How To Build A Life Sciences Real Estate Winner
Building a successful life sciences real estate company in one country doesn’t guarantee successful expansion into another. But it’s a pretty good place to start.
Longfellow Real Estate is the biggest privately owned life sciences real estate company in the U.S., with a 14M SF portfolio valued at about $10B. Now it is looking to establish a long-term presence in the UK by mixing British real estate nous with U.S. life sciences DNA. That means vertical integration, the ability to build from the ground up or convert existing assets, and knowing how to create an ecosystem.
“We’re building a team with people that have grown up in the UK real estate market, with the relationships and skills needed to succeed here,” Longfellow UK Managing Director Alex Wright told Bisnow ahead of the UK Life Sciences Real Estate Annual Conference. “But we can complement that with the experience and DNA the U.S. team has in labs and life science, in conversions and ground-up development.
“That could mean bringing members of the team from the U.S. over here, but the two teams will be completely integrated, and in the UK we’ll be able to tap into the knowledge of 150 people from the U.S. That’s a rare thing.”
Longfellow hired Wright at the end of last year from UK private equity firm Brockton Everlast, where he spearheaded Brockton’s move into the life sciences sector. Longfellow co-founder and CEO Adam Sichol said the firm decided to expand into the UK after a number of the investors it works with in the U.S. asked them about moving across the Atlantic to access the opportunity the sector presents.
“About a year and a half ago, a number of our investors came to us and asked us about expanding to the UK, and the sector is so interesting because of the growth there,” he said. “We needed a leader in the UK, and after a robust search process, we found Alex. We always say we want smart people and hard-working people, but there are a lot of people like that out there. We also want good people. We’re looking at a pipeline of interesting opportunities and building out the team.”
The sector in the UK has grown dramatically in just a few years: Capital deployed in UK life sciences real estate grew by 61% last year, data from JLL showed, rising from £1.5B to £2.4B. That investor interest has seen prices rise dramatically, as highlighted by a last year. In October, Brockton bought a campus of five life sciences buildings in Cambridge totalling 150K SF for £98M. The guide price on the portfolio was £68M, CoStar reported, but 21 global bidders fought it out for the opportunity.
In spite of these dramatic rises, Wright said the market was still in the early stages of its development in the UK.
Sichol and Wright cite a number of statistics underpinning their expectations for growth in the UK's life sciences real estate sector. There are about 5M SF of privately owned lab space in the UK, compared to about 160M SF in the U.S., and 30M SF+ in Boston alone. The U.S. is, of course, a much bigger country and Boston is the life sciences city to rule them all, but 5M SF is not enough to service demand in a sector where occupiers are growing. That growth is partly driven by government funding targets in R&D, which it aims to grow to 2.4% of GDP by 2027.
Though they won’t characterize the size of the business they are trying to grow, both say Longfellow wants to be a significant, long-term player in the UK.
“The UK is in the premier league when it comes to science, and we want to be part of the development of that, by providing the space for companies to grow,” Wright said.
What sets the firm apart is vertical integration, Wright and Sichol said, referring to the fact it can invest, build, convert and manage its own assets. That gives it options in terms of the type of project it can take on and gives it a link to the tenants, be they research institutes or private sector companies. It is that mix of tenants that means a life sciences scheme lives or dies.
“You need to have that ability to manage the ecosystem; life science and lab occupiers are very different to office occupiers in that way,” Wright said. “That can range from early stage startups, to research or government institutions, to large multinational companies, who all want to be near each other and work together. Longfellow has done that in the U.S. and has a great reputation with occupiers, who have confidence in that proven ability.”
He cites as an example the Innovation District being created by Longfellow in Durham, North Carolina, where it is working closely with Duke University. Google agreed to take space in the scheme for an engineering hub last March. It will sit alongside companies of every size and stage in their development.
Wright said conversions will be a big part of the company’s strategy. Converting existing real estate has a clear sustainability benefit compared to building a new scheme, he said, and the way people use assets like offices means there is plenty of property that requires repurposing. Longfellow has undertaken 7M SF of these conversions in the U.S.
Longfellow will be targeting the Golden Triangle, but also ultimately a broader range of locations in the UK. Wright said he was a big believer in London, where issues like land prices mean the UK capital has often been seen as a more difficult market in which to undertake life sciences projects relative to the other points of the "golden triangle," Oxford and Cambridge.
“More venture capital was invested into life sciences in London in the five years to 2020 than in Oxford and Cambridge combined,” he said. “Then, when you take into account the government and research infrastructure that’s so important for these ecosystems, and overlay the transport infrastructure, then you have everything you need for life sciences ecosystems.
“But you don’t have the real estate, especially the lab product, and it’s my sense that things are clogged, that companies are finding it hard to grow because they can’t find the space when they need to expand. There is not enough supply to meet the demand.”
And in markets like that, Longfellow believes when you’ve got the expertise, you can build a business.