The coronavirus pandemic, which has focused more attention on healthcare and sparked a rocky race for a Covid-19 vaccine, has also increased interest in life science real estate in New York City.
The city had previously tried to catch up with other life science powers such as Boston, San Diego and San Francisco. Real estate companies, with government backing, had built commercial labs for medical researchers, incubators for biotech start-ups, and offices for pharmaceutical companies ready to bring new drugs to market.
Today, investor funding is flowing into such projects at a time when the city’s office market is hit by lockdowns and work-from-home orders. Office availability in Manhattan jumped to 14.1% in the third quarter from 11.8% in the same period a year ago, while average rent fell about 1%, according to Newmark, a commercial real estate consulting.
Developers are jumping on the life sciences bandwagon, which has come across as a bright spot in an uncertain picture of commercial real estate. According to a report from CBRE, a real estate services company, the labs rent in Manhattan averages about $ 105 per square foot.
Experts warn it may be too early to celebrate a turnaround, but the developers are moving ahead.
The latest move comes from Taconic Investment Partners, which just revealed plans to convert a former car showroom on Manhattan’s West Side into a life science center. The building was built in 1929 for Chrysler, but ABC occupied it for decades. When the Walt Disney Company, which owns the television network, leaves in January for new digs downtown, Taconic, in partnership with Nuveen Real Estate, will begin overhauling the building, said Matthew Weir, senior vice president of Taconic. .
“We believe this is a game-changing moment in New York,” he added.
The city has long had key ingredients for the development of life sciences. It has leading universities and academic medical centers – the places where scientific breakthroughs are often made and bioscience companies born. And it’s teeming with chemists, biomedical engineers, and other life science professionals.
Funding for the city’s research institutes by the National Institutes of Health, the federal government’s biomedical research agency, has increased every year since 2016 and reached $ 2.2 billion last year, just behind the region of Boston.
But New York City has run out of labs and other spaces entrepreneurs need to start businesses and bring drugs to clinical trials and eventually commercial production.
As a result, young biotech companies tend to go elsewhere. For example, Regeneron Pharmaceuticals, which emerged from research conducted at Columbia University, moved 30 miles north of Tarrytown, NY The company, which had more than $ 7.8 billion in revenue in 2019. , is conducting trials for a Covid-19 antibody treatment that was recently handed over to President Trump.
The situation began to change in 2010 when Alexandria, a California developer of bioscience complexes, opened a sparkling tower known as the Alexandria Center for Life Science-New York City on the east side of Manhattan in the hallway of the hospital known as Bedpan Alley. The location reflects the belief that life science developments must be close to research institutions, forming ‘clusters’. In 2014, Alexandria completed the second of three planned towers on its campus.
Government initiatives have been put in place to encourage these efforts, which promise well-paying jobs and tax revenues. In 2016, New York City launched a $ 500 million life sciences initiative, led by the city’s Economic Development Corporation. In 2017, New York State unveiled its own $ 620 million plan.
Deerfield Management Company, a healthcare investment firm, is a beneficiary of the town’s program. It receives nearly $ 100 million in tax credits for converting a 12-story building in the Flatiron District into a vertical campus with lab space, conference rooms, and offices for non-profit groups. profit and academic institutions.
Modernizing a building for the life sciences can be a major undertaking. While cheaper and faster than building from scratch, the cost can be four times the cost of converting a building to office use, by some estimates.
Not all buildings are suitable for conversion either, said Peter Schubert, a partner at Ennead Architects, who has worked on life science projects. The best candidates have large floor plates, are structurally sturdy to avoid vibrations which can be disastrous in laboratory work, and have high ceilings that can accommodate the expansive ductwork needed for improved ventilation. Electrical systems must support increased energy needs. Loading docks may need to separate, for example, the safe arrival of tissue samples and the disposal of chemical waste. While old manufacturing plants often fit the bill, “it‘s really about build by building,” Schubert said.
The challenges did not deter the developers.
Taconic’s next project will be part of an emerging life sciences cluster on the West Side of Manhattan. The developer, in conjunction with Silverstein Properties, has already renamed a former nearby film production studio to Hudson Research Center, leasing space to tenants including the New York Stem Cell Foundation.
Plans for the new project were drawn up by Perkins & Will, an architectural firm, and include replacing the brick and concrete facade with glass and shiny aluminum. An automatic helix-shaped ramp, a vestige of the days of the building’s exposure, will become the centerpiece of the reincarnated interior. The renovation is expected to be completed in early 2023, Mr. Weir said.
Other projects are underway in a growing life sciences cluster in West Harlem, near Columbia University, where Janus Property Company is renovating old brick factories for tenants, including Harlem Biospace, an incubator offering a shared laboratory space. Janus is also building the 350,000 square foot Taystee Lab building on the site of a former bread bakery.
An influx of private venture capital money into the companies that would occupy such projects only stimulated interest.
“Every week a developer buys a building to convert to life sciences,” said Joshua King, executive managing director of Cushman & Wakefield, a commercial real estate company. He said he and his colleagues were constantly responding to calls from homeowners considering desk-to-lab conversions.
But the life science “boom” is a boomlet at best.
Of the nearly 500 million square feet of office space in New York City, less than two million square feet is redeveloped for laboratories or marketed exclusively for the life sciences, although more are in development. (For comparison, Boston has about 30 million square feet of such space.)
Life sciences “will not be an office savior in New York in any way,” said William Hartman, executive general manager of Cushman & Wakefield. “This will not solve the big problem of vacancies.”
“Maybe we are experiencing a premature exuberance,” he added.
The availability of marketed buildings for laboratories is 30.5%, according to the CBRE report, although the availability of pre-built space is only 2.3%.
“The reality is that demand is limited,” said John H. Cunningham, executive vice president of Alexandria. “There are a handful of companies in the market that try out tires.”
But Lindsay Greene, chief strategy officer at the Economic Development Corporation, predicted that demand would catch up with supply as early stage companies secure funding and move from incubators to their own spaces. “There is a catch-up effect,” she says. “We have to allow time for this to unfold.”
Some existing life science spaces have served efforts related to the pandemic. The city has set up its pandemic response laboratory, which processes coronavirus tests, in central Alexandria.
Yet the future of the sector will depend on tenants who survive the pandemic. It takes about 25 years for a life sciences industry to mature.
“Our goal is not to overtake another city,” Ms. Greene said, “but to be part of a peer group with them.”