Tuesday, September 21, 2021

Tandem Diabetes Leases 181,949 Square Feet in San Diego at $62.18/Foot

 By David Gross

Tandem Diabetes, a manufacturer of insulin pumps, has leased 181,949 feet from Kilroy at 12400 High Bluff Drive, with a lease term that goes through 2035, and includes two five year expansion options.   In addition, Tandem has a ROFO (Right of First Offer) for another 34,569 square feet in the development.  

With some existing space expiring, the new lease will increase Tandem’s regional footprint to 360,000 feet in San Diego, making it the fourth largest tenant headquartered locally, after Illumina, Dexcom, and Sorrento Therapeutics.   

Once fully occupied, Tandem will be paying an initial base rent of $62.18 per Square Foot, consistent with recent leases in the San Diego area.  But since its acquisition of the Del Mar Corporate Center, Kilroy has been pushing the region’s life sciences cluster.  With the move to High Bluff Drive, Tandem will be pushing itself four miles north near Del Mar, a significant move away from the region’s life science industry holding a tight position around I-5 and I-805 in Torrey Pines and the Sorrento Valley.

Kilroy issued a press release noting that a total of 303,000 square feet had been leased in Del Mar, adding in new deals with Sorrento and DermTech.  Kilroy is planning to build another 600,000 feet in the area just north of the Ted Williams Freeway which it is branding “the 56 Corridor”.

Monday, September 13, 2021

Opentrons Takes 48,000 Square Feet in Long Island City

 By David Gross

Lab robotics supplier Opentrons has signed a ten year lease for 48,000 square feet at the Innolabs facility in Long Island City.  The company will be moving its HQ there from nearby in Dumbo.  The location, at 45-18 Court Square, is across the tracks from Alexandria's Center for Life Sciences on 48th Avenue and near the entrance to the Queens-Midtown Tunnel.  Crain's is reporting asking rents were around $85/foot.

I've long thought Long Island City had a lot of potential for life sciences.  Located where Amazon wanted to build one of its HQ2's, it has the downtown adjacent location that allows for better accommodation of biotech ceiling, power, and HVAC requirements than midtown office towers, and is across the East River from both the Sloan Kettering/Rockefeller U labs in the East 60s, and NYU's cluster around East 30th St.  Innolabs, the landlord, is a joint venture among King Street Properties, GFP Real Estate, and the Carlyle Group. 

Tuesday, September 7, 2021

Bezos-backed Altos Labs Taking 250,000 Square Feet in Redwood City, 60,000 Square Feet in San Diego

By David Gross

The San Francisco Business Times is reporting that anti-aging startup Altos Labs will be taking a quarter million square feet of lab/office space near the Oracle campus in Redwood City, along with 60,000 feet in San Diego.   While details of its technology are just coming out, a recent article in the MIT Technology Review mentioned hiring scientists with little expectation of near term revenue.   While the immediate impact on medicine will be limited, the impact on California's top two life sciences real estate market will be notable, as this will make Altos one of the largest venture or angel-funded tenants in both markets. 

Sunday, September 5, 2021

San Diego's Homegrown Public Companies Now Leasing 6.4 Million Square Feet....Part 1

 By David Gross

As the life sciences industry continues to grow, it’s spawning new publicly traded companies at ever increasing rates.  In San Diego alone, there have been 22 biotech IPOs (Including one SPAC merger) in the 2020s, compared to 46 during the entire 2010s, 26 during the 2000s, and 9 before 2000.  But I wanted to determine what this meant for lab space absorption and how consumption might be changing.  

In total, San Diego life sciences companies that have IPO’d going back to the 80s currently occupy nearly 6.4 million square feet of space in the region.  The breakout below shows how much IPOs from each decade are using.

The big drop off from the 2000s to the 2010s is largely due to Illumina, which went public in 2000 and now occupies 1.25 million square feet in San Diego.  Negating its outsized impact would have left the 2000s at around 50,000 per foot, same as the 2010s.   However, there is also a survivor impact holding up the 2010s averages.  Of the 45 companies that went public in the 2010s, 38 are still leasing space, either on their own or through a company that acquired them.  However just 13 of the 26 companies that IPO’d in the 2000s are still leasing space in a former or current corporate entity.     As a result, square feet per surviving company fell off noticeably between the 2000s and 2010s.

CAR-T and -OMICs Lead the Way
While it can be tempting to come up with generalizations of square feet per dollar raised, or other broad metrics, to do so overlooks industry subsectors that naturally lease more space, notably cell therapy, gene therapy, CDMOs, -Omics, and diagnostics.  At 83,000 square feet, CAR-T developer Poseida Therapeutics has one of the largest footprints among San Diego companies that have gone public this decade, due to sensitive clinical manufacturing needs.  Meanwhile, preclinical Design Therapeutics had a larger IPO than Poseida, raising nearly $300 million, but currently has just 12,000 square feet in facilities.    

In addition to cell and gene therapy, -omics companies lease greater amounts of space per dollar of funding.  Sequencing company Singular Genomics raised nearly the same amount as Design Therapeutics but has 77,000 feet of space and added 50 people between March 2020 and March 2021 as it prepared to scale up its manufacturing operations.  Privately held sequencing provider Element Biosciences recently took 101,000 square feet.  These areas remain some of the most capital-intensive in the industry.

At 6.4 million square feet, San Diego’s hometown public companies are now leasing nearly three times as much as the 2.2 million square feet big pharma is leasing there, which includes 30,000 feet at J&J’s JLabs incubator.  I’ll have more analysis on San Diego leasing trends in Part 2 of this series.

Wednesday, September 1, 2021

Suburban DC/Maryland - High Unlevered Yields, Modest Lab Rents

By David Gross 

A few weeks ago I wrote about how Suburban Maryland is not a premium rent market.  While downtown DC nearby has been one in the office sector, land is plentiful in its suburbs with no geographic restrictions like the Bay Area and San Diego have, and no major lab space clusters barely a mile of downtown like Boston has.   As a result, lease rates for new wet lab space are generally around $35-$40 per square foot, a far cry from the $60-$110 rates seen in Boston and California.  Considering that DC’s office rates are often comparable to Boston’s, this represents a significant discount for lab space considering the high educational demographics of the Washington area.

Maryland has long been a secondary market for Alexandria, representing nearly 10% of its portfolio, but just 6% of rent revenue due to lower rents than Boston/San Francisco/San Diego.  This has made me question why Boston Properties, which has long had a large presence in high office rent markets, would invest in Maryland as it pursues lab tenants, going against its “premium, low barriers-to-entry” strategy.

While Suburban Maryland doesn’t have the venture funding levels to sustain even San Diego rents, it does offer moderate land acquisition costs with rents that run about $10 higher than Suburban Philly or Research Triangle.  As a result, the yields there can be strong even when rents aren’t impressively high.  In recent SEC filings, Alexandria has reported unlevered yields on new Rockville, MD developments above 8%, compared to 6%-7% in Boston and the Bay Area.  (Unlevered yield = annual property income/total investment excluding debt service costs).  Total acquisition and construction costs in Maryland run around $500 per foot, compared to over $1,000 per foot in larger biotech hubs, but rents are high enough to push yields higher than lower rent or higher cost markets.

While high unlevered yields might make Maryland look attractive for more development, if enough wet lab space developers chased this yield those rents would drop bringing them down quickly.  With the region accounting for just 2% national life sciences venture funding, it is heavily dependent on big pharma spinoffs like AstraZenca’s Viela Bio (now part of Horizon Therapeutics), mature biotechs like Novavax, and NIH, which headquarters its National Center for Advancing Translational Sciences at Alexandria’s 9800 Medical Center Drive building in Rockville.  This tenant class is unlikely to push rents to the levels seen in venture-heavy markets in Boston and California.

Maryland and suburban DC require careful assessment of market conditions for lab developers, but can provide them with strong yields while offering tenants lower rates than other major metro markets.   

Verve Therapeutics Leases 105,000 Feet in Fenway-Kenmore for $91 per Square Foot

By David Gross

While rents are topping $100 per square foot in Kendall Square, there is not much to be saved jumping across the river to Fenway-Kenmore, where Verve Therapeutics has leased 105,000 square feet at Alexandria's new Fenway development located at 201 Brookline Avenue.   Alexandria bought the 510,000 square foot property under development earlier this this year as part of a deal that also gave it the old Sears building at 401 Park Drive which it is redeveloping into lab/office.  In addition to $91 initial base rent per square foot, Verve will receive a $200 per square foot TIA (Tenant Improvement Allowance) from Alexandria to build out the space.

The location is a few blocks south of Fenway Park and Kenmore Square, and a few blocks north of the Longwood Medical Area.  With Kendall Square effectively out of space, the neighborhood is filled with new construction, with Alexandria targeting 1.8 million square feet of total space nearby, and IQHQ developing its Fenway Science Center, which will place a 20 story tower and 10 story mid-rise right on top of the Mass Pike.  Both of those buildings will be visible just outside the Green Monster from Fenway Park.

Verve, which is developing a gene editing candidate to tackle cardiovascular disease, went public in June and is expecting to submit its IND to the FDA early next year to begin clinical trials.  It is currently subleasing 19,000 square feet at Alexandria's Tech Square in Kendall Square, where it paid an initial base rent of $98 per foot.  The new lease commences on August 1, 2022.  With a current burn rate of approximately $60 million, the total costs of the lease including taxes and maintenance should account for about 15-20% of the company's cash burn after commencement.

Oakland-based Versanis Bio Raises a $70 Million Series A

 By David Gross

I’ll have the month end VC stats out as soon as I get my head out of lease documents, but August finished off strong after a tepid start.  The latest funding announcement comes out of the East Bay where Versanis Bio, a portfolio company of Aditum Bio, announced a large Series A to advance clinical trials of its anti-obesity monoclonal antibody.

You may be thinking the East Bay is typically for syn bio or CRISPR companies, but Aditum was started last year by two Novartis veterans as a holding company, and they brought in Atlas Ventures and Medicxi to syndicate the largest round they’ve done for a portfolio company.  The company will begin Phase 2 trails of the drug created at Novartis.  Versanis is currently based in downtown Oakland in Aditum’s 1100 Broadway office suite, which it shares with three other Aditum companies, and which also means it will likely be shopping for space, using Novartis facilities, or looking for a significant contract with a CRO.