Imagining the New Frontier of Health Care Research on Park Avenue South
James Flynn talks about Deerfield's plan to convert 345 Park Avenue South from an office building into health care lab and research space.
James Flynn has a vision for health care research in New York City. It looks like a large building where researchers have access to lab and office space, while also getting the chance to rub shoulders with biotech startups, pharmaceutical companies and health care software firms.
Flynn, who’s spent the last 15 years running the investment management firm Deerfield, had been on the hunt for a building that could accommodate a medical tech incubator and lab space, as well as offices for Deerfield itself. And, last year, the firm landed on 345 Park Avenue South, paying $345 million for the Art Deco office building located between East 25th and East 26th Streets in Midtown South. The seller, RFR’s Aby Rosen, also received a stake—valued at $150 million—in one of Deerfield’s life science funds.
The 54-year-old exec, who goes by Jim and lives in Tribeca with his wife and 10-year-old son, hopes to create a facility that will compete with large medical research campuses in Boston and university towns like Chapel Hill. Construction is likely to cost more than $200 million with the 320,000-square-foot building transformed into a mix of offices, labs and research space for life science and pharmaceutical companies. Deerfield, which operates several funds focused on health care and pharmaceutical research, will occupy 80,000 square feet on the top three floors.
Commercial Observer recently sat down with Flynn at his offices at 780 Third Avenue in Midtown to discuss Deerfield’s plans to create a life science innovation center on Park Avenue South, his career start in “small pharma” and the market for lab space in New York City.
Commercial Observer: Tell me what the plan is for the 240,000 square feet of 345 Park Avenue South that you won’t be occupying.
James Flynn: Our mission as a firm is to advance health care, and that means cure people of stuff. And so this building is a composite of all the things that you need to do to further that objective. We have lab floors that are dedicated to actual advancement of science; we’ll also have med tech incubation floors; we’ll also have digital health floors, and we’ll have Matter, which is an incubator/accelerator from Chicago occupying the floor. And they’ve done an incredible job of creating programming for entrepreneurs and other people who are trying to advance health care companies of any kind. And they connect small companies to big companies and big companies to small companies and do all kinds of stuff. So they’ll be on a floor; we’ll be on the top floors and we’re capital that can help connect folks. And then we’ll have a potpourri of later stage companies in all aspects of health care in the building. I think a lot of life science infrastructure buildings are kind of—they’re buildings and the objective is to rent. Our objective as an investment firm is not to lease; it is to produce things that actually work with, will help the funds. So there’s a different feel to the environment.
Why is Midtown South a good fit for a life science property?
New York has powerhouse research institutions. But it has very little venture that is applied towards New York science. And it has very little life science, industrial talent in the city. So in order to create a life science ecosystem, you have to solve those two things. And we were looking at some of the Long Island City properties; it’s much more economically favorable to be there. A lot of researchers live on research campuses, in shiny buildings in Boston and in really nice environments, and this is a location in a very attractive part of town.
We think that whether someone’s an entrepreneur, whether someone’s a scientist, or any component, that we can compete to attract them to that location. All of the investment conferences are in Midtown, all of the management companies that flow through New York City are in Midtown. And if we were somewhere off the beaten path, it would be really hard for them to get to us. So it’s the marriage of those things that makes that a very desirable location. It’s right on a subway line to Grand Central; it’s near Penn Station. It’s almost equidistant from the different major medical campuses. So it really, as far as we’re concerned, couldn’t be a better place.
How did the acquisition of this building come about? I know that it was off market, and Deerfield had been looking to invest in a property like this for a while.
We had a sort of a convergence of things. Number one, our lease here ends at the end of December 2020. We had to move and the floor plates here are too small for us. And we had signed all of these academic relationships where we had all of these new therapeutics that we were advancing, and we needed lab space. Plus, both New York City and New York State launched their life science initiatives to try to help people advance translational research. Finally, we’re right in the heart of translational research. So we thought, okay, maybe this could all come together somehow.
Then I guess about two years ago or so we started looking. We spent a lot of time in Long Island City. We spent a lot of time near Columbia in the Harlem area, Brooklyn, the Bronx, the West Side. And nothing really worked for us.
In Long Island City, we felt like it might be hard to attract the right kind of scientists. We also as an investment business need to be in the flow of management and other things coming through New York City. Because [being] central is important, right? We also work with a lot of different universities and we wanted to be centrally located relative to them. Honestly, we were about to give up when CBRE came to us and said, there’s a building at 345 Park Avenue South. They’re trying to lease the building out to a single tenant, but they might be willing to sell. That started the conversation and it just turned out, very coincidentally, that it’s zoned for almost everything. RFR was willing to be flexible and thinking about how to do something that worked. For us, that meant that we had some time because a lot of these things were new to us in this building that had never been lab space. Also, we were working very closely with the city to really make this work. We had to have a collaboration with the city that also worked.
What’s the collaboration with the city that you’re talking about?
The city ended up giving us a little over $90 million in tax abatement. And that really helps us bridge the gap in terms of making this thing compute financially.
Can you describe the construction work that you’re doing to prepare the building for life science tenants?
In terms of the build out, we have had to create a central core in the building that provides for air handling. That’s the hardest thing with labs is that you have to turn over the air very quickly. So the whole roof is being outfitted with air handling equipment that goes down through the building to every floor and allows for labs to be built out on every single floor. And then also the cabling goes down through that to every floor in order to support any kind of high tech output, digital output that might be required from any floor. And, you know, that’s a pretty expensive proposition. That’s about $50 million, just to get the core and the components related to the core correct. But then when you’ve done that these floors are extremely versatile. And to the extent that technology changes or requirements change, we can adapt pretty much anything with that. That’s the main special sauce, and then the rest will be individual fit outs depending on what kind of folks are on what floor.
Do you see New York City becoming a bigger life science hub? Do you see it rivaling Boston?
I think for sure, yeah. It can ultimately give [Boston] a good run, but it’s gonna take 20 years.
Does it have to do with the pipeline of talent here? Or does it have more to do with our building stock and our zoning?
Well, the city revamped zoning already in order to enable a bunch of this stuff to happen. But really, you need people to feel like they have to be here. So right now, if you’re a small company or a big company, you feel like you have to be in Boston, because everyone else is there. And they’re across the street and there’s collaboration. Nobody feels like they have to be in New York yet. You need some highly functioning hubs that have companies within them that people want to be near. And I think as you start to create that, then people start saying, ‘Well, I feel like it would help us to be in New York,’ or help us to be next to this, or be a part of that. That’s why it takes 20 years because you have to build enough success and enough unique types of companies in order to get people to feel like that. But there’s all the ingredients.
Tell me a little bit about how you got into doing this. I know you’re from Urbana-Champaign in Illinois, and I saw you were a health care analyst. And you worked in Big Pharma right?
Small pharma. I went to University of Michigan, did some science and economics, came to New York, had no idea what I wanted to do, like most people that age, and just wanted to get into a business where I could understand things a little bit better. I interviewed with the Federal Reserve and I interviewed with consulting firms and investment banks, and I ended up really hitting it off with a guy who was the biotechnology analyst in the research group at Kidder Peabody, an investment bank. And so I worked as an assistant for him for a while and then Kidder promoted me to being an investment analyst there and that sort of cast the die so to speak in terms of what I became more specialized at, which was health care investment. But I did feel like a little bit of a pretender to the throne since I was opining on businesses and never worked in one.
That’s why I went and became VP of corporate development for like a 2,000-employee pharma company. That’s kind of small pharma, but there’s enough to sink your teeth into. I did that for a while and then came back and felt a little bit more educated about what businesses actually do and how they actually do it.
The guy who started Deerfield actually was at Kidder Peabody and I knew him from there. He gave me a call and said, ‘Do you want to come here?’ and I really didn’t want to go to an investment firm. But I really liked him. I wasn’t quite sure what I wanted to do [but] I said, ‘Okay.’
Two years later, he said, ‘I’m going to retire, I’d like you to run Deerfield.’ I didn’t really want to run Deerfield, because Deerfield was mostly focused on public investment. And I just didn’t think that was very valuable.
The real question was, could we turn Deerfield into something that does something really valuable? So we started the foundation, we started the concept of investing in early stage technologies and creating new therapeutics and delivery systems, between what we can do in terms of inventing things that will really mattered to people’s health and filling in the cracks from the foundation.
Since then we’ve added our fellows program, which is a big diversity program, we’ve added breaking the boardroom, which is getting women board seats, which is another issue. We just started [the] women in science [program] because women are not bringing their translational research programs forward.
And we went to our academic collaborators, and said, “Well, why aren’t we seeing as many programs for women?” And so the campuses got really fired up on the idea that maybe there are barriers that people haven’t seen. They asked women scientists on campus, ‘Do you want a training program on how to translate your research?’ and we got this overwhelming outcropping of interest. We [had] 50 of these scientists [come last month], actually, where we have a big training program for them.
And we’re trying to fill out the cracks in between with different kinds of programs we could run—not just in terms of what we invest in and how we do it, but what the foundation does and how we’re trying to recycle any success on the investment side into things we can do on the foundation side.