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Ground Game: Developers Get Creative to Meet Demand From Fast-Growing Pharma Companies

Biotech IPOs Give Life Science Properties Shot In the Arm as Traditional Big Pharmas Retrench
April 30, 2014
With new-generation lab space at a premium in many of the nation’s most desirable biotechnology clusters, developers are increasingly turning to redevelopment and assembling development sites to meet rising demand from a new wave of pharmaceutical companies expanding within the life science market.

In something akin to a changing of the guard, consolidation among the big global pharmaceutical companies has shifted real estate transaction activity to fast-growing mid-size and specialty pharma companies, which have been entering the publicly traded marketplace in record numbers over the last year.

The life sciences industry raised $90 billion from investors in 2013, and more follow-on offerings were launched by biotech companies in the first two months of 2014 than for all of last year as well as all of 2011 and 2012, combined, noted Kent Griffin, president of Biomed Realty Trust, one of the largest owners and developers of life science space, with significant holdings in the Boston-Cambridge and San Francisco Bay Area. Biomed Realty's own tenant roster launched seven IPOs in 2013, including Bind Therapeutics, Nanostring Technologies, Receptos, Epizyme, Tetralogic Pharmaceuticals, Ambit Biosciences and Intrexon.

"In this business, you have to be located in the best triple-A urban science campus locations, and it's hard to find those," noted Joel Stein, CEO of Alexandria Real Estate Equities, another of the largest players in the biotech real estate space. "In Mission Bay [San Francisco], there was nothing to buy except land. Cambridge is still very hard to acquire, and South Lake Union in Seattle, New York City, there's little to buy, so by nature, you really have to go ground-up to create the product in the best locations."

San Francisco-based BioMed Realty completed the initial build-out of two major projects during the fourth quarter, including 476,000 square feet at its Piedmont Triad Research Park in the Wake Forest Innovation Quarter of Winston-Salem, NC, transforming two historic tobacco factory buildings into research facilities with both wet and dry labs and office space.

The second project, Heritage @4240 in St. Louis, is an 184,000 square foot office and lab property anchored by Washington University. Biomed said it also secured an adjacent parcel for future growth and expansion.

Big Pharma Winding Down U.S. Campuses

Proposed plans for the massive 118-acre site of pharmaceutical giant Roche Holding AG in northern New Jersey underscore the consolidation within the industry and the challenges -- and potential opportunities - for developers in the shifting biotechnology market.

In Northern and Central New Jersey, expiring patents and a challenging economy have prompted large companies to shuffle their real estate. After acquiring Genentech and relocating its headquarters to San Francisco in 2009, Roche last year ceased R&D operations at its U.S. headquarters campus in Nutley in Essex County and Clifton in Passaic County, and plans to fully vacate the property next year.

Portions of the site are being demolished as architects present three redevelopment plans that incorporate a combination of biotech, research and development, senior care, hotel and residential uses. Nutley Township has issued a request for proposals studying the possibility of creating a formal redevelopment map comprised of 40 properties that could include the use of eminent domain.

Meanwhile, Merck has announced plans to consolidate its operations in Kenilworth, NJ, and placed its 1 million-square-foot global headquarters in Whitehouse Station and 1.5 million-square-foot R&D campus in Summit on the market for sale.

Suburban Maryland’s I-270 Corridor, also known as DNA Alley, and Frederick submarket, which have also seen their share of consolidation due to mergers, government funding cutbacks and acquisitions, but with numerous new tenants in the market, leasing brokers remain upbeat.

"In the coming year, we expect to see a higher velocity of leasing activity, with the handful of Class A large blocks of space being absorbed first as tenants upgrade from functionally obsolete second-generation space to Class A space," said Pete Briskman, managing director with JLL's Life Sciences Practice Group.

Frederick’s is poised for additional growth, including the $510 million U.S. Army Medical Research Institute of Infectious Diseases building, the Astra Zeneca manufacturing facility and Leidos Biomedical Research Inc.’s 360,000-square-foot vaccine manufacturing plant. Joint-venture partners Manhattan Construction and Torcon of Red Bank are developing a six-story, 865,000-square-foot facility featuring cutting-edge bio-containment technology to study threatening bacteria and viruses.

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