American Realty Capital II, LLC ("ARC") confirmed today that on November 10, 2011, it formally expressed in writing to the board of directors of Grubb & Ellis Healthcare REIT II, Inc. ("GEHRII"), its interest in serving as the sponsor of GEHRII, and in having its affiliates provide advisory and dealer-manager services to GEHRII. On November 16, 2011, the GEHRII board of directors declined the offer, which they reported in their Current Report on Form 8-K on December 6, 2011.
"Given our experience, track record and highly competitive pricing, we believe that our proposal was in the best interests of GEHRII and its stockholders, both from a financial and a strategic point of view, and superior to the currently pending transition arrangements," said Nicholas S. Schorsch, CEO of ARC. GEHRII had earlier announced that it was planning to transition the advisory and dealer-manager services currently provided by affiliates of Grubb & Ellis Company to affiliates of American Healthcare Investors, LLC and Griffin Capital Corporation as replacement co-sponsors of GEHRII.
ARC's affiliated broker dealer, Realty Capital Securities, LLC ("RCS"), would act as managing broker dealer. There were no announced changes to GEHRII's investment strategy, primary investment objectives, targeted assets, leverage policy and selling expenses.
ARC further proposed the following advisor-related fees (shown in comparison to the prior and recently-enacted GEHRII fee structures):
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Fees to the Advisor | Â | Prior Grubb & Ellis Healthcare REIT II Structure | Â | New Grubb & Ellis Healthcare REIT II Structure | Â | Proposed American Realty Capital Structure |
Acquisition fee | Â | 2.75% | Â | 2.60% | Â | 1.00% |
Acquisition fee - Consideration | Â | Cash to Advisor | Â | 0.15% in stock and 2.45% in cash | Â | Cash to Advisor |
Asset Management Fee | Â | 0.85% | Â | 0.75% | Â | 0.60% |
Property Management Fee | Â | 4.00% | Â | 4.00% | Â | 4.00% |
Disposition Fee | Â | Lesser of 2% or 50% of competitive real estate commission | Â | Lesser of 2% or 50% of competitive real estate commission | Â | Lesser of 2% or 50% of competitive real estate commission |
Management Promote | Â | 15% above an 8% | Â | 15% above an 8% | Â | 15% above an 8% |
Internalization Fee | Â | NONE | Â | NONE | Â | NONE |
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In its proposal, ARC explained that it had the, "highest regard for GEHRII and its executive management and…would therefore expect Messrs. Prosky and Hanson to continue with GEHRII as part of the transition and thereafter."
ARC's proposal emphasized that RCS is the only managing broker dealer to transition and close a non-traded REIT offering successfully. During its tenure as dealer-manager for Healthcare Trust of America, Inc., RCS raised more than $1 billion in connection with its initial and follow-on offerings. It increased the selling group to over 180 firms representing more than 60,000 financial advisers while retaining virtually all selling relationships originally established by Grubb & Ellis Securities. Furthermore, given the importance of capital formation to a non-traded REIT, the proposal also pointed to the strength of RCS sales, operations and compliance staff, and the direct experience of RCS in communicating the healthcare story and having the relationships that drive capital accumulation.
"We believe American Realty Capital and RCS have the exact experience, personnel and relationships to facilitate effectively GEHRII's transition," continued Nicholas S. Schorsch. "GEHRII would have access to our management team and appropriate support personnel, as well as the benefits of our personnel and resources of RCS that we believe are essential to the successful implementation and execution of GEHRII's capital raising strategy."
American Realty Capital II, LLC is a full-service real estate advisory firm that sponsors real estate investment programs. Since its inception in 2006, and through June 30, 2011, affiliates of ARC have originated, structured and closed transactions investing over $1.5 billion in equity in over 560 properties (representing approximately $2.3 billion in assets). As of June 30, 2011, ARC and its affiliates had approximately $2.3 billion of properties under management. ARC's affiliates act as advisors to nine publicly offered direct investment programs, eight of which are non-traded and six of which are currently selling securities to the public. RCS has more than 100 licensed professionals across its sales, operations and compliance areas and is well-versed in representing healthcare offerings, having raised over $1.1 billion for healthcare offerings specifically. In just over three and one-half years,RCS has raised in excess of $3.4 billion for ten public and seven private real estate investment trust and business development company offerings.
To arrange interviews with executives of American Realty Capital II, LLC please contact Tony DeFazio at 484-532-7783 or tony@defaziocommunications.com.
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The full text of the ARC letter to the GEHRII board of directors and the subsequent response from the GEHRII board of directors are as follows:
Letter dated November 10, 2011, from American Realty Capital II, LLC:
[LETTERHEAD OF AMERICAN REALTY CAPITAL II, LLC]
November 10, 2011
The Board of Directors of
Grubb & Ellis Healthcare REIT II, Inc.
1551
N. Tustin Avenue, Suite 300
Santa Ana, CA 92705
Gentlemen,
The purpose of this letter is to express formally the interest of American Realty Capital II, LLC ("ARC") in serving as the sponsor of Grubb & Ellis Healthcare REIT II, Inc. ("GEHRII") and in having affiliates of ARC provide advisory and dealer-manager services to GEHRII.
We understand that GEHRII is planning to transition the advisory and dealer-manager services currently provided by affiliates of Grubb & Ellis Company to affiliates of American Healthcare Investors, LLC and Griffin Capital Corporation as replacement co-sponsors of GEHRII.
After considerable analysis of publicly available information regarding your company and the proposed transition, we developed our proposal described in detail in the Term Sheet attached hereto as Annex A. Under our proposal, advisory services will be provided to GEHRII by an affiliate of ARC and dealer-manager services would be provided to GEHRII by Realty Capital Securities, LLC. Given our experience and track record and highly competitive pricing, we believe that our proposal is in the best interests of GEHRII and its stockholders both from a financial and a strategic point of view and significantly superior to the currently pending transition arrangements.
We have the highest regard for GEHRII and its executive management and we would therefore expect Messrs. Prosky and Hanson to continue with GEHRII as part of the transition and thereafter.
As a way of background, ARC is a full-service real estate advisory firm that sponsors real estate investment programs. Since its inception in 2006, and through June 30, 2011, affiliates of ARC has originated, structured and closed transactions investing over $1.5 billion in equity in over 560 properties (representing approximately $2.3 billion in assets). As of June 30, 2011, ARC and its affiliates had approximately $2.3 billion of properties under management. ARC's affiliates act as advisors to nine publicly offered direct investment programs, eight of which are non-traded and of which six are currently selling securities to the public. Realty Capital Securities has more than 100 licensed professionals across its sales, operations and compliance areas and is well-versed in representing healthcare offerings, having raised over $1.1 billion for healthcare offerings specifically. In just over three and one-half years Realty Capital Securities has raised in excess of $3.4 billion for ten public and seven private real estate investment trust and business development company offerings.
We believe that Realty Capital Securities will serve as an ideal partner given several key considerations:
- Realty Capital Securities is the only managing broker dealer to successfully transition and close a non-traded REIT offering. We have specific experience in navigating the transition process with FINRA and understand all that is required by the regulators.
- During its tenure as dealer manager for Healthcare Trust of America, Inc., Realty Capital Securities raised more than $1 billion in connection with its initial and follow-on offerings, increased the selling group to over 180 firms representing more than 60,000 financial advisers and retained virtually all selling relationships originally established by Grubb & Ellis Securities.
- Realty Capital Securities sales, operations and compliance staff have direct experience in communicating the healthcare story and have the relationships that will drive sales. Our organization is fully-capable, given its current staffing, experience and operational efficiencies, to capably support GEHRII.
American Realty Capital and Realty Capital Securities have the exact experience, personnel and relationships we believe you are looking for in this transition. Pursuant to the terms of an advisory agreement, we (through our affiliate) will provide GEHRII with our management team and appropriate support personnel. Pursuant to a dealer manager agreement with Realty Capital Securities, LLC, GEHRII will have access to the personnel and resources of Realty Capital Securities, LLC necessary for the successful implementation and execution of its capital raising strategy.
We are confident that, if we work together, we can quickly effect the proposed transition, subject to negotiation of definitive documentation and receipt of all necessary regulatory approvals which we are prepared to complete as expeditiously as possible. We and our advisors are ready and available to meet and commence discussions with you and your advisors at your earliest convenience.
As is customary, the parties will not be legally obligated by any other terms contained in this letter unless and until definitive documentation in form and substance satisfactory to the parties is executed and delivered.
As I am sure you can appreciate, with a proposal of this kind, time is of the essence, and we request your response with respect to your interest in pursuing this opportunity within ten calendar days from the date hereof.
We are excited about the prospect of working in partnership with GEHRII's management team and Board of Directors toward a successful transition. If you have any questions regarding this proposal, please feel free to contact me at (212) 415-6500.
Yours sincerely,
/s/ Nicholas S. Schorsch
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TERM SHEET | ||
GRUBB & ELLIS HEALTHCARE TRUST II, INC. | ||
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Entity Type | Â | Externally managed, non-traded real estate investment trust. |
Entity Name | Â | Grubb & Ellis Healthcare Trust II, Inc. (the "Company") |
Transition Date | Â | ___________, 2012 (estimate) |
Offering Type | Â | Continuous equity offering |
Investment Period | Â | Estimated holding period is five years from the close of the offering |
Offering Size | Â | $3,285,000,000 (including $285,000,000 shares registered under the Company's DRIP) |
Minimum Investment | Â | $2,500 (some states may vary). |
Sponsor | Â | American Realty Capital II. Alternatively, we can create a co-sponsor, advisor/sub-advisor structure with Messrs. Prosky and Hanson. If we adopt an advisor/sub-advisor structure, we will enter into a sub-advisory agreement setting forth the terms of the relationship. |
Dealer Manager | Â | Realty Capital Securities, LLC ("RCS") |
Advisor | Â | An entity affiliated with ARC will act as the external advisor (the "Advisor"). Alternatively, we can create a co-sponsor, advisor/sub-advisor structure with Messrs. Prosky and Hanson. If we adopt an advisor/sub-advisor structure, we will enter into a sub-advisory agreement setting forth the terms of the relationship. |
Investment Strategy | Â | The Company intends to invest in a diversified portfolio of real estate properties, focusing primarily on medical office buildings and healthcare-related facilities. |
Primary Investment Objectives | Â | -- to preserve, protect and return investors' capital contributions; -- to pay regular cash distributions; and -- to realize growth in the value of the Company's investments upon the ultimate sale of such investments. |
Targeted Assets | Â | Assisted living facilities; skilled nursing facilities, hospitals, long-term acute care facilities; surgery centers, memory care facilities, specialty medical and diagnostic service facilities, laboratories and research facilities, pharmaceutical and medical supply manufacturing facilities; and offices leased to tenants in healthcare-related industries. |
Leverage | Â | Estimated to be no more than 60% LTV as determined at the end of each calendar year beginning with our first full year of operations. |
Distributions | Â | Paid on a monthly basis, and anticipated to be paid 100% from Modified FFO (removing one-time expenses such as acquisition/closing costs). |
Compensation to Advisor | Â | -- Acquisition Fee equal to 1.0% of the contract purchase price, inclusive of the amount of debt. -- Asset Management Fee up to 0.60% of the cost of the invested assets. -- Property Management Fee up to 4% of gross monthly cash receipts from each property managed by the Advisor or an affiliate, some of which may be re-allowed to a third-party property manager. -- Disposition Fee up to the lesser of 2% of the contract sales price of each property and 50.0% of a competitive real estate commission that would have been paid to a third party. The amount of disposition fees paid, when added to the real estate commissions paid to unaffiliated parties, will not exceed the lesser of the customary competitive real estate commission and an amount equal to 6.0% of the contract sales price. -- Management Promote equal to 15% of the excess after shareholders have received a return of capital plus and an 8% cumulative, non-compounded return. -- Advisor Termination Fee equal to the value of the
Management Promote on the assets acquired up until the termination
date. There will be no "internalization fee" charged to the Company. Fee Waiver: Asset Management Fees and Property Management Fees shall be subordinated on a quarterly basis (i.e., waived) to full coverage of shareholder distributions from modified FFO. ARC will use best efforts to insure that there are mechanisms in place to meet the full coverage of shareholder distributions from modified FFO during the Targeted Fund Term |
Selling Expenses | Â | Total of 10%: -- Selling Commissions: 7% of gross offering proceeds paid to Realty Capital Securities, to be re-allowed to broker-dealers; -- Dealer Manager Fee: 3% of gross offering proceeds paid to Realty Capital Securities. |
Organizational and Offering Expenses | Â | Up to a maximum of 1.5% of the gross offering proceeds to the Advisor for reimbursement of qualified O&O expenses. |
Personnel | Â | -- Advisor will extend an offer of employment to Messrs. Prosky and Hanson and other members of the current Advisor management team who are identified as key personnel. -- Dealer Manager will work with the Company to extend an offer to Grubb & Ellis Capital Corporation management and sales professionals who are identified as key personnel. |
Transfer Agent | Â | Advisor will work with the current transfer agent to transition investor and investment books and records and related responsibilities to DST Systems, Inc. |
Confidential | Â | The parties hereto agree to keep this Letter of Intent and its contents confidential and not to distribute it to, nor discuss it with, any third party (other than the parties' legal and financial advisors, who shall be informed of the confidential nature of this document). |
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Letter dated November 16, 2011, on behalf of the board of directors of Grubb & Ellis Healthcare REIT II, LLC:
[LETTERHEAD OF ROBERT A. STANGER & CO., INC.]
November 16, 2011
Mr. Nicolas S. Schorsch
American Realty Capital II, LLC
405
Park Avenue
12th Floor
New York, New York 10002
Subject: Your letter of November 10, 2011
Dear Mr. Schorsch,
In response to the above-captioned letter, in which you "express formally the interest of American Realty Capital II, LLC ("ARC") in serving as the sponsor of Grubb & Ellis Healthcare REIT II, Inc. ("GEHRII") and in having affiliates of ARC provide advisory and dealer-manager services to GEHRII," the Board of Directors of Grubb & Ellis Healthcare REIT II, Inc. has asked me to advise you that it is not interested at this time. Thank you for your interest.
Sincerely,
/s/ Kevin T. Gannon
Managing Director
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Contacts:
DeFazio Communications, LLC
Anthony J. DeFazio
484-532-7783
tony@defaziocommunications.com
or
American
Realty Capital II, LLC
Brian S. Block, EVP and CFO
212-415-6500
bblock@arlcap.com