attributed to interest expense from the legacy Grubb & Ellis operations from December 8 through December 31, 2007. The remaining $4.7 million of the increase was related to the investment management business which increased to $11.0 million for the year ended December 31, 2007, compared to $6.2 million for the same period in 2006. The increase in activity was primarily related to two properties held for investment on the balance sheet.

In 2007, GERI acquired 13 properties to resell to its sponsored programs. In accordance with SFAS No. 144, for the year ended December 31, 2007, discontinued operations included the net income (loss) of one property and its associated limited liability company (“LLC”) entity sold to a joint venture, two properties and the associated LLCs resold to Healthcare REIT and ten properties and their associated LLCs classified as held for sale as of December 31, 2007 (See Note 19 of Notes to Consolidated Financial Statements in Item 8 of this Report for additional information).

The Company incurred a tax provision of $14.3 million for the year ended December 31, 2007, compared to a tax benefit of $4.2 million for the same period in 2006. Effective with the close of NNN’s 144A private equity offering on November 16, 2006, GERI became a wholly-owned subsidiary, which caused a change in GERI’s tax status from a non-taxable partnership to a taxable C corporation. The change in tax status required NNN to recognize a one time income tax benefit of $2.9 million for the future tax effects attributable to temporary differences between GAAP basis and tax accounting principles as of the effective date of November 15, 2006. The $18.5 million increase in tax expense was primarily a result of the nonrecurring tax benefit noted above coupled with the inclusion of 12 months of book income in 2007 versus six weeks of book income in 2006 due to the change in tax status. In addition, the Company is subject to the highest federal income tax rate of 35% in 2007, compared to a 34% statutory tax rate in 2006. (See Note 24 of Notes to Consolidated Financial Statements in Item 8 of this Report for additional information).

As a result of the above items, net income increased $4.7 million to $20.8 million, or $0.54 per fully diluted share, for the year ended December 31, 2007, compared to net income of $16.1 million, or $0.82 per fully diluted share, for the same period in 2006.

The following summarizes comparative results of operations for the periods indicated.

Investment management revenue increased $10.0 million in 2006 to $99.1 million in 2006 from $89.1 million in 2005.

The $849,000, or 1.5%, increase in transaction related fees in 2006, was primarily due to increases of $2.9 million, or 7.5%, in real estate acquisition and disposition fees and $3.9 million in other revenue primarily due to $2.8 million in incentive fees in 2006 paid to NNN at disposition. These increases were partially offset by decreases of $3.7 million in OMEA fees and $2.0 million in loan advisory fees associated with arranging financing for the properties acquired.

The net increase in real estate acquisition and disposition fees for the year ended December 31, 2006 was primarily due to a $6.1 million, or 63.5%, increase in fees realized from the sales of properties, with $15.7 million in fees realized from the disposition of 22 properties, including $5.3 million in fees earned as a result of the liquidation of G REIT for the year ended December 31, 2006, compared to $9.6 million from the disposition of 28 properties for the same period in 2005. Included in this increase was $686,000 in net fees earned as a result of the acquisition of Realty (from the acquisition date, November 16, 2006 through December 31, 2006). Partially offsetting the increase in disposition fees was a reduction of $410,000 as a result of amortizing the identified intangible contract rights associated with the acquisition of Realty. Fees on dispositions as a percentage of aggregate sales price (excluding one property sold in 2006 and five properties sold in 2005 for which the entire amount of the disposition fee was waived) was 1.9% for the year ended December 31, 2006, compared to 1.6% for the same period in 2005.

Acquisition fees decreased $3.2 million, or 11.2%, for the year ended December 31, 2006, compared to the same period in 2005. During 2006, NNN acquired 45 properties (including five which were consolidated as of December 31, 2006) on behalf of its sponsored programs for an approximate aggregate total of $1.4 billion, compared to 40 properties for an approximate aggregate total of $1.6 billion during 2005. The decrease in aggregate asset size resulted in reduced fees of $716,000. Also contributing to the decrease in acquisition fees was $1.2 million in non-recurring credits granted to certain investors between July and

OMEA fees decreased $3.7 million, or 32.5%, to $7.7 million for the year ended December 31, 2006, compared to $11.4 million for the same period in 2005. The decrease in these fees was primarily due to a $3.4 million reduction in fees for programs upon close of TIC equity into the program and $774,000 in non-recurring credits granted to certain investors between July and September 2006, partially offset by an increase of $380,000 as a result of additional capital raised of $15.3 million in 2006. The OMEA fees earned from the offerings are used to pay legal and formation costs as well as marketing related costs associated with these programs as reflected in operating and administrative expense.

Loan advisory fees decreased $2.0 million, or 31.1%, to $4.5 million for the year ended December 31, 2006, compared to $6.5 million for the same period in 2005, primarily due to a decrease in the aggregate total loan balance of properties acquired on behalf of NNN’s programs which resulted in an approximate $1.5 million decrease in loan advisory fees and $547,000 in credits granted to investors between July and September 2006 in two of its programs.

Transaction related fees increased $849,000, or 1.5%, to $56.9 million, or 59.1% as a percentage of total transaction related and captive management revenue for the year ended December 31, 2006, compared to $56.0 million, or 64.3% as a percentage of total transaction related and captive management revenue for the same period in 2005.

Captive management services increased $7.6 million, or 24.3%, to $38.6 million for 2006, compared to $31.1 million for 2005. The increase was primarily due to an increase in property and asset management fees of $6.6 million, or 24.6%, to $33.3 million for 2006, compared to $26.7 million for 2005. This increase was primarily the result of the growth in recurring revenue, as total square footage of assets under management increased to an average of approximately 26.2 million for the year ended December 31, 2006, compared to approximately 22.9 million for the same period in 2005. Property and asset management fees per average square foot was $1.27 for the year ended December 31, 2006, compared to $1.17 for the same period in 2005. The increase in property and asset management fees per average square foot was primarily due to a change in product mix. During 2006 assets managed under TIC/other private/value added programs, which earn fees up to 6.0% of gross income, increased to approximately 85.0% of assets under management in 2006 compared to 72.0% in 2005, while assets managed for G REIT and T REIT, which earn up to 4.0% of gross income, decreased as a result of the continuing liquidation of G REIT and T REIT to approximately 14.0% of assets under management in 2006 compared to 27.0% in 2005.

Captive management services revenue also increased to 39.0% as a percentage of total investment management revenue for the year ended December 31, 2006, compared to 34.9% as a percentage of total services revenue for the same period in 2005.

As a result of the completion of the acquisition of GBE Securities on December 14, 2006, the Company earned $722,000 in dealer-manager revenue from the acquisition date through December 31, 2006.

Interest income increased $713,000 primarily due to a $645,000 increase in interest on advances for deposits on properties acquired and $202,000 in interest on advances to properties.

Rental revenue increased to $9.2 million for the year ended December 31, 2006, compared to $3.8 million in the same period in 2005 primarily due to the acquisition of a property in June 2005 and rents received under sub-leases with third parties which commenced in the second half of 2005.

Total expense increased $23.1 million, or 31.2%, to $97.3 million for the year ended December 31, 2006, compared to $74.2 million for the same period in 2005. During 2006, NNN incurred approximately $12.5 million in non-recurring items and one-time expenses primarily due to the completion of the 144A private equity offering and its formation transactions, compared to $5.0 million in non-recurring items in 2005 due to expenses associated with an SEC investigation. These non-recurring items primarily consisted of $4.0 million in additional credits granted to investors, $1.2 million in documentary and transfer taxes for one of its programs, $978,000 in other non-recurring costs, $2.7 million in costs associated with the early redemption of the $27.5 million participating loan credit agreement with Wachovia Bank and $544,000 associated with the redemption of Triple Net Properties’ redeemable preferred membership units. Additionally, in September 2006, NNN awarded a non-recurring bonus of $2.1 million to its Chief Executive Officer, which was payable in 283,165 membership units of Triple Net Properties (converted to 202,368 shares of common stock of NNN), or $1.3 million, and cash of $854,000. NNN also paid a sign-on bonus of $750,000 and incurred $333,000 in non cash stock-based compensation expense related to one of its executives in 2006.

Transaction related expense increased $15.9 million, or 58.4%, to $43.2 million for the year ended December 31, 2006, compared to $27.3 million for the same period in 2005, due to an increase of $11.5 million in compensation related costs and $4.4 million in operating and administrative expense.

Compensation costs increased $11.5 million, or 90.2%, to $24.3 million for the year ended December 31, 2006, compared to $12.8 million for the same period in 2005 and included an increase of $6.1 million in salary related costs, $3.0 million in bonuses and $1.8 million in stock compensation expense associated with the non cash stock-based compensation as a result of restricted stock and stock options issued on November 16, 2006 and $333,000 in non cash stock-based compensation expense related to one of its executives in 2006. The increase in salary related costs was primarily due to an overall increase of approximately 45.0% in full-time equivalent employees, with approximately 202 full-time equivalent employees associated with transaction related services as of December 31, 2006, compared to 141 full-time equivalent employees as of December 31, 2005. Contributing to the increase in salary related costs included an additional $552,000 as a direct result of hiring additional personnel in preparing for strategic initiatives for 2006 and 2007, including Apartment REIT and Healthcare REIT, as well as Strategic Office Fund I, L.P. The increase in bonuses in 2006 was primarily due to $1.1 million allocated to transaction services for a non-recurring bonus awarded to NNN’s Chief Executive Officer in the form of stock prior to the transaction (as described in the Services Expense Overview section of the MD&A) and a sign-on bonus of $750,000 ($612,000 of this bonus was accelerated as a result of the transaction).

Operating and administrative expense increased by $4.4 million, or 30.4%, to $19.0 million for the year ended December 31, 2006, compared to $14.5 million for the same period in 2005, primarily due to $4.0 million in non-recurring credits granted to investors in the fourth quarter of 2006, $1.6 million in documentary and transfer taxes and closing and other transaction related costs that NNN agreed to pay for programs it sponsored, $1.4 million of which was related to one of its programs in the last half of 2006, $720,000 in incentive fees associated with the disposition of properties, $624,000 in rent expense due to leasing additional space in NNN’s corporate headquarters building and $1.3 million in other transaction related costs due to its overall growth as it prepares its strategic platform related to its new programs such as Apartment REIT and Healthcare REIT, as well as Strategic Office Fund I, L.P. These increases were partially offset by a decrease of $4.0 million, or 36.8%, in OMEA related costs. The OMEA fees earned from the offerings are used to pay legal and formation costs as well as marketing related costs associated with these programs.

Captive management services related expense increased $3.0 million, or 10.3%, to $32.7 million for the year ended December 31, 2006, compared to $29.6 million for the same period in 2005, primarily due to an

Compensation costs increased $7.1 million, or 42.3%, to $23.9 million for the year ended December 31, 2006, compared to $16.8 million for the same period in 2005 and included an increase of $3.1 million in salary related costs, $2.0 million in bonus and $1.8 million in stock compensation expense associated with the non cash stock-based compensation as a result of restricted stock and stock options issued on November 16, 2006. The increase in salary related costs was primarily due to an overall increase of approximately 16.0% in full-time equivalent employees. As of December 31, 2006 there were approximately 216 full-time equivalent employees associated with management related services, compared to 186 as of December 31, 2005. Contributing to the increase in salary related costs included an additional $544,000 as a direct result of hiring additional personnel in preparing for strategic initiatives for 2006 and 2007, including Apartment REIT and Healthcare REIT, as well as Strategic Office Fund I, L.P. Contributing to the increase in bonuses in 2006 was $1.1 million allocated to management services for a non-recurring bonus awarded to NNN’s Chief Executive Officer in the form of stock prior to the transaction (as described in the Services Expense Overview section of the MD&A).

Operating and administrative expense decreased $4.1 million, or 31.5%, to $8.8 million for the year ended December 31, 2006, compared to $12.9 million for the same period in 2005, primarily due to a $4.0 million decrease in bad debt expense and $427,000 in operating expense, partially offset by an increase of $524,000 in rent expense due to leasing additional space in NNN’s corporate headquarters building.

As a result of the completion of the acquisition of GBE Securities on December 14, 2006, NNN incurred $559,000 in dealer-manager expense from the acquisition date through December 31, 2006.

Other operating expense increased $3.6 million, or 20.6%, to $20.8 million for the year ended December 31, 2006, compared to $17.3 million for the same period in 2005. The net increase was primarily due to $5.2 million, or 117.5%, in rental related expense attributable rental related costs under leases with third parties which commenced in the second half of 2005.

Also contributing to the increase was $4.6 million, or 287.1%, in interest expense primarily due to a $2.0 million prepayment penalty associated with the early redemption of the $27.5 million participating loan credit agreement with Wachovia Bank entered into in September 2006 and repaid with the proceeds from NNN’s 144A private equity offering as well as $1.0 million in interest on this participating loan, $666,000 for a full year of interest associated with notes payable on the acquired Colorado property, and a $544,000 prepayment penalty for the early redemption of the $6.1 million redeemable preferred liability. These increases were partially offset by a decrease of $4.6 million, or 117.9%, in reserves and other, which consisted of a $2.9 million charge in June 2005 as a result of the reduced valuation of a Colorado property NNN decided to acquire from investors and a reduction of $700,000 in Triple Net Properties’ loss contingency related to the SEC investigation. As of December 31, 2006, $300,000 was accrued by Triple Net Properties and $300,000 was accrued by Capital Corp compared to $1.0 million accrued by Triple Net Properties as of December 31, 2005. Other decreases in operating expense included $1.1 million in general and administrative costs and $739,000 in depreciation and amortization expense.

Operating income (operating revenue minus operating expense) for the year ended December 31, 2006 of $11.0 million was 10.1% of total revenue, compared to $18.6 million, or 20.1% of total revenue, for the year ended December 31, 2005. The lower year-over-year operating income was a result of non-recurring items and one time expenses that primarily resulted from the completion of NNN’s 144A private equity offering and formation transaction.

During 2006, NNN incurred approximately $15.0 million in non-recurring items and one time expenses that primarily resulted from the completion of its 144A private equity offering and formation transactions, as well as a reduction of disposition fees of $410,000 as a result of amortizing the identified intangible contract rights associated with the acquisition of Realty, compared to $5.0 million in non-recurring items in 2005 due to expenses associated with the SEC investigation.

During 2006, NNN acquired four properties to resell to one of its sponsored programs. In accordance with SFAS No. 144, for the year ended December 31, 2006, discontinued operations included the net income (loss) of one property and its associated LLC entity resold to a joint venture and three properties and their associated LLC entities classified as held for sale as of December 31, 2006 (See Note 19 of Notes to Consolidated Financial Statements in Item 8 of this Report for additional information).

NNN recognized a tax benefit of $4.2 million for the year ended December 31, 2006. Effective with the close of NNN’s 144A private equity offering, Triple Net Properties became a wholly-owned subsidiary, which caused a change in Triple Net Properties’ tax status from a non-taxable partnership to a taxable C corporation. The change in tax status required NNN to recognize an income tax benefit of $2.9 million for the future tax effects attributable to temporary differences between GAAP basis and tax accounting principles as of the effective date of November 15, 2006.

As a result of the above items, net income decreased $2.0 million to $16.1 million for the year ended December 31, 2006, compared to net income of $18.1 million for the same period in 2005.

During 2007, cash and cash equivalents decreased by $53.2 million, although the Company generated $33.6 million from net operating activities. The Company used $232.2 million for net investing activities related primarily to its real estate investment activities. The Company’s investing activities also included $53.2 million used in connection with acquisitions of identified intangible and other assets held for sale during the year. Net financing activities provided cash of $145.4 million, primarily from the funding of mortgage loans and notes payable related to real estate investment activities. Financing activities also included a net repayment of $30.0 million on the Company’s credit facility debt and dividend payments of $16.4 million during 2007.

The Company seeks to create and maintain a capital structure that allows for financial flexibility and diversification of capital resources. Primary sources of liquidity to fund dividends are from operating reserves and borrowing capacity under a line of credit.

Primary uses of cash are to fund deposits for the acquisitions of properties on behalf of investors sponsored programs and to fund dividends to stockholders.

The Company believes that it will have sufficient capital resources to satisfy its liquidity needs over the next twelve-month period. The Company expects to meet its short-term liquidity needs, which may include principal repayments of debt obligations, capital expenditures and dividends to stockholders, through current and retained earnings, borrowings under its $75.0 million line of credit with Deutsche Bank Trust Company and the sale of real estate held for sale.

In February 2007, the Company entered into a $25.0 million revolving line of credit with LaSalle Bank N.A. This line of credit consisted of $10.0 million for use in property acquisitions and $15.0 million for

On December 7, 2007, the Company entered into a $75.0 million Second Amended and Restated Credit Agreement with Deutsche Bank Trust Company (the “Credit Facility”) to replace its revolving line of credit with LaSalle Bank N.A. The Credit Facility is for general corporate purposes and generally bears interest at LIBOR plus an applicable margin ranging from 1.50% to 2.50%. As of December 31, 2007, the Company had $8.0 million outstanding under the Credit Facility.

The Company expects to meet its long-term liquidity requirements, which may include investments in various real estate investor programs and institutional funds, through retained cash flow, borrowings under its line of credit, additional long-term secured and unsecured borrowings and proceeds from the potential issuance of debt or equity securities.

On September 16, 2004, Triple Net Properties, which became a subsidiary of Grubb & Ellis as part of the merger with NNN, learned that the SEC Los Angeles Enforcement Division (the “SEC Staff”), is conducting an investigation referred to as “In the matter of Triple Net Properties, LLC.” The SEC Staff requested information from Triple Net Properties relating to disclosure in public and private securities offerings sponsored by Triple Net Properties and its affiliates prior to 2005 (the “Triple Net Securities Offerings”). The SEC Staff also requested information from Capital Corp., the dealer-manager for the Triple Net Securities Offerings. Capital Corp. also became a subsidiary of Grubb & Ellis as part of the merger with NNN. The SEC Staff requested financial and other information regarding the Triple Net Securities Offerings and the disclosures included in the related offering documents from each of Triple Net Properties and Capital Corp. Triple Net Properties and Capital Corp. believe they have cooperated fully with the SEC Staff’s investigation.

Triple Net Properties and Capital Corp. are engaged in settlement negotiations with the SEC staff regarding this matter. Based on these negotiations, management believes that the conclusion to this matter will not result in a material adverse effect to its results of operations, financial condition or ability to conduct its business and NNN accrued a loss contingency of $600,000 at December 31, 2006 on behalf of Triple Net Properties and Capital Corp. on a consolidated basis, compared to $1.0 million accrued for the same period in 2005. The $600,000 payment in the fourth quarter of 2007 is being held by outside counsel pending final approval of the settlement agreement.

To the extent that the Company pays the SEC an amount in excess of $1.0 million in connection with any settlement or other resolution of this matter, Anthony W. Thompson, the Company founder and former Chairman, has agreed to forfeit to up to 1,064,800 shares of Company common stock. In connection with this arrangement, NNN has entered into an escrow agreement with Mr. Thompson and an independent escrow agent, pursuant to which the escrow agent holds these 1,064,800 shares of Company common stock that are otherwise issuable to Mr. Thompson in connection with NNN formation transactions to secure Mr. Thompson’s obligations to the Company. Mr. Thompson’s liability under this arrangement will not exceed the value of the shares in the escrow. The above indemnification expires upon the entry of a final settlement order in connection with the SEC matter.

Although Realty was required to have real estate licenses in all of the states in which it acted as a broker for NNN’s programs and received real estate commissions prior to 2007, Realty did not hold a license in certain of those states when it earned fees for those services. In addition, almost all of Triple Net Properties’ revenue was based on an arrangement with Realty to share fees from NNN’s programs. Triple Net Properties did not hold a real estate license in any state, although most states in which properties of NNN’s programs were located may have required Triple Net Properties to hold a license in order to share fees. As a result, Realty and the Company may be subject to penalties, such as fines (which could be a multiple of the amount received), restitution payments and termination of management agreements, and to the suspension or revocation of certain of Realty’s real estate broker licenses. As of December 31, 2007, no liabilities have been

On November 16, 2007 the Company completed the acquisition of a 51% membership interest in Grubb & Ellis Alesco Global Advisors, LLC (“Alesco”). Pursuant to the Intercompany Agreement between the Company and Alesco, dated as of November 16, 2007, the Company committed to invest $15.0 million in seed capital into the open and closed end real estate funds that Alesco expects to launch during 2008. Additionally, upon achievement of certain earn-out targets, the Company required to purchase up to an additional 27% interest in Alesco for $15.0 million. The Company is allowed to use the $15.0 million seed capital to fund the earn-out payments.

The Company has announced its intention to pay a $0.41 per share dividend per annum, which equates to approximately $26.5 million on an annual basis. The dividend payment is subject to quarterly review by the Board of Directors and is limited to 50% of the Company’s Net Income Plus Depreciation and Amortization, as defined in the Deutsche Bank Trust Company Line of Credit Agreement.

The Company has approximately $308.3 million of certain assets held for sale or investment at December 31, 2007 for which the Company has in excess of $50.0 million of its equity invested in these assets. The assets consist of three properties that were purchased for re-sale to GERA and two additional assets that were purchased for re-sale to an institutional fund. Upon sale of these assets to a joint venture, third party or other sponsored investment program, the Company expects to recoup a significant amount of this equity and reflect it as cash and cash equivalents on the Company’s balance sheet.

Net cash provided by operating activities increased $18.4 million to $33.6 million for the year ended December 31, 2007, compared to $15.2 million for the same period in 2006. Net cash provided by operating activities included an increase in net income of $4.7 million adjusted for an increase in non-cash reconciling items, the most significant of which was $5.2 million in stock-based compensation, $7.6 million in depreciation and amortization primarily related to two properties purchased in 2007, $2.8 million as a result of amortizing the identified intangible contract rights associated with the acquisition of Realty, partially offset by a $982,000 increase in deferred taxes. Also contributing to this increase was cash provided by net changes in other operating assets and liabilities of $3.8 million. This increase in cash from operating activities was partially offset by a $6.3 million increase in accounts receivable from related parties which consisted primarily of accrued management, leasing and transaction fees from the Company’s various sponsored programs.

Net cash used in investing activities increased $175.1 million to $232.2 million for the year ended December 31, 2007, compared to $57.1 million for the same period in 2006. This increase in cash used in investing activities was primarily related to $142.3 million of cash used in the acquisition and related improvements to two office properties held for investment and $454.2 million for asset purchases of GERI’s sponsored programs, to facilitate the reselling of such assets to its TIC programs and REITs, partially offset by

Net cash provided by financing activities increased $1.8 million to $145.4 million for the year ended December 31, 2007, compared to $143.6 million for the same period in 2006. The increase was primarily due to $140.0 million in mortgage notes payable related to properties acquired and held for investment in 2007, $13.4 million in contributions from minority interest stakeholders in properties acquired and held for sale in 2007, a year-over-year reduction of $11.6 million in dividends paid and $4.8 million in principal payments of amounts outstanding under mortgage loans payable in 2007. Partially offsetting the year-over-year increase in cash provided by financing activities of was $146.0 million in net proceeds in November 2006 as a result of the issuance of NNN’s common stock through the 144A private equity offering, and $21.5 million in additional repayments under the Company’s credit facility in 2007.

Net cash provided by operating activities decreased $8.3 million to $15.2 million for the year ended December 31, 2006, compared to net cash provided by operating activities of $23.5 million for the same period in 2005. The decrease was primarily due to lower cash provided by net income of $16.1 million adjusted for non-cash reconciling items, the most significant of which was a $4.9 million tax benefit primarily due to the conversion from a non-taxable partnership to a taxable C corporation in November, 2006, $3.9 million in stock based compensation and $2.6 million in receivables from related parties which primarily consisted of property management fees and lease commissions owed Realty.

Net cash used in investing activities increased $21.9 million for the year ended December 31, 2006 to $57.1 million, compared to net cash used in investing activities of $35.2 million for the same period in 2005. The increase was primarily due to $7.4 million for the acquisition of Realty and GBE Securities in 2006, funds used for asset purchases of NNN’s sponsored programs, which included $10.0 million to Apartment REIT, $80.6 million for its properties/intangible assets held for sale to facilitate the reselling of such assets to one of its TIC programs, Healthcare REIT and a joint venture, partially offset by $31.7 million in proceeds from the sale of one of these properties to a joint venture. Other uses of cash included $15.9 million used for real estate deposits and pre-acquisition costs, offset by $33.8 million in proceeds from collection of real estate deposits and pre-acquisition costs. NNN also invested $2.4 million in marketable equity securities in 2006.

Net cash provided by financing activities increased $133.3 million to $143.6 million for the year ended December 31, 2006, compared to $10.3 million for the same period in 2005. The increase was primarily due to net proceeds of $146.0 million received from the issuance of NNN’s common stock through the 144A private equity offering in November 2006, proceeds from issuance of NNN’s Senior Notes Program of $10.3 million, proceeds of $71.1 million from issuance of mortgage loans payable secured by properties held for sale, offset by $24.2 million in repayments of mortgage loans payable secured by properties held for sale. The net increase was partially offset by $28.1 million in dividends paid, the repayment of amounts outstanding under NNN’s line of credit of $8.5 million, and $12.3 million in repayments of notes payable primarily due to the repayment of $11.3 million in mezzanine debt on NNN 3500 Maple, LLC in 2006, and $5.5 million for the early redemption of redeemable preferred membership units in September 2006.

As a result of the above, cash and cash equivalents increased $101.7 million for the year ended December 31, 2006 to $102.2 million as of December 31, 2006, compared to $548,000 as of December 31, 2005.

The Company leases office space throughout the country through non-cancelable operating leases, which expire at various dates through February 28, 2017.

The following table summarizes contractual obligations as of December 31, 2007 and the effect that such obligations are expected to have on the Company’s liquidity and cash flow in future periods. This table does not reflect any available extension options.

Off-Balance Sheet Arrangements.  From time to time the Company provides guarantees of loans for properties under management. As of December 31, 2007, there were 143 properties under management with loan guarantees of approximately $3.4 billion in total principal outstanding with terms ranging from one to 30 years, secured by properties with a total aggregate purchase price of approximately $4.6 billion at December 31, 2007. As of December 31, 2006, there were 107 properties under management with loans that were guaranteed of approximately $2.4 billion in total principal outstanding secured by properties with a total aggregate purchase price of approximately $3.4 billion.

The Company’s guarantees consisted of the following as of December 31, 2007 and 2006:

Management evaluates these guarantees to determine if the guarantee meets the criteria required to record a liability in accordance with FASB Financial Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN No. 45”), which was insignificant as of December 31, 2007, December 31, 2006 and 2005.