Grubb & Ellis has filed for Chapter 11 bankruptcy and announced the sale of all its assets to rival Newmark Knight Frank, owned by BGC Partners.

Grubb & Ellis was founded in Oakland in 1958 and was once one of the largest independently owned real estate firms in the nation. It has been floundering since the 1990s; the Great Recession stressed the company beyond saving.

first tuesday take: Grubb & Ellis has mirrored the rise and fall of the economy over the booms and busts since the 1990s, leveraging heavily to expand during boom times without holding sufficient reserves to protect themselves from the inevitable busts.

These poor business choices reveal the fallacy of “value” as interpreted by stock prices, as Grubb & Ellis’ stock soared through the roof during the boom and was most recently observed floundering under a dollar a share. Their risky financial decisions denied the fact that rents would not increase forever, contrary to the industry-wide money illusion.

The commercial real estate mortgage outlook has slowly been improving, with commercial loan delinquency rates dropping each quarter since 2010. However, at 6.12%, there is still a long road ahead before the commercial real estate sector hits its true stride toward recovery.

As for leasing agents, right now it’s a zero-sum game out there— many businesses that occupied commercial space during the boom have gone under and bankruptcies have three or four years before topping out and declining.The remaining firms are simply picking up and moving on to more desirable spaces with lower rents. This lease shuffling gives the appearance of market activity but highlights the lack of real growth in the industry now, and for the next few years.

This reality has hit commercial brokerages hard, especially after the excess commercial building construction that occurred during the boom. [For information on the top brokerages in California, see the January 2012 first tuesday article, The top 30 brokers in CA by number employed: 2011.]

Re: “Grubb & Ellis files for Chapter 11 bankruptcy and agrees to sale” from the LA Times