Fresh Off Best Year Ever, Lab Giant Alexandria To Venture Into New Territory
The leading developer of life sciences properties rode the industry's wave last year, recording 4.1M SF of leases signed between October and December, more than double its best total for any quarter in Alexandria Real Estate Equities' nearly 30-year history.
Its pace of activity is spurring the Pasadena, California-based real estate investment trust to venture into new territory — it is paying $402M for a nearly 1M SF life sciences campus in Texas, it disclosed in its quarterly earnings release this week.
“There’s literally no real presence of commercial life science [in Texas],” Alexandria Chairman Joel Marcus said on the company's earnings call Wednesday. The new investment in an undisclosed Texas city is “an attempt to create a market and bring early stage life science to Texas, like we did with New York City.”
Alexandria also is expanding its holdings in North Carolina's Research Triangle. Right now, its portfolio is 76% concentrated across four markets: Boston, San Francisco, San Diego and Maryland.
Overall in 2021, Alexandria delivered more than 2M SF of new lab space across 14 projects and leased 9.5M SF, which represents $6B of contractually based rent, including central offices for marquee names such as Moderna and Genentech Roche.
The Alexandria juggernaut, now with a $44B market capitalization, outperformed its expectations for last year, standing out in a year of superlative performances across the industry. Marcus said Alexandria hit its “highest operational tempo ever” during the pandemic era.
The REIT has expansive plans for expanding its footprint, with a pipeline of new construction projects under construction or soon to commence, projected to take advantage of a growing desire for space by new startups, especially in evolving mRNA and cell and gene therapy fields.
It expects to open 10.2M SF over the next 18 months, which would generate an additional $610M in incremental rental revenue when complete, and, according to co-CEO and co-Chief Investment Officer Peter Moglia, that space is already 67% leased. It includes projects such as The Arsenal on the Charles in Watertown, Massachusetts, and a Torrey Pines campus in San Diego.
While Alexandria executives on the call outlined the continuing labor and materials challenges facing the industry — they said they don't foresee the cost of steel and other raw materials dropping in price until 2023 — the team's experience was cited as the reason the firm has faced no material delays in core and shell building. Additionally, leadership doesn’t foresee any larger supply disruptions in 2022, and it claims it can leverage its scale to procure tough-to-get lab gear like benches, fixtures and glass-washing equipment for its tenants.
During questioning, Marcus provided more details about the firm’s expansion plans.
The company has committed additional money to North Carolina’s Research Triangle to create a 1M SF megacampus at a former GlaxoSmithKline campus Alexandria picked up for $91M last year. It made two acquisitions in Durham in January — a development site with more than 1.1M SF of potential for nearly $100M and a four-building portfolio for $80M.
The Research Triangle is rapidly becoming a premier cluster with talent, research and risk capital. It now represents 9% of the REIT's real estate holdings.
“Leasing has been very, very strong there, and we're adding some adjacent land to expand that campus and the capabilities there,” Marcus said.
He also said he wouldn’t be able to comment further on the Texas investment until the next earnings call. Previously, Marcus had told Bisnow that Houston, one of the leading Texas life sciences markets, is still emerging and akin to where New York City was 20 years ago.
The firm developed the Alexandria Center for Life Science on the east side of Manhattan, but its portfolio in New York City is still small — at 1.2M SF, just 3% of the company's footprint — as that market lags behind more established biotech hubs.
"When we started in New York, we really spent before we opened the Alexandria Center for Life Science in 2010," Marcus said. "We had started an effort in New York back in 2001 as part of Sandy Weill's effort to bring commercial life science to New York City, where none literally existed. And I would say the same is true of Texas."
The company is largely focused on building out its "mega campus" projects — five pages in its annual report are dedicated to measuring the impact of these loosely defined clusters, which account for 63% of the company's operating property. It acquired two buildings leased to Raytheon in Woburn, Massachusetts, last month that Marcus told Bisnow in an email he plans to turn into a "life science MEGA CAMPUS."
