As The Life Sciences Pipeline Grows, Venture Capital Is Pouring Into Houston
Houston has an impressive pipeline of large-scale life sciences projects in the works, driven by investors and real estate players that are betting the sector will take off in a serious way.
Planned projects include TMC3, which is owned by the Texas Medical Center; Rice University’s The Ion project; Hines and 2ML Real Estate Interests’ Levit Green; and Medistar Corp.’s Innovation Tower; as well as the forthcoming Texas A&M Innovation Plaza development, which will include medical and lab space within its Horizon Tower.
“Over the next three years or so, there's the first phase of projects that are underway. Within that is about a million and a half square feet,” Transwestern Regional Partner, Life Sciences and Healthcare Gayle Farris said during a Bisnow digital summit on May 27.
Houston’s status as an emerging life sciences cluster is a reflection of the city’s strengths: the largest medical center in the U.S., a steady talent pool coming out of local academic institutions and a business-friendly state government. And investors are starting to take serious notice.
Despite the coronavirus pandemic, Houston continued to attract venture capital, spurring many life sciences companies to expand and seek larger spaces. In fact, healthcare was the top sector locally to attract venture capital funding in 2020, according to a report from the Greater Houston Partnership. Healthcare firms received $256M last year and have attracted more than $1B in venture capital since 2016.
Notably, 17% of venture capital deals in Houston are going to a life sciences company, above the national average for life sciences of 10% of VC deals, the report found.
BioHouston CEO Ann Tanabe said that even a decade ago, raising venture capital in the Houston community was difficult, especially for the life sciences. But between April 2020 and April 2021, Houston companies raised more than $1B in funding, with the majority going to technology and healthcare firms, including life sciences firms.
“This is capital-intensive, and we're starting to see venture capital come here and take a look at deals,” Tanabe said.
Farris said the commercial real estate industry is also assuming the role of venture capital, choosing to invest in expensive, specialized buildings for life sciences companies.
Major capital players like pension funds, REITs and private equity in real estate are now willing to build speculative facilities, which is a critical element for providing lab-ready space for rapidly growing firms that need to scale quickly.
“The real estate industry is very much providing venture capital by investing in the laboratory facilities and build-out, which can be anywhere from $75 a SF up to $250 a SF,” Farris said.
Historically, Houston’s biggest struggle has been the availability of move-in-ready lab space for life sciences companies that need to grow quickly. Many startups spin out of major medical and academic institutions and find a place within an accelerator program, but have trouble expanding into mid-market spaces.
Transwestern Executive Vice President, Healthcare Advisory Services Justin Brasell said that with the pipeline of life sciences projects in the works, Houston is addressing that problem. The next step to filling out the cluster is to address the lack of facilities between the Texas Medical Center and the life sciences buildings in the city’s South Loop area.
“There's already some work underway, but I think in the next 24 to 36 months, you're going to see a lot more activity, and a lot more densification of the cluster and formation of the cluster from a real estate perspective in that gap,” Brasell said.