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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

 

Borrowers And Lenders Are Adapting To The Hot Heathcare Real Estate Market

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When it comes to financing medical office building (MOB) acquisitions, the cost of capital is not always the most important factor in choosing a lender.

“In fact, when a nine-property MOB portfolio in the Atlanta area changed hands in a sale-leaseback transaction in late 2019, the borrower on the $25 million loan chose to go with a lender that did not have the lowest cost but that knew the tenant best so that they could make sure that everything would go quickly through due diligence and get to closing and not hit any bumps along the way,” said Sabrina Solomiany, a first VP, US Healthcare Capital Markets Debt & Structured Finance with CBRE Group Inc. (NYSE: CBRE), who helped line up the debt for the buyer. “It was very competitive, but ultimately we went with Synovus, with part of the reason being that even though they did not necessarily have the most competitive terms, they actually had a banking relationship with the physician group.”

Ms. Solomiany made her remarks during the recent Revista Medical Real Estate Investment Forum 2020, held Jan. 27-29 at PGA National Resort & Spa in Palm Beach Gardens, Florida. She was part of a panel session titled, “Debt Outside the Box: Construction, Mezz & Alternative Asset Classes.” Joining Ms. Solomiany on the panel were: Natalie Sproull, VP with Capital One (NYSE: COF), as moderator; Jim Barnes, director of Healthcare Specialty Lending with Synovus Financial Corp. (NYSE: SNV); and Andrew Smith, managing director with Los Angeles-based Kayne Anderson Capital Advisors LP.

During the session, the panelists discussed some of the latest trends in healthcare real estate (HRE) financing when it comes to acquisitions as well as development deals. Part of the discussion focused on how and why certain HRE deals get done.

“When it comes to construction financing of medical projects, people are often surprised that the first few things I consider are not always financial in nature, said Mr. Barnes of Columbus, Ga.-based Synovous. “I like to look more at the expertise of the developer,” he said, “making sure that the developer really has a deep experience in delivering medical properties on time and within budget. This has become much more important recently with the trend toward greater institutional equity investment and, for the most part, the institutional investors having much less expertise in construction than the developers. Secondly, the firm looks for strong sponsorship either from a hospital system or a longstanding, stabilized private practice – something that will create an anchor within the property.”

 

Source: HREI

Medical Office Buildings Still Rule The Outpatient Space In Healthcare Real Estate

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Of the five main outpatient facility types, medical office buildings (MOBs), urgent care centers and ambulatory surgery centers (ASCs) have the most positive outlooks and futures in the healthcare and healthcare real estate (HRE) sector.

On the other hand, the outlook is not quite as positive for micro-hospitals, which have a “moderate” outlook, and freestanding emergency departments (FEDs), which have a “negative” outlook. That’s according to a scorecard, if you will, compiled by well-known healthcare research and consulting firm The Advisory Board Co., which is based in Washington, D.C., and is part of Eden Prairie, Minn.-based Optum.

Providing insights into The Advisory Board’s rankings and outlooks for the various outpatient property types was the company’s Fred Bayon, managing director. He did so during a 100-minute presentation that covered a wide range of topics affecting the healthcare sector during The Colliers National Healthcare Conference, held Sept. 12-13 at the Hyatt Centric Chicago Magnificent Mile.

“My job with The Advisory Board is to travel around the country and meet with our members … hospitals and health systems, C-suite executives and the health system boards of directors and let them know what’s happening in the healthcare market place, what they need to be strategizing about and be aware of concerning healthcare policies and healthcare changes and issues,” Mr. Bayon told the audience.

Near the end of his presentation, which included plenty of insight into current healthcare policy and disruptors to the status quo, Mr. Bayon gave the firm’s outlook on the various property types.

As has been the case for several years, The Advisory Board is most optimistic about the short- and long-term prospects for MOBs. The rise of MOB development and investment has occurred in large part because they allow hospitals and health systems the best and most economical way to enter new markets, to protect market share, to provide convenient access to patients and to help facilitate the coordination of care.

“The MOB market continues to be a positive, intriguing play for hospitals, health systems and investors,” Mr. Bayon told the audience. “Those players are and will remain interested in MOBs for years to come because they “are conveniently located, essentially for Medicare patients and commercially insured patients. Health systems do not want their patients to have to come downtown, they don’t want you to come into the maze that is the big hospital campus. Instead, they want you to go somewhere where there is parking and where there is a pleasant atmosphere, because that’s where they think they can drive volumes.”

The Advisory Board gives its next highest ranking to ASCs — which, even though they carry some risk because of the lower-profit margins they deliver — will continue to experience increased volumes in years to come, he said.

Mr. Bayon noted that volumes in ASCs are expected to increase by nearly 28 percent by the year 2027, driven in large part by ongoing policy changes by the Centers for Medicare and Medicaid (CMS) that will “reimburse Medicare procedures done in ASCs. For example, total knee (replacement) and some cardiac procedures” have recently been added to the list of procedures that, when done in ASCs, will be reimbursed by Medicare.

Also receiving a positive score, or outlook, from The Advisory Board are urgent care centers, which the firm is “pretty bullish on,” Mr. Bayon said.

“More and more health systems are looking at urgent care centers and having some sort of investment in them, or some sort of partnership in sites across the United States,” Mr. Baynon said. “We still see these growing rather rapidly and for us, this is becoming a primary care alternative that can alleviate some of the capacity crunch for primary care in some markets.”

Even though The Advisory Board is not as bullish on FEDs and micro-hospitals, Mr. Bayon noted that the firm is “neutral” on the facility type, as those that are placed in the right locations can provide benefits for health systems, especially when they are expanding into new markets.

“Micro hospitals, the eight- to 12-bed hospitals can help a system bring together some inpatient and outpatient services, with core services being acute care, emergency care, pharmacy and additional services,” Mr. Bayon said. “(Micro-hospitals) continue to be a big, big play in the Texas marketplace, but we can see this growing in other markets as well. What’s interesting about micro-hospitals for developers and healthcare providers is that these facilities are not subject to site-neutral payments, meaning they can bill at inpatient rates and then they can generate their own on-campus or off-campus definition, meaning they can put outpatient services within 250 yards of those micro-hospitals and not be subject to a site neutral rate. For us, I would say that right now we are pretty neutral on micro-hospitals.”

The Advisory Board gives its lowest ranking, or outlook, to FEDs, which, in some instances,

“One of the things to keep in mind is that government payers do not reimburse freestanding emergency departments, but they are dotted across the United States and there are some hospital systems that believe such facilities are something around which they can build more services over the longer term,” Mr. Banyon said.

The Advisory Board, however, has a negative outlook on the facility type in large part because “they could drive unnecessary utilization if we see a preponderance of them.

“And I think that CMS could look at decreased reimbursement to FEDs moving forward,” Mr. Banyon continued, “and this is not to distinguish between an ED in a hospital setting and a freestanding setting. That’s a big risk for health systems.”

 

Source: HREI