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Friday, Dec 8, 2023

REIT Makes Science Out of Buying Property

This has been an eventful year in the life of BioMed Realty Trust. The company competes primarily in a specialty sector — life sciences real estate — that itself has seen an unusual number of high-profile acquisitions and corporate stock offerings just in 2010.

The real estate investment trust is focused mainly on providing real estate to the life sciences industry, including biotechnology and pharmaceutical companies, scientific research institutions and government agencies.

In the San Diego market, it is the landlord to tenants such as Bristol-Myers Squibb, Amylin Pharmaceuticals Inc. and UC San Diego. Nationwide, BioMed owns or has interest in 125 buildings with approximately 12 million rentable square feet.

While its home base has always been San Diego, in the past six years it has become a big player in all of the major biotech research hubs, including Boston, San Francisco, Seattle and Maryland.

Despite a recession that has soured owners and investors in most commercial real estate segments, especially overbuilt office buildings, BioMed has managed to thrive in the specialty life sciences laboratory-office segment, where the pool of existing properties geared to the needs of cutting-edge science companies is relatively constrained and new construction remains rare.

In a recent interview, two of the company’s top executives said BioMed has always followed a consistent set of criteria in deciding what properties to buy — mostly newer (less than 10 years old), well located properties with state-of-the-art amenities, adaptable for use by a wide range of potential tenants.

Strategic Moves

Chairman and Chief Executive Officer Alan Gold said the company has long been focused on keeping its own financial house in order, using leverage carefully and honing its creditworthiness to allow for strategic portfolio moves.

“We took the steps necessary to position ourselves competitively to make these acquisitions,” Gold said.

For instance, BioMed in April announced it had received investment grade corporate credit ratings from the investment research arms of both Standard & Poor’s and Moody’s.

An investment grade rating essentially indicates that a corporate bond issued by a company has relatively low risk of default, based on an analysis of a firm’s finances by credit bureaus.

Like other publicly funded investment entities, Gold noted, BioMed has access to credit sources and favorable financing rates that aren’t available to many private entities, including property owners struggling to meet debt obligations.

Some of those owners, even if they are not distressed, have decided to sell now to take advantage of buyer interest among the well-capitalized suitors.

Combined with conditions in the real estate market, those factors helped set the stage for a dramatic boost in the company’s capital and portfolio.

Property Acquisitions

In September alone, BioMed announced property acquisitions totaling more than $430 million in San Diego and South San Francisco. In the same month, it completed a public offering of common stock that raised nearly $290 million in net proceeds.

For the third quarter, it reported a 3 percent rise in revenue compared with the year-ago period, to a company-record $95.7 million. Net income available to common shareholders rose 17 percent for the quarter, to $4.8 million, according to its Nov. 3 announcement.

Greg Bisconti, a San Diego-based senior director in the life sciences practice of brokerage firm Cushman & Wakefield, said BioMed has used its strong capital position, and a climate of low interest rates, to acquire well-located properties across the country.

But its rivals are not standing still. Bisconti noted that BioMed and its life science competitors — including Pasadena-based Alexandria Real Estate Equities Inc. — are engaged in something resembling a nationwide “land grab” for prime real estate.

“There’s a sense that, if I don’t get this property, my competitors will,” Bisconti said. “The run is on now, but then it will be over.”

Alexandria, already the largest holder of San Diego life sciences real estate, announced in August that it was acquiring three life sciences properties, and “other selected assets and interests” of Veralliance Properties Inc., a San Diego-based, privately held company that is also prominent among local office and life sciences property owners. Terms were not disclosed, but Alexandria also absorbed key management leaders of Veralliance in the deal.

Bisconti said the life sciences players are demonstrating extreme patience with their latest shopping sprees, knowing that it could take considerable time to make back their investments because the prospect of rent increases are slim for the near term.

As with other real estate segments, life science tenants are still able to shop around for the best arrangements, as landlords vie to retain and lure them with leasing discounts, space upgrades, improvement allowances and other incentives.

But investors are also rewarding the strategies. Bisconti noted that BioMed’s stock offering — and Alexandria’s September offering that raised $343 million in net proceeds — were both oversubscribed. Essentially, public demand for their stocks exceeded the companies’ capital-raising goals.

In a recent report, the equity research firm Robert W. Baird & Co. Inc. noted that the quality of BioMed’s tenant roster “has improved materially within the last several quarters.”

The niche sector of life sciences properties is likely to post “notably strong demand” relative to commercial office space going forward, the Baird report said, noting that BioMed should also benefit from projected growth in the health care industry in the next decade.

Seeking Deals

BioMed President Kent Griffin said the company will continue to aggressively compete for tenants and scout investment opportunities in San Diego and across the U.S.

“We have boots on the ground in all the markets where we do business, and we do extensive traveling to evaluate properties,” Griffin said.

The company has slowly been adding to its work force, hiring 10 to 12 employees in the past year to bring its staff to 150. Griffin said the firm has picked hires who demonstrate integrity as well as a general knowledge of the various life sciences, but has always been careful to adjust staffing to conditions in the market.

“We’ve been judicial about our hiring, and we’ve had no layoffs,” he said.


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