How New York City’s Billion-Dollar Life Sciences Bet Can Pay Off

Despite the explosion in real estate and venture capital activity connected to New York City life sciences this year — the city just hit a yearly record for leasing, 257K SF, by May, per CBRE, and the $537M raised through May is 60% more than at this point last year — Mayor Bill de Blasio announced a significant public investment to bolster the sector earlier this month.

LifeSci NYC, a de Blasio administration initiative to fund innovation, develop lab space, and support skilled workforce training for the growing industry, saw its budget double from $500M to $1B. 

The funding is good news to CBRE Senior Field Research Analyst Philip Stern, and both a lagging and leading indicator. It’s a sign that while the private sector has invested heavily in New York City, the public sector still needs to push to move things to the next level.

The components of the additional $500M commitment, including $200M to support the construction of new facilities, hints at the fact one of the key questions still being asked is “but for,” as in, “but for these tax abatements or city investment,” would this project be happening. 

“The sector is in need of prebuilt, occupancy-ready type space, which developers are bringing online,” Stern said. “But the vacancy for that kind of space is still extremely low. These public investments understand that’s where the demand is.” 

While NYC life sciences may be on a hot streak — it’s second in National Institutes of Health funding to Boston, and employment in the sector even went up despite the economic headwinds of 2020 — the LifeSci NYC announcement makes clear to Stern that “there’s still a real need for economic development benefits.”

Rachel Loeb, president and CEO of the New York City Economic Development Corp., said in a statement that the city's goal is “investing in more talent, companies, and innovative spaces to help us recover and build a stronger economy for all.”

But the question the city must answer is can dispersing this funding support happen quick enough to meet the immediate need for space? The first $500M of funding, announced in 2016, hasn’t fully been dispersed: For instance, of the $150M in city capital support, $38M was given to a collection of institutions, including Columbia University, the Stem Cell Foundation, the Rockefeller University and Montefiore, and a request for proposals for the remaining balance was recently released; half of the $300M financial assistance funds have been dispersed for projects like InnoLabs in Long Island City and The Cure at 345 Park Ave. South.

NYCEDC Senior Vice President of Life Sciences and Healthcare Susan Rosenthal said the industry is more mature, and there is much more demand, today than in 2016, when it was still nascent. The application process can take three to six months, she said, but she’s “confident this team can get it done as fast as possible."

Taconic Vice President of Development and Construction Nate Bliss sees the city’s life sciences ecosystem at an inflection point, when it moves beyond just supporting its own homegrown firms to drawing in companies from other markets. Despite 3M SF of lab space in the pipeline, including Taconic’s 400K SF project at 125 West End Ave., Bliss said “the main stumbling block has been the availability of lab-ready space.” 

“Establishing this cluster and having space for new companies, that’s where the public sector putting its finger on the scale can propel us through that inflection point,” Bliss said. 

Bliss and Stern believe the type of space developed with LifeSci NYC funding is as important as having more of it. Stern said there’s already 165K SF of incubator space in the city spread across a half-dozen locations, which have produced numerous success stories. Hibercell spun out of Mount Sinai and leased space at Hudson Research Center, and c16 BioSciences, a Bill Gates-backed firm, spun out of BioLabs NYC and followed it to the Taconic and Silverstein Properties-owned building.

What’s needed is space for companies taking the next step, specifically graduation spaces, larger workspaces for companies that have often completed Series A funding rounds and have imminent need to expand.

Newmark Managing Director Bill Harvey said it is a crucial gap in the larger life sciences real estate ecosystem. Many smaller firms that outgrow incubators don’t have the wherewithal to sign 10-year leases for 15K SF, for instance, and could benefit from spaces designed for them, with core facilities and shared amenities.

Harvey said these types of facilities could be developed in partnership with an academic or medical partner — using some LifeSci NYC investment to entice out-of-town institutions to set up shop would “be money well spent.” 

To grow a real ecosystem of innovation, Bliss said, the city needs to become a draw for larger institutional and pharmaceutical players. The city has “tended green shoots locally,” but faces the challenge of attracting talent from Boston or the California clusters, and needs adequate space to become a viable option. 

The second round of LifeSci NYC funding can go toward space conversions, which can create new lab space more quickly than ground-up projects, Rosenthal said. It can also be used for expansion projects for out-of-town firms and institutions seeking to locate in New York.

If any large company wanted to expand to New York City, “we’d welcome that conversation,” she said.

“I don’t know the speed at which they’ll deploy this capital, but compared to 2016, when the market was really in its early innings, there’s more clear-cut and tangible potential recipients for all these funds,” Stern said. "Hopefully, it’ll be deployed at the speed developers need to bring stuff to market.”

Mt. Sinai Health Systems Vice President for Real Estate Tom Ahn, whose employer signed a lease for 165K SF of lab space on the West Side in March, said during a Bisnow webinar on The Future of New York City Healthcare Facilities Thursday that he sees slow growth going forward.

Lab space is still incredibly expensive to build in the city, “like building office space on spec but 10 times more expensive,” Ahn said. Many tenants may look to New Jersey or Connecticut for cheaper, more readily available space; Sema4, a company involved in Covid-19 testing, moved from Mount Sinai to a 200K SF space in Stamford in December. 

“They need a speed to market and can’t wait 12-18 months for a lab to be built,” Ahn said of potential life sciences tenants. “It’s quite expensive to rent lab space in the market, and there needs to be more incentives from EDC to support that.”  

He hopes startups can tap into the new increase in EDC funding. The Alexandria Center for Life Sciences, facility, for instance, built with EDC support, now counts NYU, Estee Lauder, Pfizer, and just a few startups as tenants, which Ahn felt “didn’t really hit the mark" the EDC set out to fund a home for early-stage companies.

More facilities for later-stage startups will also help firms see the city’s other unique advantages. 

“New York City has the talent, access and representation from multiple major industries,” Bliss said. “These strengths can become an important part of site selection for life sciences companies.” 

To truly capitalize on the LifeSci NYC investment, as well as the $600M invested by the state into the life sciences sector, business leaders need to “pound the pavement” and be cheerleaders bringing attention to the sector, using a toolkit of public incentives to attract new talent, Bliss said. 

“We aren’t trying to be Cambridge or San Diego,” he said. “New York’s version of life science will be unique.”