John McCloud is editor of Industry Property Journal, from which this article is excerpted.

Tarrytown, NY—BioMed Realty Trust Inc's. decision to launch a $145-million expansion at the Landmark at Eastview in this community 20 miles north of New York City is another example of the speed with which the life science industry is growing. The near-simultaneous announcement of a $507-million joint venture between the San Diego-based REIT and Boston-based Prudential Real Estate Investors shows that the more established investment community is also beginning to give serious attention to the fledgling industry.

At the Landmark at Eastview, the largest privately owned multi-tenant technology park in New York State, BioMed broke ground on a 360,000-sf laboratory and office complex that will become the corporate headquarters and major research facility for Regeneron Pharmaceuticals Inc., a biopharmaceutical company already based at the 275-acre complex. Regeneron, which had $63.5 million in sales in 2006, signed a 15-year lease for 194,000 sf in the new building. It will give up some existing office space at the development, but retain a 27,000-sf specialized research facility.

The project is only one of a long list of biotech and pharmaceutical facilities now in development nationwide. According to Industrial Info Resources of Sugar Land, TX, 135 capital and maintenance projects valued at $4.3 billion were set to begin construction between April and June of this year, a 5% increase from Q2 '06 and nearly 80% greater than the $2.4 billion of projects that were scheduled to start in Q1 this year.

The increase is a response to a sudden surge in demand for life science space that caught even the industry's major players by surprise. In San Francisco, Alexandria Real Estate Equities Inc. abruptly decided to speed up development of its 2.2 million-sf life science complex in the city's Mission Bay redevelopment area by several years. Original plans, worked out barely two years ago, envisioned completion of the project in 2015. However, unexpectedly high demand prompted the Pasadena, CA-based REIT to push completion forward to 2011. Under a new schedule filed in March with the city's economic development department, Alexandria plans to deliver 165,000 sf in '08, 700,000 sf in '09, one million sf in '10 and 330,000 sf in 2011.

BioMed has also hinted it may move faster than anticipated with development of projects in both New England and Texas. The purpose of the JV with Prudential was to complete acquisition of a life science portfolio BioMed previously agreed to acquire from Lyme Properties of Hanover, NH. The portfolio includes not only 600,000 sf of existing and in-construction buildings in Cambridge, MA, but also land and entitlements for an additional 266,000 sf in Cambridge; an 80-acre site in New Haven, CT for a 700,000-sf expansion of the Science Park at Yale; and a parcel in Houston earmarked for the 500,000-sf Center for Life Science. The JV secured a $550-million acquisition and interim loan facility from Cleveland-based KeyBank NA, though it drew down only $427 million of the facility at closing. Prudential provided 80% of the remaining $82 million of the purchase price. BioMed provided the other 20%.

Biotechnology was the hottest sector in venture capital in Q1, according to a study released late last month by the National Venture Capital Association of Arlington, VA and New York City-based PricewaterhouseCoopers. Life sciences businesses received 36% of the total venture capital funding for the quarter, its highest percentage ever, with investors providing $7.1 billion in 778 deals. The influx of money is helping life science companies all across the country not only with the creation of new drugs but also with the lease of space needed to research and produce them.

In addition, established pharmaceutical and life science companies are acquiring smaller biotech firms at an increasing pace, giving the acquired firms access to purchasers' much deeper pockets to underwrite expansion. According to Bionest Partners, a New York City-based healthcare consulting firm, there were 13 biotech company acquisitions in '06, quadruple the number recorded for '05. The acquisition value totaled $19 billion, nearly 2.5 times the $7.9-billion annual average for the seven preceding years.

Despite the above, biotech construction appears lagging behind biotech growth, with vacancy rates around 5% in San Francisco, San Diego and Boston, the nation's three top life science markets. The reason, according to brokers who specialize in the sector, is that biotech construction has consisted primarily of build-to-suits for the biggest players. Though incubator projects have opened for small start-ups, construction costs that are double and triple those of class A office space have hindered development of spec space suitable for mid-size companies that cannot afford build-to-suits.

However, the entry of Prudential into a field that conventional investors have heretofore largely shied away from indicates change is afoot. At least three biotech newcomers were rumored to be among six bidders for the 4.7 million-sf US life-science portfolio Slough Estates International put on the market earlier this year. They included Shorenstein Properties LLC, a San Francisco-based office developer and investor, iStar Financial Inc., a New York City-based REIT with a highly diverse portfolio of office, industrial, entertainment, medical and retail properties, and Health Care Property Investors Inc., a Long Beach, CA-based REIT specializing in medical and long-term care facilities. Though IPJ has not been able to confirm the report, the newly minted REIT from Slough, UK reportedly has selected a buyer after narrowing down the field to BioMed and HCPI.

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Buy-In Pushes Biotech Into Mainstream

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