Taconic Invested $2B To Be NYC's Leading Life Sciences Developer. Then The Market Froze

Amid a nationwide building boom, Taconic Partners jumped into New York City’s life sciences market with both feet. 

The pandemic had injected the sector with billions of dollars, causing companies to gobble up space across the country. Local officials saw an opportunity to make the city into a research hub, one that could compete with Boston and San Francisco, and were more than willing to back developers with a similar vision. 

In 2022, Taconic launched Elevate Research Properties, an arm dedicated to the mission with approximately $2B in investments across 1.4M SF of life sciences real estate. But three years later, lab leasing has ground to a halt, with few signs of a near-term revival, and dark clouds are hovering over its portfolio.

“The timing just couldn’t have been worse,” said East Egg Project Management founder and principal Yasmeen Ahmed Pattie, who specializes in life sciences. “If you're Taconic, or, at least, if you're the Elevate portion of Taconic, you're not happy.”

Elevate’s portfolio consists of three properties: two completed buildings on the West Side of Manhattan — Hudson Research Center and West End Labs — and a development on the Upper East Side, Iron Horse Labs.

The majority owner of Hudson Research Center has written the value of its stake in the building down to zero. Elevate is getting a $15M grant to try to fill empty space at West End Labs. And at Iron Horse Labs, which was supposed to open this summer, construction appears to have stalled.

Elevate did not respond to Bisnow’s requests for comment.

All three are the products of the developer’s costly gamble on the sector. All three bring hundreds of thousands of square feet to a nearly silent market, and all three came about during the peak of New York City’s life sciences renaissance. 

In 2021, tenants leased 433K SF of New York City lab space, more than all of the leases signed over the previous seven years combined. At the time, there was 1.9M SF of life sciences space on the market and a vacancy rate of just 3%, according to CBRE data. 

The numbers sent developers into a frenzy. Over the next few years, new space, including from Taconic, kept coming. Venture capital, however, did not. 

Between the rapid rise in interest rates and President Donald Trump’s administration slashing government spending, research funding has plummeted. New York City’s scientists received $131M in the third quarter of this year, 64% less than the five-year average of $362M, according to CBRE.

At the same time, construction has caused inventory to increase to nearly 3M SF and availability now tops 27%, CBRE found.  

“There's just not any demand for those new buildings coming online,” said Partner Valuation Advisors Managing Director Erik Hill, who leads the firm’s healthcare and life sciences practice nationally.

In 2012, before Elevate was established, Taconic paid roughly $110M for what is now the Hudson Research Center. The 320K SF property at 619 W. 54th St. was originally built in 1930 as a film-editing house for Warner Bros. Pictures.

The purchase transformed Taconic into a pioneer, making the developer among the first to picture next-generation research emerging from inside the walls of the city’s historic buildings.

In 2017, Silverstein Properties bought a majority stake in the development for more than $180M, leaving Taconic with 10%. In 2020, the duo landed a $205M, five-year loan from Square Mile Capital that would allow the developers to finish converting the building to life sciences use.

But the developers defaulted on the debt by this June, according to filings by Silverstein on the Tel Aviv Stock Exchange. After extending the loan in 2024, they signed two more extensions, pushing the maturity to Nov. 20 with a remaining balance of $195M. 

As of TASE filings dated Nov. 26, another agreement to amend the loan had been reached but not yet signed. The lender, which has rebranded as Affinius Capital, declined to comment.

Silverstein, which previously tried to sell its stake in the property to the tune of $300M, has completely written off the value of its investment in Hudson Research Center, according to the filings.

A Silverstein spokesperson didn't respond to Bisnow’s request for comment. 

The facility at 125 West End Ave., dubbed West End Labs, was similarly built over a century ago as a factory for Chrysler Motors. It later served as offices for Disney and ABC. Taconic and Nuveen Real Estate bought it from Silverstein for $230M in 2019.

In 2021, the joint venture secured $393M in construction financing to redevelop the 400K SF building into wet and dry labs, engineering zones, conference centers and event space. As part of the deal, LaSalle Investment Management signed on as a $207M equity partner.  

The partnership finished the conversion in 2023. The property was able to sign its first tenant that year, inking a 30K SF lease with Graviton Bioscience. Rent was $125 per SF.

Since then, Elevate has had to shift strategies. The company is repositioning 81K SF of the building to create prebuilt graduation suites and shared common areas for early-stage companies, but it is tapping taxpayer funding to do it.

Elevate is investing approximately $12.5M for the changes, while New York City is providing nearly $15M in benefits as the first project under its Life Sciences Ecosystem Activation Program, an initiative to “prioritize investment into underutilized or vacant spaces in existing life sciences buildings,” according to a report released last month by the NYC Economic Development Corp. 

Small, turnkey spaces are what the few tenants that are on the market want, Pattie said. Many are either startups coming out of incubator programs or established companies that are growing slower than usual. Both are working with leaner teams and smaller budgets under current conditions.

“They don't have time. They don't have the wherewithal,” Pattie said. “They have no idea how to take the space and then build it out for themselves.”

When Taconic launched Elevate, it hired Matthew Malone as senior vice president. The architect, who came from Perkins&Will, was brought on to customize spaces for tenants. 

In June, Malone returned to Perkins&Will to lead the firm’s science and technology practice in New York and Philadelphia. Malone declined to comment.

“I’m returning with a sharper understanding of the economic, technical, and regulatory challenges that our clients are navigating,” he said in a statement released by the firm after he was rehired. 

A source briefed on Malone’s departure told Bisnow the separation was amicable and “they just weren't seeing enough activity to justify keeping him on.”

“The pipeline didn't really materialize the way it should have,” they said.

Elevate has another project in the works at 309 E. 94th St., which it acquired with Nuveen for $70M in 2021. The site was Lou Gehrig’s birthplace, and the 200K SF facility being developed there is called Iron Horse Labs in honor of the Yankees legend.

The project, which Elevate announced in 2023, was anticipated to be completed this past summer. But as of Monday, Dec. 8, when a Bisnow reporter visited the site, it was closed off with the building incomplete and no workers present. 

In a community board meeting last year, local Upper East Side residents questioned whether construction was active at the site. A permit taped to scaffolding was issued in March and will expire next year. 

Taconic positioned Elevate as the top life sciences developer in its hometown at a time that New York City decided to bankroll the industry.  

In 2015, when the city had less than 1M SF of lab space, Mayor Bill de Blasio launched a $150M fund to grow the industry. Over the course of the next decade, the city’s financial commitment grew to more than $1B, which has already gone toward 3.5M SF of new development. 

Mayor Eric Adams supercharged those efforts with the city building its own $1.6B, 2M SF campus called the Science Park and Research Campus Kips Bay. Taconic, alongside DivcoWest, is planning an adjoining 500K SF project called Innovation East at 455 First Ave., meant to create a life sciences cluster in the neighborhood.

The campus is part of a larger goal by the city to bring online 10M SF of new life sciences space by 2030 — despite a current lack of demand for the space already on the market.

“EDC doesn’t think in one-year or four-year increments, we think in decades and generational change and how the investments we're making today will impact the future of the life sciences industry in New York City over the next 10 to 20 years,” a NYCEDC spokesperson said in a statement. “We plan projects and deliver results spanning multiple administrations at all levels of government and we’re confident the work we’re doing now will pay dividends in establishing New York City as a global leader in life sciences.”

The issues that Elevate faces are neither unique to it or to New York. In the nation's premier life sciences hub, more than one-third of Greater Boston's 56.7M SF of purpose-built real estate sits vacant as the construction craze met the dissipation of demand.

Boston, however, already has a long-established industry cluster that New York now aims to create. That means developers like Elevate have to work harder to attract the same tenants, according to Hill. 

“Historically, the life science players have wanted to be colocated with other life science players, not only from an infrastructure standpoint, but also talent pool,” Hill said. “Typically, they want to focus on where there's a lot of white coats that are existing within the market.”

Unlike most secondary markets, New York doesn't offer tenants a price break. Despite its high vacancy, the average asking rent in the third quarter was $105.40 per SF, according to CBRE. Boston’s rent was just under $85 per SF — and the real estate comes with greater networking opportunities for tenants. 

Between a lack of research funding and greater economic uncertainty, the future may look bleak. Recovery is going to require time, Hill said. 

“I’m not worried about a recovery within the market,” he said. “It's just how long can some of these developers and owners hold onto various properties in order to get to a point where there are more tenants that are taking down space?”