Longfellow Real Estate’s Adam Sichol on Everything Life Sciences
One of the industry's leading life sciences owners and developers is gearing up for a busy 2021
Longfellow Real Estate Partners has become one of the most distinguished players in the life sciences real estate sector, having bought or developed more than 9 million square feet since the firm was founded more than a decade ago.
The Boston-based life sciences investor, developer and manager now sports a portfolio of more than 6 million square feet — about 4 or 5 percent of U.S. lab space — and is currently managing a development pipeline of about 4 million square feet in the best biotech markets in the country.
Despite the general turbulence last year caused by the pandemic, life sciences boomed, and Longfellow rode that wave, expanding its portfolio by almost 1 million square feet. As such, it’s expanding and reorganizing internally in preparation for what’s to come.
Adam Sichol, one of the firm’s co-founders, recently assumed the title of CEO, a new role that was created for him within the vertically integrated company, while Longfellow’s other four partners are also pivoting or taking on more expansive roles as part of its broader push to scale.
From acquisitions, conversions, new development, property management and tenant services, Longfellow runs the gamut, and it doesn’t miss a beat in its core markets — Boston, New York City, the Bay Area, San Diego, and the hot research hubs and burgeoning secondary markets in North Carolina.
In preparation for a busy year, the company has already hired 15 people in the first two months of 2021. “We’re going to continue hiring people throughout this year,” Sichol said. “We’re at just north of 100 people, and, towards the end of the year, we’ll probably be pushing up close to 130 or 140 people.”
And, 2021 is off to a good start.
On Feb. 18, the company announced that it had acquired a 20-acre site on Watkins Road in Morrisville, N.C., with plans to build-out a four-building, 480,000-square-foot life sciences campus that will be adjacent to its existing campus, Discovery at Perimeter Park. Morrisville is an area located right in the middle of the Research Triangle, along the southern border of the renowned Research Triangle Park. Longfellow also owns the massive 15-acre campus, Durham Innovation District.
Sichol spoke to Commercial Observer last week to discuss Longfellow’s recent internal changes, how 2020 played out for the life sciences space, and how the company stays in tune with its tenants — and their respective scientific and technological innovations — in order to stay ahead of the curve.
Commercial Observer: What drove the decision to make those internal changes this year?
Adam Sichol: It was just a natural progression of growth of the company. [Managing partner] Jamie [Peschel] is still very involved and plays a very important role. As we continue to grow and scale, [the partners in the firm are] allocating our time to different aspects of the business. Jamie is going to continue to be very important to us from a strategic standpoint, sitting on our investment committee and continuing to help grow our investment management platform, working closely with our investors and our portfolio management team.
Our other partners in the firm are taking on additional roles as we scale, so Jessica [Brock] will be in charge of real estate operations, picking up a couple verticals that will report to her. Joe [Van Saun], who’s our partner in charge of finance and accounting, will also pick up a couple verticals as well, with human resources and IT. And Jill [Ratke], as we’re continuing to grow our asset management program, [will oversee] portfolio management and development management.
It was an interesting year for life sciences last year. How would you describe the way it materialized?
It was an exciting year. I think back to March last year, and we were getting ready for uncertainty, just as everybody else was. As we started to pull through the first months of COVID, it was clear, at least in the life science space, that the tenants’ needs were still real, and the thing that was different about our tenants versus office tenants was that our users needed to get into their lab space to do their R&D [research and development]. They couldn’t do it remotely.
They had to get creative and figure out how to social distance, alternate workforces and things like that, but the interest in continuing to lease lab space and to go into space was there. We had to make sure our buildings were operational.
We’ve seen strong demand in all of our markets, and, looking back, record amounts of capital flowed into the space from venture capital, government and public markets perspectives. Usually when that happens, it’s followed by demand, and we’re continuing to see that demand unfold in our markets.
Given the uniqueness of the asset class, what was the dialogue like with your investors during the early stages of the pandemic?
The initial conversations were probably very similar to what was happening at many real estate firms, which was monitoring the usage of space and the health of our tenants. That was the key. And it became clear to us, as the crisis unfolded, as we were reading stories about office users, that we weren’t seeing that unfold in our space as much, if at all.
The biggest issue for us quickly became the tenants’ need to actually get into their spaces. In our universe of tenants, they get their funding and they’re motivated to meet milestones, so if they can’t get into their space, they can’t do their R&D. It became about making sure our contractors can get back to work and making sure we get the permits we need to deliver spaces, so we had to work with cities to help move permits forward, and work with our contractors and consultants to make sure that we stayed on track.
There’s been more research and talk about office conversions to other uses due to the impacts of COVID. How would an office conversion to life sciences stack up to a new development in terms of cost effectiveness, the risk involved and the ease of stabilizing it?
Not every office building coverts. There’s roughly 150 to 160 million square feet of lab space in the country and 4 billion square feet of office space, and not all of those convert. Typically, you need very specific floor loads for lab buildings, certain ceiling heights, a minimum floor plate size, freight elevators, loading docks and just places for infrastructure within the building. We do ground-up development and conversions, and we’re very particular about the ones we convert, studying them extensively. But, buildings that are converted and done by an experienced group are just as good as a purpose-built lab.
How many conversions are you tackling right now?
We’re doing office conversion in every market that we’re in right now, except for New York City. Many of the buildings we’ve seen in Manhattan, oftentimes, have smaller floor plates, and it just becomes trickier because of all the infrastructure you need to put within the building. On occasion, they can layout in an efficient manner, but often, you need floor plates close to 20,000 square feet, or higher.
Have you skipped New York because of a lack of product that fits your need, or is it a matter of stepping back for now as things stabilize and rebuild?
We like New York. It’s a combination of things, but one is the bid-ask spread between buyers and sellers, and we’re seeing that come in a bit now. That’s making places like Manhattan more interesting, and there’s been a cluster developing out in Long Island City, which makes sense for some folks.
Historically, pre-COVID, groups like us, when we were looking for conversions, were competing against a world of developers in other uses, so, from that perspective, I think it’s opened up a bit. We’re seeing less competition, and more interesting opportunities are starting to percolate in that market.
How are life sciences-geared assets trading today, just in terms of competition and the landscape for buyers?
Because it’s performing so well, there’s been a lot of focus from institutional investors to get into the space. We’ve seen core products get more expensive, and we’ve seen conversion opportunities continue to price out in a way that makes sense. We’ve seen new entrants looking to get into the mix. All the numbers indicate there’s going to be increased competition, but as one of the leaders, we’re not that concerned about the emergence of new entrants. The most extreme competition happens to come from the 10 or so companies we would see before COVID, who are continuing to chase and develop these assets.
Which types of lenders have really led the way in providing financing for life sciences in the last 12 months?
We did a bunch of loans with some debt funds, and there were some banks that we continued to do business with. There was that initial [pause] in March, April and May, and maybe early June, but I’d say they all stuck it out and debt funds got a little more aggressive.
What data points do you utilize to understand what drives life sciences demand and performance in order for you to be more proactive?
We have really good communication with our tenants, so we know what’s going on within the space. Generally, if there’s a lot of growth in one market, it’s happening in another market, so we know when our tenant wants to grow. Our priority is making sure our tenants’ facilities are operational, that they have the space they need, and if they need to grow, we can accommodate them within our portfolio. Our relationships with them lets us understand where in specific markets we might want to be or pivot to.
How has life sciences design transformed and how do you go about it within your portfolio?
Scientists are no different than others; they like their amenities. So, we focus on place-making. We created a proprietary amenity program within Longfellow called Elevate. Within that, we provide everything from shared conference rooms to coffee areas to yoga and fitness classes to fitness facilities and food trucks, you name it.
There’s also a lot of specialized equipment affiliated with a lab building, like specialized mechanical, electrical and plumbing systems, as well as the air quality systems. Air within a lab building is much different than air in an office building, in terms of the amounts that are circulated and the air changes, so it has to be a lot fresher and consist of more outside air than air that’s recirculated in an office building. You’ve got other things like spaces for chemicals and gases you’re managing within the building. There’s clean rooms, fireproofing and emergency generators; these are definitely not your standard office buildings.
Given demand is so high, and growth will continue, which innovative practices are driving that demand for Longfellow’s work in your markets?
We’re seeing the proliferation of cell and gene therapy, which is really impacting a lot of the growth within the industry, and a move to biologics. As we’ve seen during COVID, there’s lots of impressive technology out there, from Messenger RNA and RNA interference to CRISPR-Cas9. We’re seeing lots of interesting technologies come out of R&D. And we’re continuing to see pharmaceutical companies and big biotech companies wanting to get in on the ground floor and partner with startups. They are all positioning to be near startups to help nurture them and help them grow.