Four months ago, the already booming commercial real estate market in Boulder was the most ever when BioMed Realty LLC purchased a one-million-square-foot portfolio at Flat Iron Park Business Campus, 55 East. It could be one of the important deals. The street between Alapa Ho Avenue and Pearl Parkway — $ 625 million.
This is the sale of the richest commercial property in Colorado’s history, $ 232 million more than previous records. But the sale is far more significant than the price sticker shock, said Becky Callan Gamble, president of commercial brokerage firm Dean Callan & Company. Square feet of the portfolio — and it bought the Flatiron Park portfolio with the intention of filling about 50% of it with lab space. Gambling has shown that the biggest players in life sciences want to enter the boulder market and said it could bring significant benefits to the industry.
“They are very sophisticated landlords in the life sciences market,” Gambling said. “They bring a level of experience that wasn’t really seen in the life sciences category. The big picture is that it’s great. They’re boulders from outside the area because of what they’re trying to create. You can attract different companies to come to. It’s good for all of Boulder. “
Gambling is one of Flat Iron Park’s leasing agencies, along with Dean Callan & Company’s Bo Gambling, Hunter Bartow, and global real estate firm CBRE’s Erik Abrahamsson.
The Denver-Boulder market is the eighth largest life sciences market in the country, according to a survey by Jones Lang LaSalle, an international commercial real estate services company. The region is comparable to markets such as Los Angeles, Philadelphia, and Seattle. But the four biggest are far behind Boston, the San Francisco Bay Area, San Diego, Raleigh Durham, and North Carolina.
However, as the national life sciences market has grown over the past few years, Boulder has begun to become a somewhat sweet spot. With a strong research university in the backyard and commerciality, it is a good place to live and work. Rents have not yet risen to the astronomical levels found in the largest markets.
This has led to increased demand for Boulder lab space as companies seek to take advantage of these benefits. At the end of the first quarter of 2022, Boulder had approximately 1.15 million square feet of life sciences real estate inventories with no vacancies, according to a CBRE study. In short, it’s the landlord’s market.
Tod Brainard, director, partner and chief investment officer of Boston-based real estate company Tritower Financial Group LLC, said: “There is no space available. Tenants wishing to build a lab space will have to go to the landlord of the existing lab space to do it or pay for it completely away from the boulder.”
Tritower purchased two structures, a building at 2300 55th St. and a Sterling Drive. These structures have been transformed into lab spaces and marketed together as Boulder Labs. When these conversions are complete, approximately 100,000 square feet of life sciences real estate will be added to the market, leaving the market virtually unsupplied.
By purchasing the Flatiron Park portfolio and converting it to 50% lab space, BioMed will do the same on a larger scale.
Jon Bergschneider, president of BioMed’s West Coast Market, said the company was waiting for an opportunity to establish a significant presence in Boulder.
“Boulder itself has long been a market we have watched with great interest and enthusiasm,” said Bergshineder. “It has many unique features such as universities, a thriving venture capital community, an educated workforce, life sciences, and the coexistence of technology. It can be found in some of the more exciting markets. Flatiron Park We saw opportunities for growth in size and scale until we hit the market. “
BioMed was previously in Boulder with limited capacity — until 2018, owned a pharmaceutical campus at 3200 Walnut St., then occupied by Array BioPharma Inc. — but the size of that campus was limited. This has hampered the ability to expand the business model in the market. Bergschneider said. (Biomed sold its campus to Tritower for $ 52.3 million before Pfizer acquired Array, which sold to Invesco Real Estate in January 2021 for $ 99 million.)
Between the sale of the Array / Pfizer campus by BioMed and the acquisition of the Flatiron Park portfolio, “the entire industry has changed,” Bergschneider said. “With the amount of investment in life sciences, the tide is rising in all major markets. Boulder continued to receive strong and positive funding. Increased demand and market fundamentals continued to be seen. rice field.”
Now that BioMed has the Flatiron Park portfolio, you can begin the process of converting some of your existing office space into lab space. According to Bergschneider, lab space occupies about 20% of the current square foot of the portfolio, and BioMed’s goal is to increase it to 50%. The remaining 50% of the portfolio remains filled with technology and other tenants.
“We want to serve both life sciences and technology,” says Bergschneider. “We have a strong ecosystem and would like to see a combination of different clients of these types.”
One of those tech tenants could soon become Apple Inc. It is ready to take over about 250,000 square feet of Flatiron Park.
But for buildings redeveloped into life sciences spaces, it will be the surest way to bring more life sciences real estate to market, given the lack of vacant lots in the city.
“I think it’s a well-known fact that Boulder is an infill community,” said Charles Ferro, development review manager for the city’s planning department. “From a policy perspective, the growth of a city has many intents that have prevented it from spreading in a chaotic manner. Most of the development seen in Boulder is redevelopment or adaptive use. Living as an infill community Finding the ground is always challenging. This was a deliberate policy, but we see many adaptive uses. “
For a landlord like BioMed, it’s not necessarily an obstacle.
“I don’t think boulders are necessarily limited by lack of vacant lots,” says Bergschneider. “Our portfolio has a lot of tremendous redevelopment. In order to get high quality assets, we have to choose these redevelopments. Most of San Diego and San Francisco are in redevelopment. I’ve seen it succeed. There’s plenty of room for it to grow, but it has to be thoughtful. “
Part of the reason Flatiron Park has become such an attractive asset is that many of the buildings there are “suitable for renovations,” Bergschneider said. Lab spaces require more power than traditional office and technical spaces, and have greater HVAC and plumbing needs. Space above the ceiling is needed to accommodate all of them. The building must be sturdy enough to support its load. Service and shipping docks may be required. Not all buildings have these attributes.
“Downtown Boulder assets over three floors do little to work in lab spaces,” Brainard said.
At Flatiron Park, BioMed will invest more than $ 200 million to transform the building into lab space. Landlords are in a position to demand higher rents due to lack of market supply and investors spending large amounts of money on building improvements.
In fact, such leases are common in the larger life sciences market, where landlords invest a lot of capital to improve tenant space and then get higher rents. Rarely in Boulder, investors such as BioMed and Tritower are trying to change that.
Not only do these rental packages generate higher returns for landlords, they often also benefit tenants who do not have to invest their money in buying real estate or improving buildings they do not own.
“The current dynamics are that tenants can use their scarce capital to invest in lab expansions to lower base rents or use that money to hire people,” Brenard said. Stated. “It’s better to use their capital in mind to get landlords with low cost of capital to pay for improving expensive lab tenants. Many tenants are now learning the lesson and investing in their venture capital. The house agrees with us. The trade-off is that the rent is high and the first sticker shock occurs, but in the long run it is cheaper for the tenant. We have it a better use of their capital. I think this is the way it is done in all major life science markets, including Boston, San Diego and San Francisco. “
Bergschneider said: “Mission-critical science that requires funding from everything from venture capital to initial public offerings. All of this is costly. All we can do is work with our clients and tenants to determine the return on investment. Offering the option to invest in real estate, a reusable asset, while concentrating investment in high places. This is a sympathetic message among management and the board of directors, as it is today. The value proposition we bring is very compelling in difficult economic situations. “
And given the shortage of supply, these deep-pocket landlords will be able to wait until there are tenants who can pay the rent that the market says they should get-and that’s more. It may mean that a well-known life sciences company is coming to Boulder.
“We are really excited to re-enter the market,” said Bergschneider. “We are here to support the success and growth of the market.”
Gambling said: “These are large institutional investors who have a commitment to the community, a commitment to the park, and a commitment to the tenants they are trying to create something special. It’s great in every way.”