The 'Godfather' Of Life Sciences Real Estate Faces The Sector's Sharpest Downturn Yet

Joel Marcus walked into the Downtown Los Angeles office of investment giant AEW on Sept. 9, 1996, unsure how much longer his business would survive.

The co-founders of Alexandria Real Estate Equities were running out of money, and they were trying to pitch an idea that had no proof of success: building a company focused on owning lab properties and leasing them to firms in the emerging biotech industry.

Despite the potential upside of Marcus’ pitch — biotech was just beginning to address the thousands of known diseases with no cure — he was rejected by the first 29 investors.

Entering his 30th meeting, Marcus could tell co-founder Jerry Sudarsky was growing weary. But the Air Force veteran remembers feeling confident as he ran through his talking points. 

The pitch worked: AEW agreed to invest $27.5M in Alexandria's Series B round. After shaking hands and walking out of AEW's conference room, Marcus knew the firm would make it to the next stage of his grand plan: going public. 

“That Series B was really the key,” he told Bisnow in a recent interview. “If that didn’t happen, the company would have dissolved, sold off its assets or been like a little family company.”

Today, Alexandria is traded on the New York Stock Exchange with a market capitalization of $16.6B, and it is the dominant landlord for the biotech industry that has boomed beyond Marcus’ early predictions. 

His pitch that Alexandria could ride this wave by getting in early has proven true. It remains the largest player, with a 400-property empire valued at $37B, in a life sciences real estate sector that now has several younger competitors.

“They really proved a case point about your ability to develop and bring to market a completely different asset class that didn’t really exist before the 21st century,” said Travis McCready, who leads JLL’s national life sciences team. “It’s crazy when you think of it that way. The entire asset class of commercial leasable lab space is a novelty in commercial real estate. And Joel and ARE, he’s the godfather of this asset class.”

Now 76 years old, Marcus has remained atop the industry’s largest organization for more than a quarter-century. But over the last year, he has faced a series of battles that have tested his business and the industry he helped shape. 

After a decade-long bull market capped by supercharged growth early in the pandemic, the life sciences sector has suffered a sharp downturn over the last year. ARE’s stock has plunged to less than half of its early 2022 peak.

An index of biotech stocks is also below half of its peak, and it has lost more value over the last two years than it did during the Great Recession. 

Alexandria nevertheless reported $324M in profits through the first nine months of the year, and its executives, board members and analysts say they are confident in its long-term prospects. But its stock has been hammered by the market souring on the struggling sector — more than 200 biotech companies have enacted layoffs over the last two years, and many have shut down completely. 

“2023 is more of a worry year for everybody. People are worried about where the biotech industry is going,” Marcus said.

Alexandria this year faced a campaign from a well-known short seller who argued the life sciences sector will go the way of the office market and see values collapse. Despite Marcus’ arguments to the contrary, its stock has kept falling. 

“They have helped ease those concerns,” RBC Capital Markets Managing Director Michael Carroll, an analyst who covers Alexandria, said of the REIT’s response to the short seller. “But I do think that given the current fundamental environment today, there is just that uncertainty, and I think it’s just hard to completely counter some of those concerns when you see moderating demand and accelerating supply.”

During this downturn, the company has lost two of its top executives: co-CEO Stephen Richardson resigned in July 2022, and in August its president and chief financial officer, Dean Shigenaga, also resigned. Marcus attributed the turnover to family health issues. 

Since going from CEO to executive chairman in 2018, Marcus spends his days focused on the company’s personnel, its external communications — he often responds directly to media requests sent to Alexandria’s investor relations line, sometimes in all caps — and on its strategic financial decisions. 

This year, those decisions have centered around responding to the downturn by selling more than $1.5B of properties and hitting pause on some planned developments.  

Marcus still leads the company’s quarterly earnings calls, continuing his longstanding role of convincing investors about the strength of the life sciences market and Alexandria’s position in it.

“Joel and ARE have been under the microscope perhaps more so than any other life sciences landlord investor operating in the ecosystem today,” McCready said. “That has put Joel in the position of having to answer questions about this downturn and do it in a way that reflects some pretty ugly realities.”   

‘I Took A Chance’ 

After growing up in Denver as the son of a homebuilder, Marcus joined the U.S. Air Force as a medic in 1965 and served for six years — two of them active duty and four in the Air Force Reserves while studying at UCLA. 

He still looks back on his time in the military as influencing his temperament during high-pressure situations as an executive, such as during the 2008 financial crisis. 

“It’s like going into battle. You’re well-prepared for a whole lot of different situations, and you batten down the hatches and you engage the enemy, which is all the bad stuff that’s happening,” he said. “My military training was what kept me pretty stable and sane. That’s just who I am.”

Marcus received his law degree from UCLA in 1972 and worked as an attorney for the biopharmaceutical industry, becoming a partner at Brobeck, Phleger & Harrison LLP. He also worked as a certified public accountant for Arthur Young & Co.

In 1984, he helped structure a groundbreaking joint venture between biotech pioneer Amgen and Japan’s Kirin Brewery Co. that created Epogen, a medicine used to treat anemia by creating more red blood cells. Amgen’s CEO in 2017 looked back on the venture as playing “a pivotal role in the growth of Amgen from a small, venture-backed start-up to one of the world's largest biotechnology companies.” 

But for Marcus, its impact was more personal. 

“It became a multibillion-dollar drug, one of the largest ever, which actually happened to save my brother’s life,” he said.  

Asked to expand on his brother’s story, Marcus declined to provide more information, citing medical privacy laws.

In 1993, after he worked on an attempted initial public offering for Palo Alto-based Medclone, two of the firm’s board members, Joe Jacobs and Jerry Sudarsky, the heads of Jacobs Engineering, approached Marcus with an idea. 

The duo had been working on architecture, design and engineering for biotech companies like Eli Lilly and Genentech, and they saw a gap in the industry. Marcus credits Jacobs — who died in 2004, five years before Sudarsky — with coming up with the original idea of creating a real estate firm focused on owning biotech facilities. 

The duo asked Marcus to work as their lawyer and help them put together a business plan for such a company, which he said he was happy to do. But when they were preparing to launch, the two septuagenarians asked the younger Marcus if he would run the company, and he remembers saying, “Thanks very much, but I have no interest in doing that.”

After they asked Marcus twice more and a mutual friend who worked as a venture capitalist tried to persuade him, he decided to take the leap. 

“I didn’t have any particular confidence we would make it,” Marcus said. “I took a chance. I had three small kids, and I was working hard for the family and doing what I did as a lawyer.”

But he saw the upside potential in being the first real estate firm to cater to an industry on the verge of exploding, and he saw a realistic avenue for its growth: going public through the then-emerging real estate investment trust structure. 

While he didn’t come up with the initial idea for the company, Marcus said his main contribution to Alexandria’s inception was courting early investors and insisting that the company should aim to go public as a REIT, a course that would ultimately turn it into a real estate giant listed on the S&P 500. 

“In the mid-’90s when Alexandria comes out of the gates, it was really the first to arrive at that conclusion that there was enough growth in biotech to warrant a specialty lab landlord, and obviously they were right, and as a prime mover, they’ve been in a great position,” said Matt Gardner, who leads CBRE’s life sciences practice. 

In the early days of Alexandria, the company owned just a handful of properties and had a small team working out of the basement in Jacobs Engineering’s office building. Marcus remembers working on a makeshift desk formed from a piece of plywood mounted on cinder blocks. 

“It was pretty raw,” he said. 

The company had started with $19M in Series A funding before securing the investment from AEW, and it was still relatively small when Marcus decided to take it public less than a year later. The company owned 15 properties totaling 1.5M SF when it filed its preliminary IPO prospectus on May 5, 1997. 

The company’s name is a nod to the scientific capital of the ancient world, Alexandria, Egypt.

In a 2014 interview with The New York Times, Marcus credited his son Steven with that idea: “My oldest son, who was at Wharton, came up with the name.”

But Steven’s involvement in the company has since become the subject of a lengthy legal battle. 

In 2019, Joel Marcus and Alexandria sued Steven and his startup, Runlabs, for trademark infringement, claiming he improperly used Alexandria’s name and logo in a fundraising pitch and incorrectly claimed that his startup evolved from Alexandria. The lawsuit claimed Steven never worked for Alexandria or had any business relationship with it.

Steven appealed the suit, and the legal battle continued for four years, with lawsuits launched from either side in seven separate courts. 

It ultimately ended last month, Bisnow can first report: On the eve of a scheduled Oct. 3 jury trial in Los Angeles, the father and son reached a settlement agreement to dismiss the case. Marcus declined to comment on the settlement, and Steven Marcus didn’t respond to requests for comment. 

Alexandria was also involved in a legal dispute shortly after going public with one of its co-founders, Alan Gold. Gold served as president and a board director when the company went public, and he held the second-most shares in Alexandria at the time.

In July 1998, Gold gave Alexandria written notice that he intended to terminate his employment agreement, and he left the company the following month, according to filings with the Securities and Exchange Commission from that year. The company disputed his claim that he had “good reason” to terminate the agreement and submitted the dispute to binding arbitration. Gold responded with claims against the company, and the arbitrator in April 1999 found in favor of Alexandria, the company said in an SEC filing.   

Gold went on to co-found BioMed Realty Trust in 2004, and he later led IQHQ, both direct competitors of Alexandria. Marcus declined to comment when asked about Gold, and Gold didn’t respond to multiple requests for comment.

‘Joel Is The Engine Behind This’

The leap Marcus took not only led to the creation of a multibillion-dollar company, but over the last three decades, his company has influenced the growth of the life sciences industry and shaped the development of cities across the country. 

Dr. Maria Freire, an Alexandria board member who has spent her career working on the funding and commercialization of medical research, said Marcus has been “enormously influential” in the life sciences sector by providing facilities for companies and bringing them together to share ideas. 

She remembers a meeting with Marcus in 2011, one year before she joined Alexandria’s board, that showed his passion for science. Prominent medical philanthropist Deeda Blair invited Freire, Marcus and life sciences consultant Lynne Zydowsky to Blair’s apartment on Manhattan’s Upper East Side. 

Marcus pitched the three life sciences experts on an idea: convening a summit featuring high-level meetings with the top minds across various fields of science. Freire said Marcus detailed the vision for what would become the Alexandria Summit, an annual event that she said has greatly increased the real estate firm’s influence in the sector. 

“This is Joel. Joel is the engine behind this,” Freire said. “He is well-respected by people in the sector. He is a contributor, he can talk to these people, he knows them personally. It’s his understanding that this was a part of what was needed, an ecosystem, that made it so successful.” 

She also pointed to the REIT's venture investment arm and Alexandria LaunchLabs, its startup incubator, as key ways the company has helped the industry grow. 

These efforts have also helped maintain Alexandria’s dominance over the sector, giving the company close relationships with the growing startups and pharmaceutical giants that have leased millions of square feet of its labs in Alexandria’s clusters. 

Those clusters — in the Boston, San Francisco, New York, San Diego, Seattle, Maryland and North Carolina markets — range from 4M SF to 13M SF of concentrated life sciences properties. Industry leaders say Alexandria’s strategy of grouping properties close together, what Marcus has dubbed the “megacampus,” has had a massive impact on how the life sciences industry has grown. 

Nowhere has that strategy paid off more than in and around Boston.

Alexandria expanded to the area shortly after its IPO, citing the potential of its universities and hospitals to support a life sciences hub. Greater Boston is now by far the largest life sciences market in the country, totaling 56M SF, according to CBRE, and Alexandria owns around one-fourth of that real estate. 

A Bloomberg feature in 2018 said Alexandria had become the largest landlord in the booming Cambridge market, and it credited Marcus as “one of the driving forces of the transformation.” JLL’s McCready, who is based in Boston and previously led the Kendall Square Association, said Alexandria was “massively influential” in growing the private life sciences industry around Harvard and the Massachusetts Institute of Technology. 

The company’s second-largest cluster is in the San Francisco Bay Area, a market that CBRE’s Gardner, who is based there, credits Alexandria and Marcus with developing. 

Gardner saw Marcus' influence directly in 2004 when, as Alexandria CEO, he met with a series of local officials — including Gavin Newsom, the California governor who was then the mayor of San Francisco — to pitch the idea of building a biotech hub in the city’s Mission Bay neighborhood. Gardner said at the time, local governments weren’t as eager as they are today to attract the biotech industry, and he said Marcus had to overcome skepticism from the officials around the table. 

“Joel really took the leadership responsibility of explaining what this was going to look like,” Gardner said. “And then he did it.”

Marcus said Mission Bay was “pretty seedy” when Alexandria first expanded there, and he said others doubted that it could draw tenants to the neighborhood. Today, Mission Bay not only serves as a major life sciences hub lined with shiny lab buildings, but it is also home to Uber’s headquarters and to the Golden State Warriors’ $1.4B arena, Chase Center. 

But Marcus said if it weren't for a decision he made during the height of the Global Financial Crisis, neither Cambridge nor Mission Bay would look the way it does today. 

During the GFC, Alexandria wasn’t rated as an investment-grade REIT, and it had more leverage than it has today — it had $4.9M in assets and $3.1M in liabilities in the fourth quarter of 2008, SEC filings show. Marcus said analysts were pushing Alexandria to sell off some of its assets that weren’t producing income, its large, undeveloped sites in the two markets on opposite sides of the country. 

The company made other cuts, slashing its capital expenditures by 50% and laying off a team focused on the clean energy sector that wasn’t core to its business, but Marcus stayed firm in holding on to the development sites in Mission Bay and Cambridge. Those have since become Alexandria’s two largest clusters and the largest life sciences markets in the U.S.  

“Most analysts told us to just sell it or give it away, and I refused to do that, and it turned out those two sets of great assets really led to our boom during the following decade,” Marcus said.  

Withstanding The Downturn

Alexandria now faces its toughest test since the Great Recession. 

The life sciences industry is dealing with a dramatic comedown from the decade-long boom and the highs of the pandemic, when investors poured money into life sciences companies and pushed them to lease more lab space than they needed in anticipation of growth. 

The life sciences asset class was more vulnerable to the effects of rising interest rates than other sectors, as much of its demand base is made up of startup companies that don’t have stable profits and rely on continued venture capital investments. The rate hikes that began last year were then compounded in March by the failure of Silicon Valley Bank, a major backer of biotech startups. 

The result was a sharp drop in funding for the industry. Venture capital funding for life sciences companies peaked above $10B in the first three months of 2021, then fell by more than 60% to less than $4B in the first quarter of this year, according to CBRE.

The drying up of funding led companies to cut back on people and real estate. Last year, 119 biotech companies announced layoffs, and this year that number has climbed past 140, according to Fierce Biotech. At least 13 life sciences companies have shuttered in the Boston area this year alone. 

“The demand and the insatiable appetite for capital and space and everything during that time was just unprecedented, but it led to some bad things,” Marcus said. “It led to people maybe investing too much money rather than staying disciplined, which always happens, and it tailed off pretty quickly after about two years.”

Tenants have raced to give back real estate in Alexandria’s largest markets, putting nearly 5M SF up for sublease in the Boston, Bay Area and San Diego markets combined. Those markets also saw a surge of new vacant space coming online, with a combined 2.5M SF delivered during the third quarter, less than half of which was leased. 

On Alexandria’s latest earnings call, analysts raised concerns about this supply-demand imbalance and pressed Alexandria on how much it would harm its business. Marcus pointed to South San Francisco, where he said much of the new product that other developers built without pre-leases was “stupid supply.”

While he doesn’t see the market downturn as an existential threat to his business, Marcus has nevertheless responded with an aggressive strategy to shore up its finances. 

In April, the company announced it was pausing some projects and cutting construction spending by $250M this year. It also sold off a host of properties, especially in the Boston-Cambridge market. On the Q3 earnings call, Alexandria said it had sold $876M in assets so far this year and expects to dispose of another $774M in the fourth quarter. 

RBC’s Carroll said the asset sales have allowed Alexandria to raise cash at better value than where the stock market is pricing its portfolio. 

Freire, the Alexandria board member, said the properties Alexandria is selling had been in its portfolio for years and were outside of its core clusters. 

“A good bit of pruning in any portfolio is not only smart but welcome,” Freire said. “I do not see this at all as an, ‘Oh my god, we have to sell or dispose of assets.’ I see it as part of a long-term strategy of making sure you have the best assets you can possibly have.”

Stock market investors haven’t rewarded Alexandria for its strategy. The company’s stock has sunk to five-year lows. It has not only lost all the gains from its pandemic-era boom, but it is down more than 20% from where it traded at this time in 2018. 

“The stock price, yeah, it always sucks if it’s not doing well, and the market is terrible for almost all of commercial real estate, but luckily you don’t have to depend on it,” Marcus told Bisnow, noting that the asset sales have prevented it from needing to tap the public markets for equity. “So you get through it.”

While all publicly traded commercial real estate firms have felt pain this year, not all have been targeted by a prominent short seller. 

Hedge fund Land & Buildings Investment Management holds a short position in Alexandria. Its CEO, Jonathan Litt, released a white paper pointing to cellphone data that suggested life sciences properties were facing the same underutilization issue as offices, and that the market should value Alexandria’s portfolio in the same way it prices the struggling office sector. 

Marcus pushed back, telling Bisnow in June that “life sciences is not office space.” Alexandria released its own white paper in July, pointing to electricity usage across its portfolio to show that building occupancy is above 2019 levels.

Marcus told Bisnow this month that Alexandria executives had spoken to nearly every major shareholder and analyst to detail their arguments against Litt’s campaign. 

“I can’t think of a single one who believes the information that was put out,” Marcus said. 

Freire said she has been impressed with Marcus’ leadership during this downturn.

“I don’t know if anybody could have done a better job than Joel,” she said. “He knows the market, he’s been through this before, he’s able to navigate the downturn, and he will continue to do so.”

How long he will continue is an open question, but Marcus isn’t planning to step away anytime soon. When asked about his timeline for retirement, the 76-year-old said: “I won’t comment. My contract was extended until June of 2027, so I just take it day by day.”

Ultimately, Marcus said he believes he has built enough of a moat around Alexandria’s business that it can withstand any crisis. 

The company may have been the first, but it is no longer the only life sciences-focused real estate owner. BioMed Realty, founded in 2004 and acquired by Blackstone in 2016, owns over 16M SF of life sciences properties in many of the same markets as Alexandria. IQHQ, Longfellow Real Estate Partners and Phase 3 Real Estate Partners have also emerged as competing life sciences developers in recent years. 

But what these firms don’t have, Marcus said, is longstanding relationships with the big tenants that drive life sciences demand. Alexandria’s strength in this regard is evidenced by two major deals it has inked over the last two years: to build a $700M new research facility in Boston for Eli Lilly and a new 426K SF headquarters in Cambridge for Moderna. 

“We have a gigantic first-mover advantage,” Marcus said. “Almost every life sciences tenant, if we have space, they’re going to come to us. … We’re one of a kind in that sense, and nobody else compares. We’re bigger than all the other people who claim to be doing this business.”