Biotech Properties Draw Billions of Dollars as Other Real Estate Languishes
14 Juli 2020 - 2:29PM
Dow Jones News
By Peter Grant
Covid-19 is clobbering hotels, shopping centers and senior
housing communities. But the pandemic is providing an extra boost
to landlords leasing to biotechnology, pharmaceutical and other
life-sciences businesses.
Those owners were already doing a lot of business with companies
working on health problems like diabetes and cancer. Now, they are
seeing strong demand from companies working to find a cure for
Covid-19. And while work-from-home policies are crimping demand for
office space, life-science lab work can't be as easily replicated
remotely.
"One of the disruptive forces to office space was that we all
went home and figured out how to use Zoom," said Steven Binswanger,
a director at real-estate investment banking firm Eastdil Secured.
"No one in their house has a lab set up."
Billions of dollars are flooding into the sector from
governments, venture capitalists and other private sources.
Alexandria Real Estate Equities Inc., the largest life-sciences
real-estate investment trust in the U.S., last week raised $1.1
billion through a new share offering. Shares were priced at a
discount of only about 2.6% below the existing share price. Past
secondary offerings by Alexandria have offered discounts in the
range of 3% to 8%, said Joel Marcus, the company's founder and
executive chairman.
"It was the largest equity offering in the company's history,
the tightest pricing [in the last ten years] and massively
oversubscribed," he said.
Other big real-estate companies with life-sciences businesses
are adding more. BioMed Realty, which was taken private by
Blackstone Group Inc. in a close to $9 billion deal in 2016, is
moving ahead with a development pipeline that will add 2.5 million
square feet to its existing portfolio of 11 million square feet in
such markets as Boston, San Diego and Seattle.
In April, Toronto-based Brookfield Asset Management closed on
its purchase of a 50% stake in Harwell Campus, a 700-acre
life-sciences campus near the University of Oxford, for more than
GBP200 million ($251 million). The owners are now looking at a
range of expansion possibilities including adding a hospital to the
campus to boost its research and development businesses.
Since the pandemic hit, Brookfield has been taking a measured
approach on developing other types of commercial property, said
Zachary Vaughan, the head of Brookfield's European real-estate
business. "But as it relates to life sciences, we're going to
continue because the demand is there and it's only going to
grow."
One of the biggest concerns in the industry is the possibility
of developers and investors creating too much supply.
"This has been the institutional focus du jour," said Jason
Kaufman, senior vice president at Silverstein Properties Inc.,
which is planning to expand the life-sciences business it has
created in New York to other cities. "Now everyone who operates a
loft-style building in New York City thinks they have a
life-sciences building."
Developers warn that there are high costs and hidden
complexities of building space for scientific and medical research.
Buildings need sophisticated ventilation and gas and water delivery
systems.
"If you don't know what you're doing, you blow yourself up,"
said Mr. Marcus, of Alexandria.
Still, it isn't hard to see the appeal of life-sciences property
especially when comparing its post-Covid-19 performance with other
types of commercial real estate. While office leasing markets are
moribund in many cities, Alexandria reported that it leased more
than one million square feet in the second quarter with an average
rental-rate increase of 37%.
While many hotels have yet to reopen and some retail landlords
are reporting as many as 50% of their tenants have missed some rent
payments, landlords like Alexandria, Brookfield and Blackstone say
almost all of their life-sciences tenants are current.
In some cities without major life-sciences hubs, developers are
trying to change that. In Chicago, a venture led by Trammell Crow
Co. closed in June on the purchase of a site for the $250 million
development of a 16-story life-sciences center named Fulton Labs.
Construction has begun.
Write to Peter Grant at peter.grant@wsj.com
(END) Dow Jones Newswires
July 14, 2020 08:14 ET (12:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Brookfield Asset Managem... (NYSE:BAM)
Historical Stock Chart
Von Mär 2024 bis Apr 2024
Brookfield Asset Managem... (NYSE:BAM)
Historical Stock Chart
Von Apr 2023 bis Apr 2024