REIT maneuvers ahead of a hoped-for rebound in the LSRE market
By Murray W. Wolf
The Alexandria Center for Life Science is slated to include three office and lab buildings totaling about 1.3 million s.f. (Photo courtesy of Alexandria Real Estate Equities)
As it seeks to navigate today’s complex and challenging life sciences real estate (LSRE) environment, the sector’s largest real estate investment trust (REIT) is setting the stage for the development of one project, tapping the brakes on another, and contending with a lease termination of almost 100,000 square feet in a third.
Local news media reported yesterday (Sept. 29) that Pasadena-based Alexandria Real Estate Equities Inc. (NYSE: ARE) is laying the groundwork to proceed with the long-planned third tower at its Alexandria Center for Life Science campus on Manhattan’s East Side. Across the country in Seattle, Alexandria has apparently paused construction of its 701 Dexter project in Seattle. And in the San Francisco Bay Area, the REIT is trying to backfill a looming vacancy to be left by a departing biotech firm.
Alexandria Center for Life Science, New York
At full build-out, the Alexandria Center for Life Science is slated to include three office and lab buildings totaling about 1.3 million square feet. Alexandria has a long-term ground lease for the city-owned, 3.5-acre site, which is bounded by 28th and 29th Streets, First Avenue and FDR Drive, between Bellevue Hospital and NYU Medical Center.
The 15-story, 310,000 square foot East Tower was completed in 2010, and the 16-story, 410,000 square foot West Tower in 2013. A winter garden, restaurant, café and conference center were also built as part of those initial phases.
Construction of the third and final phase, a 20-story, 550,000 square foot North Tower, was scheduled to begin in 2020, with completion anticipated by 2022. However, the project has been delayed by the search for one or more major tenants, as well as the COVID-19 pandemic.
Local news media reports that city officials now anticipate that financing for the project will close by late 2024 or early 2025, with construction to begin shortly thereafter. The news came to light recently when the REIT reportedly filed related permit applications with the city. Alexandria is not commenting.
According to the New York City Economic Development Corp. website, more than 50 tenants currently occupy space in the first two towers. That includes the New York headquarters of Bristol-Myers Squibb (NYSE: BMY), as well as spaces leased by Eli Lilly and Company (NYSE: LLY), Accelerator Life Science Partners, Intra-Cellular Therapies Inc. (Nasdaq: ITCI), Kallyope, MeiraGTx Holdings (Nasdaq: MGTX) and Cellectis in the West Tower. Tenants in the East Tower include the Pfizer Inc. (NYSE: PFE) Center for Therapeutic Innovation, NYU Langone, Petra Pharma Corp., BlueRock Therapeutics LP and Kadmon Corp.
The two towers were fully leased at one point but, according to the property website, 30,408 rentable square feet are “immediately available for lease.”
The New York City market had a lab vacancy rate of 31.8 percent as of the end of Q2, according to a recent report from CBRE Group Inc. (NSYE: CBRE).
For more information about the Alexandria Center for Life Science, please click here.
701 Dexter, Seattle
Meanwhile, on the other side of the country, in Seattle, Alexandria has apparently stopped construction of its 11-story, 266,898 square foot office and lab project at 701 Dexter Ave. N. in the Lake Union sub-market.
The recently released third quarter (Q3) Seattle office market report from Colliers International noted that the 701 Dexter project was “on hold.” The local Puget Sounds Business Journal subsequently visited the construction site and reported that it found no activity. Alexandria is not commenting.
The project site is just west of the recently completed two-tower, 500,000 square foot Dexter Yard office and lab campus, which was developed by a rival firm, BioMed Realty, which is owned by New York-based Blackstone Inc. (NYSE: BX).
Although Seattle is considered the ninth- or 10-ranked U.S. life sciences market, a recent JLL report stated that investors consider its Lake Union to be the top-ranking sub-market outside of the “Big Three” U.S. markets of Boston/Cambridge, Mass.; the San Francisco Bay Area; and San Diego.
The Seattle market had a lab vacancy rate of 8.6 percent as of the end of Q2, according to the recent CBRE report.
Seattle lab leasing activity “declined in Q2 to a fraction of the quarterly totals over the past two years,” the report stated, adding that nearly 1.6 million square feet of life sciences lab/R&D and biomanufacturing space is under construction, and is 53 percent pre-leased.
Newmark Group Inc. (Nasdaq: NMRK) is marketing the 701 Dexter space. The project team also includes ZGF Architects and general contractor Lease Crutcher Lewis.
For more information about the 701 Dexter project, please click here.
Atreca terminates 99,557 s.f. lease
As if to underscore the challenges faced by LSRE landlords, Atreca Inc. (Nasdaq: BCEL) disclosed last Thursday (Sept. 21) that it had agreed to terminate its 99,557 square foot headquarters lease in an Alexandria-owned facility at 835 Industrial Road in San Carlos, Calif.
In a U.S. Securities and Exchange Commission (SEC) Form 8-K filing, the financially struggling biotech company said it agreed to pay about $5.1 million to Alexandria to get out of the lease, “which represented approximately $13 million of annual expenditures.” The lease, which was signed in July 2013, had been scheduled to continue until April 2033.
In its news release, which also announced the departure of the s CFO, Atreca CEO John Orwin stated, “The agreement to terminate our lease agreement dramatically reduces our ongoing operating expenses and helps to extend our cash runway through the first quarter of 2024. Alexandria Real Estate Equities has been an excellent real estate partner for Atreca and we are extremely grateful for their willingness to help us to address this significant obligation, which will facilitate the company’s evaluation of strategic transactions.”
As for when and where the firm is going to go, the news release stated, “Atreca will vacate the premises by Nov. 30, 2023, and will be evaluating options for facilities sized to its current operational needs.”
On the plus side, Alexandria Executive Chairman and Founder Joel Marcus last week told various news organizations in an email, “We are in negotiations to re-lease the entire space.”
To read the Atreca news release, please click here.
ARE and AI
Despite the challenges, Alexandria officials remain bullish about the long-term prospects for the LSRA space. In a news release Wednesday (Sept. 27), the REIT touted its long and extensive involvement with artificial intelligence (AI).
“AI and machine learning have been utilized for decades across the life science industry, including as integral tools in the development of many approved therapies – this is not a new phenomenon,” said Hallie E. Kuhn, Ph.D., senior VP of science and technology and capital markets at Alexandria Real Estate Equities and Alexandria Venture Investments.
“These algorithms require large and high-quality data sets that are generated from experiments conducted in laboratories, and novel therapies will always require extensive laboratory testing to confirm their safety and efficacy before advancing to human studies, which contributes to the continued need for specialized R&D laboratory space,” she said.
For more information on Alexandria’s involvement in AI, please click here.
The full content of this article is only available to paid subscribers. If you are an active subscriber, please log in. To subscribe, please click here: SUBSCRIBE
