Life Sciences: The CRE Sector That Everyone Wants a Shot At
The past year has taught us a lot about life: what’s important, what’s not, and that the invisible thread that binds us all is our humanity.
The pandemic didn’t discriminate between the wealthy and the poor, the powerful and the weak. Every person on this list — regardless of their might — was undoubtedly impacted by COVID-19 in one way or another.
What the crisis also brought was a surge of interest in science (thanks, Dr. Fauci), as an international spotlight was placed on those racing to develop therapeutics and vaccines to combat this coronavirus, as well as future pandemics.
Life sciences investment was once reserved for a select few, savvy investors and owners. They’d carved out a niche in one of the most nuanced segments of the real estate market, in which few dared to tread. (Compared to the 4 billion square feet of office space across the U.S., the market for life sciences research properties unfolds to a relatively paltry 150 million square feet).
But those intrepid pioneers in the space are now the ones holding the cards, as the life sciences sector — and the conversion of office product to research and lab space — is one of the hottest investment opportunities to emerge from the past year.
Hold your horses, though. Before you race into the space, you have to have a jockey who fully understands the steed’s canter.
Life sciences investment and development includes a number of unique challenges and specific requirements from the tenant side. Among other physical building concerns, you need the right zoning, floor loads and floor heights, plus mechanical and ventilation systems that most existing office product is not even close to being set up for.
Then, as several life sciences tenants are early-stage companies, they often have zero track record and are venture-backed. It takes confidence and expertise to underwrite a tenant, where the business plan has inherent risks in it.
Those considering dabbling in the space can learn from some of the OGs in the space, namely Alexandria Real Estate Equities and Longfellow Real Estate Partners.
Alexandria was an early investor in Moderna — also known as the “queen of vaccines” — and its tenants include the full roll call: Moderna, Pfizer, AstraZeneca, Novavax, and Johnson & Johnson. The REIT’s revenues totaled $1.89 billion in 2020, a more than 23 percent increase over 2019, while its total asset base grew 27 percent to 49.7 million square feet.
Boston-based Longfellow got its feet wet more than a decade ago, and has bought or developed 10 million square feet of life sciences space since. It has a further 4.5 million square feet of new projects in the pipeline.
Pre-COVID, life sciences’ key markets — such as Boston and San Francisco — were red-hot, with zero availability in terms of space for lease. And while Alexandria established a firm life sciences footprint in New York City some time ago, building its 1.3 million-square-foot Alexandria Center for Life Science back in 2017, Gotham still has some catching up to do with the other life sciences clusters across the nation.
New Yorkers are never to be outdone, however, and a number of honorees are hot on Alexandria’s heels, carving out their own space in the burgeoning niche. Those firms’ savvy investments were underscored during the pandemic, when they not only closed huge financings, but also signed mega-tenants.
Case in point, Nuveen Real Estate and Taconic Partners. The pair teamed up to turn 125 West End Avenue — once part of the ABC/Disney campus — into a 400,000-square-foot life sciences hub. The red-hot demand behind the sector meant that landing a $600 million capitalization for the project was as easy as, um, A-B-C.
For Taconic, its foray into the space started with 619 West 54th street, also known as the Hudson Research Center. Sound familiar? That’s probably because a biomanufacturing company backed by Bill Gates just established its executive headquarters and research lab at the property. C16 Biosciences will move into 20,000 square feet of pre-built lab and office space on the seventh floor of the building at the end of this summer or early fall. Between those two properties alone, Taconic is carving out a definitive life sciences cluster on Manhattan’s West Side.
Then, there’s Deerfield Management, which bucked the tradition of wide, open spaces and instead had the cajones to redevelop a life sciences complex at 345 Park Avenue South (formerly an office building owned by Aby Rosen’s RFR Holding). The 300,000-square-foot building features 11 floors of office and research space. Beyond the dollars that it’s, well, parked at Park Avenue South, Deerfield also backs around 250 for-profit and not-for-profit entities in every aspect of the life sciences sector.
And Thor Equities isn’t “Sitt-ing” on its hands either. In the past 12 months, its Thor Sciences division made life sciences acquisitions in key markets, acquiring a fully leased property in New Jersey; a lab building in North Carolina’s Research Triangle; and a research and development building in San Jose, Calif. — also fully leased. The acquisitions add to the group’s growing portfolio, which already included properties in New Jersey and San Francisco.
Himmel + Meringoff also further invested in the life sciences segment last year, deeming it as an area of growth. Its 500,000-square-foot asset at 525 West 57th Street counts Labcorp and the Tisch MS Research Center of New York as tenants, and over the past year, H + M has worked to retrofit an additional portion of the building with “all the bells and whistles” needed to attract biotech outfits, Leslie Himmel said.
Finally, there’s Blackstone. If we didn’t know better, we’d swear its executives had a DeLorean time machine developed by Emmett “Doc” Brown sitting in a conference room at 345 Park Avenue. Consistently ahead of the curve, its behemoth portfolio encompasses every asset class that investors are clamoring over: film/studios, multifamily, industrial, and yep … life sciences.