Real Estate

Texas Is ‘Going Big’ In Biopharma

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Texas wants to get the word out: It’s not just for oil and pipelines anymore.

The Lone Star State is a rapidly emerging biopharma hub, with more than just a lone focus on oncology. Houston and Austin are home to some of the top up-and-coming biopharma companies, and real estate powerhouses like Hines are anchoring major new developments with them.

Ridgeline Therapeutics is one such company, established in 2012 and spun out of technology invented by founder and CEO Stan Watowich at the University of Texas Medical Branch. Ridgeline develops small molecule inhibitors of nicotinamide N-methyltransferase (NNMT) to reverse Type 2 diabetes, obesity, muscular dystrophies and sarcopenia (age-related muscle degeneration).

During the past year, the company has begun to ramp up, hiring, applying for funding, developing the program and advancing projects closer to IND filing and clinical trials. How has their residence within JLABS@TMC, part of the Johnson & Johnson Innovation-JLABS incubator ecosystem, helped during this year of rapid acceleration?

“Working in Houston, for a biotech company, I think is great,” Watowich said. “The ecosystem, it’s not small, but it’s not out of control, so you can actually get to know many of the other companies, the other CEOs, see what they’re up to, share ideas, thoughts…the even bigger thing is you have access to all of these academic labs.”

Texas, and Houston in particular, has certainly caught the attention of the real estate development market. Audrey Symes, Director of Research, Healthcare, Life Sciences and Advisory at JLL, an American commercial real estate services company, explains why the city is at the top of their up-and-coming markets list.

“There are a couple markets that are right at the gate, ready to go, but I would say that the number one that is really emergent right now is Houston,” Symes said. “Houston has an amazing network of both medical practitioners and incubators, universities such as Baylor [The Baylor College of Medicine], the Texas Medical Center, and MD Anderson I think is the premier cancer research hospital in the US if not the world. So Houston has been really at the precipice of rising into the next rank for quite some time.”

Academic institutions rounding out the illustrious network include Rice University, The University of Texas Health Science Center at Houston,  Texas A&M University, and The University of Texas Southwestern Medical Center in Dallas.

“You have a lot of idea flow coming out of this, and a lot of people thinking about starting companies,” Watowich explained.

With the commanding presence of the MD Anderson Cancer Center, the largest cancer center in the U.S., and one of the most preeminent in the world, the assumption would be that oncology is the state’s number one focus. According to Watowich, it is only at the center of a wide range of therapeutic passions:

“I would say oncology is definitely a strength in the medical center,” said Watowich. “Because you have MD Anderson, you have the Baylor college of medicine, you have some of the hospitals with their specialized care. But I would say neurological diseases are a strength, metabolic diseases are a strength, muscular diseases are a strength…it’s hard to say where there’s not a strength.”

Hines is a privately owned global real estate investment, development, and management firm traditionally known for its office spaces. The company has been diversifying significantly during the past decade, and two of their key focus areas – life sciences and senior living– mirror two of society’s biggest current priorities: healthcare and the rapidly aging population.

In July, Hines finalized a deal with 2ML Real Estate Interests to build a mixed-use life sciences and technology-based development called Levit Green, next to the Texas Medical Center. The company plans to break ground on the phase I building in the third quarter of 2021 and complete construction in late 2022.

“It’s not often that an organization can have the opportunity to develop 50 plus acres adjacent to the largest medical center on the planet. That opportunity came along, and we thought it was absolutely intuitive that you could marry up that type of opportunity next to something like the Texas Medical Center,” said John Mooz, a senior managing director, and market head of Houston/Austin/San Antonio at Hines.

For industry and real estate developers alike, the cost of building, and cost of living can often make the difference when deciding where to locate.

“In our trying to understand what the best end-users are for Levit Green, I do think they will be both organically from here, but also locating from either coast where among other things, it’s expensive to build relative to Houston,” Mooz said. “You have gross rates that top $100 psf, and Houston can be almost half of that. And when you’re looking at a company with early-stage funding, that can be a huge difference. So I would argue that Houston can attract top talent and top organizations with an incredibly affordable quality of life, and strong diverse, cultural offerings. With the global oncology pharmaceutical market projected to be worth approximately $200 billion by 2023, Houston is primed to move to the top of any emerging life sciences cluster list. That’s a pretty strong trajectory in a place that spends a lot of time studying cancer. You combine it next to a medical center that has over 9,200 beds, and we have, by anyone’s count, somewhere in the order of 1100-1200 clinical trials going on right now.”

For all of its merits, Texas is still growing into the biopharma mentality when it comes to capital investment.

“Where Texas really falls behind is capital,” Watowich said. “It’s not that they don’t have money…most of the money is from pipeline and it’s hard to get them to understand that investing in biotech per se isn’t really that different from doing a very deep offshore oil well. The risks are comparable, the timeline’s comparable, and the money’s comparable.”

Watowich is working with other Houston and Texas leaders to launch the Accelerator for Cancer Therapeutics. This Accelerator will assist entrepreneurs aiming to turn their research discoveries into clinical-stage biotech companies supported by forward-thinking investors and non-dilutive funding.

“People need to be willing and accepting of taking risks. And culturally, that doesn’t happen everywhere,” said Travis McCready, Executive Director, U.S. Life Sciences Markets at JLL. “The three mega markets that exemplify this are greater Boston, the Bay area, and San Diego. They (Houston) have a really glowing and exciting creative scene, and I like the creative economy as a measure and metric of risk.”

“The other key for Texas is an injection of privately-led development dedicated to the life sciences market, Mooz said. “Texas Medical Center, I believe is the eighth largest business district in the United States, and the work and the development that’s gone on there is astounding. It’s mostly by in-place organizations and not privately-led development, and that’s what’s been missing. I think what we really need is purpose-built facilities to accommodate all of that R&D, and that’s what we’re trying to answer.”

 

Source: BioSpace

 

The Denver And Colorado Springs Medical Office Building Market Is Vibrant And Growing

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The Colorado medical office building market comprises 23.9 million square feet of total space.

Of this amount, approximately 17.6 million sf, or 74%, is located within Colorado’s two largest core-based statistical areas, Denver and Colorado Springs. Inside these metros, the outpatient/MOB market is vibrant, growing and coveted by medical office investors.

The Denver MOB Market

The Denver MOB market contains 14 million sf of space across 275 MOBs that Revista tracks (7,500 sf and greater). Denver’s MOB market has been growing recently as more than 800,000 sf has delivered to the market during the past year. Despite inventory growth of 6% during the past year, the MOB occupancy rate has held steady and even risen in recent quarters. The MOB occupancy rate in Denver stands at 90.5% as of the second quarter of 2020 (Figure 1). This is up 20 basis points from first-quarter 2020 and up 10 bps from the second quarter of 2019. Overall, Denver’s MOB occupancy rate has performed quite admirably during the beginning stages of the COVID-19 pandemic.

The average triple-net MOB rent in Denver was $21.47 per sf in second-quarter 2020. Same-store rent growth was 3.5%, year over year. Denver’s same-store rent growth metric ranks 15th of the 125 CBSAs Revista tracks and compares to just 1.5% same store year-over-year rent growth for the aggregate top 50 CBSAs.

Overall, from both a supply/ demand perspective and a revenue or rent perspective, the Denver MOB market is strong and growing which makes it attractive for investors.

One form of investment in the market is through new construction. Denver currently has 574,000 sf of MOB construction in progress, which represents 4% construction vs. inventory. Fidelis Healthcare is developing a 100,000-sf MOB near the campus of SCL St. Joseph Hospital. The MOB is scheduled to be complete later this year. Synergy Medical Partners also is constructing a 100,000-sf MOB on the campus of Swedish Medical Center. The MOB also is scheduled to be complete this year and contains first floor retail.

Mortenson Development and Seavest Healthcare Properties are planning to build a 43,732-sf MOB in the fast-growing Candelas master planned community in Arvada. Mortensen and Seavest have been longtime investors in Colorado health care real estate.

The Colorado Springs MOB Market

The Colorado Springs MOB market contains 3.6 million sf of space, which makes it the 73rd largest MOB market Revista tracks. The Colorado Springs MOB market has not seen as much recent growth as Denver and just 72,000 sf has delivered in the past year. The Springs MOB occupancy has performed quite well recently and stands at 90% as of the second quarter. In fact, the lack of recent inventory growth has allowed the occupancy to climb from a low of 86.8% in the fourth quarter of 2018 to 90% in second quarter 2020 (Figure 2).

 

The average triple-net rent in Colorado Springs was $15.72 in the second quarter. Base rents for MOBs in the Springs range from $11.80 (10th percentile) to $24.01 (90th percentile), according to Revista’s metro report on Colorado Springs. Same-store year-over-year rent growth in the Springs was 2.7% in the second quarter, also above the 1.5% registered by the Top 50 CBSA benchmark.

Strong fundamentals are attracting new MOB development in the Springs. There is 360,000 sf of MOB space in progress across six projects in the Springs area. UCHealth has two projects under construction. It is building a 65,000-sf MOB next to Grandview Hospital. Scheduled to complete later this year, UCHealth will lease the project from MBRE Healthcare Real Estate. In addition, UCHealth is scheduled to break ground on the 120,000-sf Eastview Medical Center. This project is located on the east side of town and will contain an ambulatory surgery center, outpatient imaging, medical and surgical specialty services, an orthopedic center and outpatient rehabilitation, according to UCHealth.

The Colorado Medical Office Building Transaction Market

Attractive real estate fundamentals also can lead to a robust transaction market. Both Denver and Colorado Springs have seen strong MOB transaction activity recently.

In Denver, over $139 million worth of MOBs have traded hands during the past year. The current average price per square foot is $270 and the average trailing 12-month cap rate is 6.5% as of the second quarter (Figure 3). Notable recent trades in the Denver market include the sale-leaseback of the Southeast Pediatric Medical Center in Centennial to the Thompson Realty Group of Lincoln, Nebraska.

Healthcare Realty Trust paid $33 million in March for the Ridgeline Campus, located in Highlands Ranch. The Ridgeline Campus is a 137,000-sf MOB to which Children’s Hospital Colorado Pediatric Mental Health Institute recently moved.

In Colorado Springs, over $85 million worth of MOBs has traded during the past year. The average price per sf is $277 and the average TTM cap rate was 6.2 in second-quarter 2020 (Figure 3). A notable recent trade includes MBRE Healthcare’s $33.6 million purchase of the three-building, 149,428-sf Union Park Medical Campus. This was a high-profile trade that closed during the middle of the pandemic.

Overall, Denver and Colorado Springs are good examples of the attractiveness of the outpatient/MOB sector and its merits to investors and other stakeholders.

 

Source: Colorado Real Estate Journal

Developing Life Sciences Real Estate At The Speed Of Innovation

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Speed always has been a hallmark of the life sciences sector, with first movers standing to gain considerable market share while delivering much-needed medical devices and pharmaceuticals to the public.

But the race to produce a COVID-19 vaccine and related therapies is unlike anything that has come before, with a dozen potential vaccines already entering Phase 3 clinical trials only months after the virus was identified.

While we don’t know exactly when a COVID-19 vaccine will be widely available, research and development has advanced to combat this global threat at a pace that can only be described as “breakneck.” In contrast to today’s day-to-day progress, the mumps vaccine — considered the fastest ever approved — took four years to advance from collecting viral samples to administering a licensed drug.

Hopefully, COVID-19 is a once-in-a-lifetime event, and there won’t be a need for a worldwide, all-hands-on-deck effort in the future. But the lessons the life sciences space is learning now about fostering innovation, creating efficiencies, and coordinating activities across research, development, manufacturing, and distribution will shape the industry in the years to come.

Those lessons inevitably include new thinking about the space where life science work happens, especially in R&D labs that are the origins for so much of today’s groundbreaking discoveries, but also in administrative and other services that support this work. Any real estate decision made today will have real-world implications for years to come, so it’s imperative that companies get it right and meet the demand for prescription drugs, personalized medicine, gene therapies, and other emerging solutions.

The Changing Nature of Life Sciences Innovation

Life sciences companies look different today than they have in years past, when massive pharmaceutical companies and smaller, more nimble biotechnology firms dominated the space. Today, much of the innovation is driven by venture-capital-backed startups, which don’t have the operating capital to build expansive corporate campuses and purpose-built labs.

These companies graduate from shared incubators to leased lab space, often in life sciences hubs like Boston, San Francisco, and San Diego where academics, research institutions, and talent pools coexist. While every lab has its own sophisticated needs, there are enough commonalities that existing lab space can be modified and generally repurposed as companies evolve and expand.

One of the downsides of this concentration of life science innovators is available lab space is leased quickly in today’s market. Life sciences companies tend to group together, whether in city centers or suburban hubs, and while companies can and do lease space that is further removed from existing clusters, it can be difficult to attract the talent that is so vital to driving innovation if the research facility isn’t in the right area.

Even when lab space is available, companies must be diligent in determining whether the existing space can support their work. A former biological lab is more easily converted to new biological efforts, rather than reworking the space for chemistry, for instance. And just as innovation has accelerated new solutions for the public, the methods that drive lab work also have evolved, with new equipment and research approaches dictating how the space is conceptualized.

Redeveloping Alternative Property Types

Given the competitive landscape of existing lab space, earlier-stage life sciences companies may initially land in buildings not necessarily designed for lab work. While labs carry special requirements not common in other development types — including greater ceiling heights, unique lab equipment, more robust HVAC systems, and structural considerations — developers are increasingly trying to lure life sciences companies that want to remain in high-demand areas without building from the ground up and look to these repositioned building alternatives.

While the prospect of redeveloping an existing building in a life science sub-market — such as an industrial warehouse or manufacturing facility — is achievable, the challenges associated with fitting out these buildings for the specific requirements of lab work can be complex and costly and require thorough due diligence. These properties, meanwhile, aren’t just there for the taking. Quality industrial and manufacturing buildings are in high demand as a result of changing consumer habits, which have been shifted by COVID-19.

The repurposed universe consists almost entirely of steel and concrete structures. Wooden structures are often the cheapest to lease or develop but they don’t offer the inherent requirements for chemical control zones and other protections of more robustly built properties. Attempting to retrofit a wooden structure to support lab science work has inherent limitations, which developers should take into account.

Managing High-Cost Items

The most expensive and unique aspect of a lab build-out are the mechanical, electrical, and plumbing (MEP) systems, which, along with lab benching, push the project cost into the hundreds of dollars per square foot, even when the space meets other structural and space considerations.

These expenses affect the entire development, not just the lab space. A tenant with an equal split between lab and administrative workers may desire typical office amenities: high, open ceilings and ample free space. Similar to the technology-based offices of today, these features come at a premium and will likely be separated from the laboratories.

MEP and equipment considerations aren’t exclusive to redeveloping non-life sciences buildings either, as existing systems in former labs may be outdated and not easily adaptable. These often end up on the scrap pile, replaced with modern equipment in a similar process to bringing in new MEP systems to former warehouses or manufacturing facilities. However, second- or even third-generation lab buildings typically have the structural, ceiling height, and routing of the MEP systems considerations already deployed.

Additionally, not all labs serve the same purpose; some special lab equipment will require unique customization of the space, which must be identified and incorporated early in the design process. Buying only the equipment that is needed can save money up-front and over the long term. Unnecessary lab equipment comes with a high energy draw and heat load output, both of which can contribute to unnecessary costs for years to come.

Today’s labs are run differently than those of decades past: There is a stronger connection between time spent in the lab, related office or computer activities, and collaborating with coworkers. This significant change in work patterns calls for streamlined workflow and a more efficiently designed space that naturally supports the different types of work being performed. A better flow between the lab space and office space can increase productivity as well as optimize usable square feet — and rent.

Best Practices for Embarking on New Real Estate Projects

As long as speed is a factor in life science development success, expanding lab space will be an important consideration for many companies. Though the development and redevelopment process is costly and complex, it doesn’t have to distract from the essential business of creating life-saving and enhancing breakthroughs.

Taking a creative, practical, and flexible approach to building out lab space can help life sciences companies compete, both now and well into the future.

 

Source: Life Science Leader