Better Than One
ertex Pharmaceuticals made big news last year with its headquarters project at Fan Pier in Boston and not one but two FDA approvals in the course of eight months.
That HQ investment is going to help the biotech star untangle a mix of leases in the Cambridge, Mass., neighborhood. But its leases aren’t confined to just one life sciences cluster. In July Vertex signed a lease extension with BioMed Realty Trust through Dec. 31, 2018, at an 81,200-sq.-ft. (7,544-sq.-m.) facility in the heart of the Torrey Pines Mesa in San Diego.
“Vertex is one of the truly great biotechnology stories today, and we are very pleased to extend their lease at Torreyana Road for another 63 months,” said Alan D. Gold, chairman and CEO of BioMed Realty. “We look forward to many more years of supporting their transformational drug research, development and commercialization efforts."
Vertex has been called one of the best places to work in biotech. So has Regeneron, which announced Oct. 26 that it’s leased an additional 80,500 sq. ft. (7,479 sq. m.) of space split between two buildings at another BioMed property: The Landmark at Eastview campus in Tarrytown, N.Y. Regeneron will use the new labs for its research into treatments for ophthalmology, cancer, inflammation, hypercholesterolemia, and other conditions.
The Landmark at Eastview is one of the largest privately owned, multi-tenant science parks in New York State. The campus consists of eight buildings and over 1.1 million rentable sq. ft. (102,190 sq. m.) of R&D facilities and high-tech office space. As documented in this space two years ago, Landmark was one of BioMed’s first properties (purchased in 2004), and the partnership with Regeneron a catalyst for the firm as it got its footing in the marketplace.
“Our singular focus is to create optimal environments that support transformational research and groundbreaking science,” said Gold. “Our eight-year relationship with Regeneron, one of the truly inspiring stories in the life science industry, exemplifies this commitment.”
All signs are that BioMed is just as red hot as its star tenants. The REIT owns or has interests in properties comprising approximately 13.1 million rentable sq. ft. (1.2 million sq. m.). The company's properties are located predominantly in the major U.S. life science markets of Boston, San Francisco, San Diego, Maryland, New York/New Jersey, Pennsylvania and Seattle. But it’s also made a prominent giant step across the pond, acquiring Granta Park in Cambridge, U.K., in June for 126.8 million pounds, or approximately US$196.0 million, excluding transaction costs.
The park comprises 11 laboratory and office buildings with 472,200 sq. ft. (43,868 sq. m.) of space, as well as approximately 138,400 sq. ft. (12,857 sq. m.) of development and expansion rights. Those 11 buildings house 11 prominent tenants, among them AstraZeneca company MedImmune, Pfizer, Gilead Sciences and the fast-growing contract research firm PPD. Annual cash net operating income for the park investment is estimated at 10.2 million pounds ($15.8 million).
When it comes to clusters, the first Cambridge wrote the book, having launched its eponymous university a mere 803 years ago. As BioMed reminded people this summer, the research community in Cambridge is a global leader in both Nobel Prizes and research grants. It supports over 1,000 science and technology companies, the Wellcome Trust, Cavendish Laboratory and the Babraham Institute.
“The Cambridge market enjoys all of the critical elements that mark a strong, self-sustaining life science cluster,” said Gold in June, noting its “proximity to premier academic and research institutions, a highly skilled work force, access to financial partners, and a healthy portfolio of strong commercial life science organizations."
BioMed is due to release third-quarter earnings guidance on Nov. 1. Its second quarter release in August said the company generated total revenues for the quarter of $124.8 million, up 17.3 percent from $106.4 million in the same period in 2011 and the highest in the company's history. Rental revenues for the quarter increased by 18 percent to $95.7 million from $81.1 million in the same period in 2011, the highest in the company's history for the 10th consecutive quarter.
A September investor presentation explains BioMed’s business model by noting the demand for better medical treatments from the industrialized world’s twin challenges of an aging populace with longer life expectancy. At the same time, despite the recession’s downturn, the overall trends indicate gradually increasing investment in pharmaceutical R&D by private-sector companies, government, institutions and venture capitalists over the past 10 to 12 years.
BioMed’s focus on high-quality facilities currently nets the company rents that average $38.42 per sq. ft., higher than average life sciences rents at healthcare REIT HCP ($36.62) and Alexandria Real Estate Equities ($32.07). High-quality tenants across a diverse mix of categories help too: Eighty-four percent of BioMed rents come from public companies and research institutions, including more than a quarter from global pharma and A-rated life sciences companies.
Leading that roster is GlaxoSmithKline, whose annualized base rent of more than $44.4 million for accumulated space of 924,970 sq. ft. (85,930 sq. m.) represents more than 10 percent of BioMed’s total portfolio of annualized base rent. Others on the REIT’s top 10 tenants list include Johnson & Johnson, Merck & Co., Elan Pharmaceuticals and Sanofi.
The second quarter alone saw 16 new leases and seven lease renewals at BioMed properties. Among the highlights:
- A new 126,065-sq.-ft. (11,711-sq.-m.) lease with AVEO Pharmaceuticals, Inc. at 650 East Kendall Street in Cambridge, Mass., which is owned through a joint venture with Prudential Real Estate Investors;
- A new 60,416-sq.-ft. (5,613-sq.-m.) lease with Depomed, Inc. at the multi-tenant Pacific Research Center campus in Newark, Calif., in the San Francisco Bay Area. “The combination of a vibrant, accessible campus and BioMed Realty's specialty expertise in understanding and operating life science real estate was certainly a factor in our decision to become part of the life science community at PRC,” said Jim Schoeneck, Depomed's president and CEO.
- Concurrent with acquiring the 28-acre (11.3-hectare) Summers Ridge property in San Diego for $47 million, BioMed entered into a long-term ground lease for the entire site with Shire Regenerative Medicine (formerly Advanced BioHealing, Inc.), a subsidiary of Shire plc.
Shire plans to construct office, laboratory, warehouse and manufacturing facilities totaling in excess of 150,000 sq. ft. (13,935 sq. m.) on the site, commencing by early next year. The site can accommodate future expansion of up to a total of 800,000 sq. ft. (74,320 sq. m.). The company plans to maintain its current DERMAGRAFT manufacturing facility on North Torrey Pines Road in La Jolla, which currently employs nearly 200 people.
The Sorrento Mesa submarket where Summers Ridge is located is also home to Alere, Inc., and to the Scripps Proton Therapy Center.
“This new campus will give us the flexibility and increased capacity we need to develop and manufacture new regenerative medicine therapies and build our foundation for continued growth in this exciting field,” said Kevin Rakin, Shire’s Regenerative Medicine president. Shire expects to begin construction of the new campus in Sorrento Mesa in 2013, with initial occupancy targeted for 2014.
As for other construction, BioMed has skin in the game with the big Fan Pier development that will be home to the new Vertex headquarters in the Innovation District on Boston’s waterfront. The REIT has purchased a $255-million interest in the Fallon Company’s existing $355 million-construction loan, secured by first priority mortgages on the 1.1-million-sq.-ft. (102,190-sq.-m.) lab/office/retail project, which is 95 percent leased to Vertex. Funding is expected to begin in late 2012. Ultimate plans call for development of as many as 3 million sq. ft. (278,700 sq. m.) at the complex.
The Boston Redevelopment Authority this summer said 14 companies and 2,700 jobs had moved to the Innovation District within the previous year. In other words, another super cluster may be blooming. And BioMed aims to be at the heart of it.