Longfellow Cambridge case study

A strong example of a life science biotech acquisitions and loan transaction

By Erik Tellefson

Erik Tellefson

Erik Tellefson

In my previous article, I shared the ins and outs of financing life science and biotechnology properties – an important and growing component of the healthcare real estate asset class. These buildings are in some ways similar to medical office buildings (MOBs), but are characterized by even more specialized considerations for borrowers and lenders. Today, I want to share a recent example of a transaction we closed for Longfellow Real Estate Partners for the acquisition of a property in Cambridge, Mass.

To review, life science and biotech buildings have contract rents and highly specialized space to meet the demands of life science, biotech, biopharma and other high tech companies. Tenant improvements (TIs) are often in excess of typical medical office tenant improvements. In addition, the tenants themselves frequently fund a significant portion of these costs resulting in expanded tenant alignment. Finally, the supply of life science and biotech space is often constrained depending on the location. For example, the Boston/Cambridge area boasts vacancy rates in the low single digits, and tenants often sign leases that may not commence for years.

These specialized assets have considerations beyond typical medical office deals, which is why it is vital to use a lender with experience and expertise in life science and biotech buildings.
Below are the details of the Longfellow deal – an excellent example of a life science biotech transaction:

Borrower: Longfellow Real Estate Partners – A privately owned and operated real estate developer and manager focused on real estate that serves the laboratory and office needs of life science and technology tenants in major life science and technology markets.

 Transaction Type: Recapitalization
 Closing Time: 26 days from signed term sheet to funding
 Loan Amount: $51.1 million. Initial funding of $50 million with $1.1 million available for multiple advance fundings for TIs and leasing commissions.
 Loan Term: 5 years
 Amortization: Interest-only period followed by 30-year amortization
 Recourse: Non-recourse
 Number of Buildings: 1
 Occupancy: 100%
 Campus: Off Campus
 Location: Cambridge, Mass. The overall vacancy for life science and biotech assets is low and there is minimal new supply with positive absorption.

The loan was structured to meet the borrower’s business plan, and included relatively high leverage of the purchase price in initial funding. We used a floating structure with prepayment flexibility, a mid-range loan term of five years and multiple advanced TI funds that are only due interest when they are actually funded.
The underwriting focus was on the tenancy, year-over-year rent roll, building and location. The legal due diligence was typical for this type of senior secured first mortgage balance sheet loan. To meet the borrower’s aggressive timeline, Capital One closed the transaction in under 30 days from term sheet execution to funding by expediting third parties, due diligence and legal.

This transaction and loan represent a strong example of a life science biotech acquisition and the consequent funding. Longfellow spent a considerable amount of time working on their real estate and utilized the Capital One team’s experience in the healthcare industry as well as in life science and biotech assets.

Most importantly, the structure of the loan aligned with Longfellow’s well-crafted business plan.

Erik Tellefson is Managing Director with Capital One Healthcare and leads medical office and medical property lending. He has 18 years of experience in commercial real estate finance, including 13 years focused on healthcare, and works with clients to finance acquisitions, refinance existing debt, support working capital needs and fund growth initiatives.

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