Boston Life Sciences Developers Need To Take Leaps Of Faith To Compete
Developers that want to reap the benefits of Boston’s life sciences boom will have to stomach more risks to compete with the dominant forces in the sector, life sciences commercial real estate experts said Tuesday during Bisnow’s Boston Life Sciences digital summit.
Forty-eight percent of the country’s laboratory space is owned and controlled by 20 firms, according to JLL Executive Life Sciences Director Travis McCready, so entering the hot market requires smart repositioning, avoiding rezoning headaches and understanding the health of potential tenants.
BioMed Realty Vice President of East Coast Leasing Colleen O'Connor said speed-to-market is crucial when looking at laboratory space, and developers can’t wait for a tenant to fill an asset with VC-backed companies hiring talent and eyeing research progress almost immediately.
“So the combination of, if the zoning’s not there and you have to wait a couple of years to get that done, and then you’ve got to take that leap of faith and put a significant, significant investment in, for the base filling infrastructure and potentially even build out these tenant spaces on spec, as an owner-developer, you cannot get the cash flow to work, the risk/reward profile just doesn’t pencil oftentimes,” O’Connor said.
Companies backed by venture capital funding are filling a lot of recent Boston-area laboratory supply, Berkeley Investments President Young Park said, introducing a level of risk to the market beyond typical spec builds.
“Now … a lot of it is VC-backed,” Park said. “Companies, most of them have a three-four year runway, and yet they’re signing 10-year leases. There’s an enormous amount of wishing and keeping fingers crossed.”
SGA Director of Science and Technology Jeffrey Talka believes the Boston market, which touts under 8% vacancy in city limits and less than 2% vacancy in Cambridge, is going to start seeing more speculative construction.
“Because the maturity of the industry in Boston is at that tipping point right now, it’s not basic research anymore,” Talka said.
Callahan Construction Vice President Steve Callahan Jr. said developers building spec are going to have to take a “leap of faith” whether they’re projecting ground-up product or conversion assets.
“If you’re truly going to be lab-ready you need to take somewhat, typically, of a leap of faith — meaning it's still spec, you haven’t leased it,” Callahan said. “You think of it simply, do I need to put all this infrastructure in? And I know that I'm doing something that perhaps down the road, based on my tenancy, I might not need or need all of on day one.”
Park, whose firm recently announced a 5.2-acre mixed-use project in Allston that includes more than 500K SF of life sciences space, spoke about growth in the Boston neighborhood with a Harvard University presence and the emerging East Watertown across the Charles River, where industrial zoning has allowed developers to avoid the “brain damage” of rezoning.
“If you look at West Watertown, it's a different situation, because a lot of these buildings are not in zones that are already available for life sciences, specifically labs,” Park said. “So we’re doing a 100K SF project in downtown Watertown, and we are starting the filings, the text amendment, to allow lab use. We’re getting a lot of encouragement, but it's certainly not a slam dunk.”
Burlington Economic Development Director Melisa Tintocalis mentioned the city has expanded zoning for at least three life sciences projects this year and attributed the city's growth to rethinking planning and internalizing their life sciences-attracting goals as a community.
“For the last two years, really, we’ve been working on defining and clearly stating what we want to see in Burlington regarding life sciences,” Tintocalis said. “If you go now into the bylaw, it explicitly says what we want, what we want to see, where we want to see it … there’s more certainty there.”
Developers and construction experts said one- to two-story flex buildings and warehouses are the easiest conversions to life sciences. Hard costs depend on the cluster you’re based in, Marcus Partners principal Peter Cameron said.
“I think there’s been a number of buildings that have gotten away with delivering less than an Alexandria [Real Estate Equities] would,” Cameron said, referring to the life sciences giant. “I’m not saying everybody has to deliver $100 SF (mechanical, electric and plumbing) packages like they would in a converted product. But for us, when we look at it ... we’re going to probably deliver a $60 SF mechanical package, $10 a SF for plumbing, provided there’s nothing going on with the plumbing that’s going to make me have to wholesale rip up the entire slab of the first floor and deal with vapor mitigation issues there. And probably $10-15 a SF for electrical upgrades.”
Wise Construction Corp. Director of Construction Bill Olson, who said Wise has been doing conversions for the past 30 years at universities seeking to convert historic buildings into laboratories, described why Massachusetts’ 100-plus-year-old buildings are good lab conversions.
“The one thing I favor is they’re all less than seven floors,” Olson said. “Why is that important to labs? Because of the control zones. Mass code strictly limits the amount of chemicals once you get above five or six floors. It becomes expensive, it becomes challenging to get the right tenant there.”