Majority owned by Alexandria, 15 Necco St.’s life sciences space is fully leased
By Murray W. Wolf
Eli Lilly and Company announced Aug. 13 the opening of the Lilly Seaport Innovation Center (LSC), a research and development (R&D) facility at 15 Necco St. in the Boston Seaport District. (Photo courtesy of Eli Lilly and Company)
The life sciences real estate (LSRE) development pipeline continues to add millions of square feet of speculative space to a market that has already endured two years of steadily falling occupancy rates. But here is some good news: A major new LSRE building opened in Boston this week with the office and lab space 100 percent leased.
Eli Lilly and Company (NYSE: LLY) announced Tuesday, Aug. 13, the opening of the Lilly Seaport Innovation Center (LSC), a research and development (R&D) facility at 15 Necco St. in the Boston Seaport District. The new R&D center occupies all of the roughly 334,000 square feet of office and lab space in the 12-story, 345,995 square foot building, which is majority owned by an Alexandria Real Estate Equities Inc. (NYSE: ARE) joint venture (JV).
Although it was announced more than two years that Indianapolis-based Lilly planned to fully occupy the life sciences portion of 15 Necco St., Alexandria’s initial plans were for a multi-tenant building. So the fact that the project turned out to be a single-tenant facility – therefore one that doesn’t add any spec space to the market – comes as a relief at a time when life sciences occupancy rates have fallen to their lowest levels since at least 2012 – currently 89.9 percent nationwide and 88.6 percent in Greater Boston, according to the most recent RevistaLab data.
As noted, the 15 Necco St. building was developed and is majority-owned by a limited liability company (LLC) affiliated with Pasadena, Calif.-based Alexandria, a publicly traded real estate investment trust (REIT) and the nation’s largest owner of LSRE. The development cost was about $700 million, according to published reports.
Single-tenant to multi-tenant – and back again
The 15 Necco St. site – along with an adjacent six-story, roughly 108,000 square foot, historic former candy factory building at 5 Necco St. – were once envisioned as the site of a new headquarters campus for General Electric Company (NYSE: GE). The Boston Planning and Development Agency (BPDA) approved the corporate campus plan in November 2016.
However, GE scrapped those plans in early 2019 amid a rough patch that included layoffs and asset sales (although the firm did end up leasing the adjacent 5 Necco St. building as its scaled-down headquarters until 2023).
In November 2019, ARE-MA Region No. 71 Holding LLC, a JV of Alexandria and Newton Lower Falls, Mass.-based National Development LLC, stepped in to acquire the 2.7-acre 5 and 15 Necco St. site for a reported $252 million. Rather than a single-user corporate headquarters, however, the partners proposed a multi-tenant campus. The 5 Necco St. building would be preserved, while the previously approved plan for a 12-story office building at 15 Necco St. would become a somewhat larger office, lab and R&D building.
In September 2020, the BPDA approved a “Notice of Project Change” for the revised 15 Necco St. development plan, allowing for a multi-tenant building. The revised plan called for a 316,750 square foot tower containing 295,760 square feet of office and life sciences space, with the balance being ground-floor public spaces, potentially including cafes/restaurants, retail shops, gym, lobby gathering space and/or gallery space. The city granted a building permit in October 2021.
However, 15 Necco St. was to become a single-tenant building after all. In February 2022, amid a flurry of speculative LSRE projects by developers nationwide, Alexandria announced that Lilly had pre-leased all of the office and lab space. Lilly agreed to take 334,000 square feet for what was then referred to as its Institute for Genetic Medicine. The overall size of the planned building had also increased to 345,995 square feet.
By April 2023, with the 15 Necco St. building was under construction, Alexandria sold an 18 percent interest to a U.S. affiliate of Tokyo-based Mori Trust Co. Ltd. for about $66.1 million. JV partner National Development sold a 2 percent share. Newmark Group Inc. (Nasdaq: NMRK) arranged the recapitalization.
Boston-based Elkus Manfredi Architects was the architect of 15 Necco St. and John Moriarty & Associates of Winchester, Mass., was the general contractor.
Boston project is Lilly’s latest Gateway Labs site
The new R&D center is “dedicated to advancing Lilly’s efforts in RNA and DNA-based therapies as well as discovering new drug targets to create life-changing medicines across several disease states, including diabetes, obesity, cardiovascular diseases, neurodegeneration and chronic pain,” according to a news release from the firm. Lilly is the world’s largest pharmaceutical company, based on market capitalization.
The news release continues, “The new site includes laboratories and office space and will also house the first Lilly Gateway Labs location on the East Coast, fostering a culture of shared expertise and real-time learning to accelerate the development of novel medicines. LSC will accommodate approximately 500 Lilly scientists and researchers, in addition to 200 people from the companies within Lilly Gateway Labs.
“Lilly Gateway Labs is a best-in-class innovation hub that connects promising, early-stage biotechs to the power of Lilly’s expertise. By fostering scientific breakthroughs and helping biotechs remove hurdles, we help companies speed the development of life-changing medicines for patients around the world.”
Since opening in December 2019, Lilly says its Gateway Labs site in San Francisco has hosted more than 20 biotech companies, with more than 50 therapeutics and platforms currently in development, and more than $1 billion raised by partner companies. Plans call for Gateway Labs to expand this year to four sites across San Francisco, San Diego and the new site in Boston.
According to Lilly’s 2023 annual report, filed in February 2024, the firm’s U.S. R&D facilities contained a total of about 4.9 million square feet, primarily consisting of owned facilities located in Indianapolis and smaller leased sites in Boston, San Diego, San Francisco and New York.
Alexandria owns much of that leased space. According to the REIT’s second quarter (Q2) quarterly report, Lilly was the REIT’s second-largest tenant after Moderna Inc. (Nasdaq: MRNA), with a total of more than 1.1 million square feet of space across multiple facilities as of June 30, 2024.
News Release: Lilly opens state-of-the-art research and development center in the Boston Seaport
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