The New Nature of Life Science Real Estate
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Even as Big Pharma downsizes, life science jobs are growing in Pennsylvania (call your broker if your excitement lasts longer than four hours), and entrepreneurial-minded real estate leaders have taken advantage, according to experts yesterday at Bisnow's Life Sciences Real Estate Summit at The Rittenhouse.
The real upswing is in boutique contract research orgs, which will be the model for the next decade, Pennsylvania Bio prez Chris Molineaux said in his opening remarks. Doylestown-based FlowMetric, started by a former employee of a J&J subsidiary, is a strong example of the present lemons-into-lemonade scenario in the region. Chris also notes that the bioscience sectors rebounded from the recession better than the economy overall and showed a plus-7.4% employment change from 2001 to 2012. Philly’s job numbers climbed from 79,000 to 85,000 from Q2 2011 to Q2 2013, largely fueled by the research, technology, and medical lab sectors.
At The Navy Yard, Liberty Property Trust has four pharmaceutical companies in their portfolio. VP Brian Berson says it’s challenging to be a landlord for biosci as a publicly traded company, and so much in a deal depends on companies' getting lucrative contracts: “investors don’t want us to do venture capitalism,” he notes. Fortunately tenants like Iroko, which has contracts with Merck, have thrived and found ways to stay profitable. Brian calls the growth and adaptation proof of Philly’s strength, and sees a shift in workplace culture, and more collaborative spaces replacing hierarchical designs, similar to other leading biosci regions like Boston and the Bay Area.
It’s a culture also growing more urban, here and nationally, says Wexford Science & Technology leasing director Bill Hunter. “Research parks” are a thing of the past; at Wexford they're now called knowledge centers as an acknowledgment of the shift. They fill their 17M SF portfolio by underwriting management teams, not science, and serial entrepreneurs are desirable as occupants. Likewise, Bill advises, startups need to learn to leave the science away from the negotiating table and find the right representation; a 15k SF deal can be more time-consuming than a 100k SF for an experienced pharma company.
So how can life science landlords best accommodate small tenants who lack credit and balance sheets? University City Science Center SVP Curt Hess says that with three incubators, they have a willingness to take chances on companies seeking 2,000 SF, provided the funds are in place to sustain them for one year. Educating the tenant on the economics is crucial though: for shell spaces at 3737 Market, build-out of lab space can ultimately come to $150/SF. Curt also points to The Navy Yard and Delaware’s STAR Campus for absorbing the region’s talent and helping to reverse the “brain drain” that was a drag on the economy.
The Hankin Group leasing director Stacy Martin prefers a hybrid approach between that of Liberty and that of the Science Center in encouraging tenants to lease and expand at the Innovation Center at Eagleview (ICE). Subdividing spaces and sharing common amenities help to maximize building revenues and so far ICE hasn't lost a tenant. Stacy also lauds local tax credit programs like PA Life Sciences Connect and the Ideas x Innovation Network (i2n) for growing and sustaining the industry in the region.
ProTecs prez Chris DiPaolo, who moderated our panel, has plenty of life science experience up his sleeves: he's crafted turnkey projects that home in on early development and design to save costs on spaces for many bioscience sectors including pharma, healthcare, and nanotechnology. Additionally, ProTecs incubates bio startups at its two innovation centers in Plymouth Meeting and King of Prussia.