Longfellow’s Atrium Labs campus in Emeryville, Calif., consists of the large building on the upper left and the two abutting buildings in the center. (Photo courtesy of JLL)
EMERYVILLE, Calif. – In spring 2021, when the life sciences real estate (LSRE) frenzy was near its peak, Longfellow Real Estate Partners LLC proposed the development of a new, three-building, 965,322 square foot residential and office/lab project in Emeryville. The project was to entail the redevelopment of three industrial parcels totaling nearly 7.3 acres, just east of U.S. Interstate 580, on the east side of San Francisco Bay.
In fall 2021, Longfellow dropped plans for new construction at the East Bay site and pivoted to a conversion of the parcels’ existing buildings, which totaled nearly 200,000 square feet, in an effort to satisfy eager tenants by bringing lab space to market more quickly.
However, it appears even that wasn’t quick enough. By the time the space became available in summer 2023, the market had already shifted; demand had waned. The campus, branded as Atrium Labs, was 100 percent vacant when it opened and remains so today.
Now, Boston-based Longfellow, one of the nation’s largest privately owned LSRE investors and developers, could lose control of one of the converted Atrium Labs buildings due to a lawsuit over a ground lease. Meanwhile, it is trying to sell the two abutting properties that comprise the balance of the campus.
An affiliate of San Francisco-based PSAI Real Estate Partners filed suit Monday, Aug. 5, in Alameda County (Calif.) Superior Court, suing a Longfellow-related partnership over allegedly unpaid rent on a lease for property at 1650 65th St. in Emeryville, home to a Longfellow’s one-story, 127,818 square foot Atrium Labs I building. Meanwhile, Longfellow’s property at 6601 and 6603 Shellmound St., known as Atrium Labs II, is listed for sale.
Driven by unprecedented demand
The story began in 2019, when a PSAI affiliate acquired the so-called Atrium Site at 1650 65th St. in the East Bay area for a reported $51 million. By April 2021, amid unprecedented demand for lab space, Longfellow representatives had begun meeting with Emeryville city staff to discuss the potential redevelopment of the property for a research and development (R&D) campus.
In May 2021, Newmark Group Inc. (Nasdaq: NMRK) announced that it had arranged a long-term ground lease of the Atrium Site. The tenant, landlord and terms were not disclosed at the time, but they were later revealed to be a partnership associated with PSAI, the landlord, and Longfellow, the tenant.
At the time, Longfellow declined to comment on lease terms or why the parties settled on a ground lease structure rather than an outright sale. But, according to RevistaLab data, public records show that Longfellow signed a 34-year lease for an undisclosed annual rate, with an option to extend for another 36 years. The lease also gave Longfellow an option to buy the property from PSAI at an undisclosed price.
The 1650 65th St. property consisted of a vacant building on about five acres, “providing the immediate ability to convert and deliver lab space in a severely supply-constrained market,” according to the May 2021 Newmark news release announcing the ground lease, which referred to the property as the Emeryville Bioscience Center. The news release added that the property was “primed for quick lease-up execution with life science conversion plans already in place and base building work already underway.”
Although the Newmark news release spoke of the potential for a life sciences conversion, Longfellow was pursuing more ambitious plans at the time. According to an Emeryville Planning Commission report dated July 15, 2021, the firm was proposing a mixed-use redevelopment including 1650 65th St. and the two abutting parcels at 6601 and 6603 Shellmound St., creating a nearly 7.3-acre redevelopment site.
The preliminary development plan called for a new 16-story, 144-unit, 216,000 square foot residential tower; a new eight-story, 351,119 square foot office and lab building; and a new nine-story, 398,203 square foot office and lab building. The three “Class A” buildings were to be built atop a total of 1,651 podium parking spaces.
To make way for the new construction, Longfellow planned to raze the existing single-story buildings on the site. Those buildings comprised the vacant 1650 property and the two interconnected Shellmound St. buildings, which were leased at the time by the now-defunct SAE Expression College, a private, for-profit college specializing in entertainment industry programs.
A pivot to a conversion strategy
However, in October 2021, Longfellow withdrew its application to the city for the full-scale redevelopment project. Rather than constructing three new buildings totaling 965,322 square feet, the firm said it planned to repurpose the site’s existing buildings, thereby bringing the planned office and lab space to market more quickly.
The speculative conversion plan included the vacant 1650 building, as well as the adjacent properties at 6601 and 6603 Shellmound St., which would provide another 62,898 square feet, for a total of 194,282 square feet of office and lab space.
In December 2021, a Longfellow affiliate, Emeryville Shellmound LLC, closed on the acquisition of the Shellmound Street buildings on 2.27 acres from an affiliate of Griffin Capital for a reported $36 million, and construction began.
In September 2022, Citizens Financial Group Inc. (NYSE: CFG) announced that it had provided a $113.6 million loan to Longfellow for the development of the scaled-down life science lab complex, dubbed Atrium Labs I and II.
Of course, by late 2022, the LSRE market had turned. Although the Basel, Switzerland-based biotech firm Lonza Group reportedly expressed interest in taking about 150,000 square feet at the Atrium campus at about that time, that lease didn’t come to fruition. The “quick lease-up” envisioned the year before failed to materialize.
Despite the lack of pre-leasing, Longfellow completed core and shell construction of the spec warehouse-to-life sciences conversion project in August 2023 at a cost of about $90.1 million, according to RevistaLab data. The work included a long list of improvements, including new lobbies and atrium, a new roof, upgrades to the HVAC and Power systems, new landscaping and more. A move-in-ready, 32,326 square foot spec lab suite was built out in the 1650 building.
However, based on current space available listings, it appears that both Atrium Labs buildings remain vacant.
Hampered by high vacancy rates
As for the details of the lawsuit, PSAI affiliate SFF 1650 65th Street LLC is suing Longfellow affiliate Emeryville Bioscience Center LLC, seeking restitution and possession of the property, forfeiture of the lease, nearly $671,000 in past due rent, damages totaling more than $11,000 per day following the termination of the lease on Aug. 3, and legal fees. Construction lender Citizens Bank was also named in the unlawful detainer lawsuit.
The San Francisco Business Times reports that Longfellow says it is in discussions with PSAI to modify the terms of its ground lease.
The overall vacancy rate for the San Francisco Bay Area life sciences market was 24.6 percent as of the end of the second quarter (Q2) 2024, according to a recent CBRE Group Inc. (NYSE: CBRE) report, with a net absorption of negative 381,000 square feet. Emeryville’s LSRE vacancy rate was 37 percent, CBRE says.
The 6601 and 6603 Shellmound buildings, known as the Atrium Innovation Center, are currently listed for sale, with Jones Lang LaSalle Inc. (NYSE: JLL) as the broker. JLL’s online listing says “Atrium Innovation Center offers investors the rare opportunity to acquire a well-positioned conversion opportunity in an A+ location at the border of Emeryville and Berkeley with significant shell and site improvements offering optionality for potential R&D, advanced manufacturing and life sciences uses.”
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