BioMed Realty Trust can refill within 15 months the roughly 600,000 square feet of space in Cambridge, Mass., that a key life-science tenant is expected to vacate in that time for a build-to-suit site on the South Boston waterfront, officials of the real estate investment trust said last week.
The tenant, Vertex Pharmaceuticals, may give up most or all of the space it now leases in four buildings in Cambridge owned by BioMed if it agrees to a lease being negotiated with the owner of the Fan Pier mixed-use development in South Boston.
According to local news reports citing unnamed sources, Vertex has signed a non-binding letter committing the company to lease at least 500,000 square feet at the Fallon Co.’s Fan Pier project. Neither the company nor Fallon have confirmed the letter, or discussed publicly their lease talks [BRN, Aug. 4].
BioMed CEO Alan Gold told analysts last week during the company’s second-quarter earnings conference call that he expects “nine months to 15 months” of downtime between Vertex’s departure and the arrival of a new tenant.
Gold, who is also chairman and president of San Diego REIT, said that window, together with the fact that Fan Pier would have to be built from scratch whatever space Vertex ends up leasing, gives BioMed more than enough time to replace the drug maker.
“You are talking about a build-to-suit and a build-to-suit can take anywhere from 24 to 36 months,” Gold said. “So, I think that’s the amount of notice we would get.”
BioMed finished the second quarter with $34.5 million in funds from operations — a key measure of REIT performance that excludes depreciation and amortization — up 2 percent from $33.8 million a year ago. Revenues rose 3.4 percent year to year to $70.8 million from $68.4 million.
As of June 30, BioMed owned or had interests in 69 properties with 112 buildings containing about 10.4 million rentable square feet, including 1.9 million square feet of development in progress. As of that date the REIT also owned undeveloped land parcels near existing properties that it projects can support another 1.4 million rentable square feet of laboratory and office space.
Matthew McDevitt, executive vice president of acquisitions and leasing for BioMed, said the company is confident in its ability to replace Vertex because of the high volume of prospective tenants and their relatively specific space needs in the Boston area.
According to BioMed, as of the end of the second quarter some 15 prospects were searching for about 2 million square feet of space, 1.5 million of which are in Cambridge and the rest in Boston. Those volumes are consistent with past quarters, though Gold acknowledged that lease deals are taking longer to complete.
Tenants “want to see what’s going to happen with the election, and they want to see what’s going to happen with the economy,” Gold said during the call. “I think those are the reasons for things taking a little bit longer than we anticipated, but we are still very excited about all the demand we see across the board.”
Of the 600 square feet that Vertex leases from BioMed in Cambridge, the largest is a 290,000-square-foot chunk of the 301,919-square-foot 675 West Kendall St., also called Kendall A. That lease has 10 years to go.
Tenants “want to see what’s going to happen with the election … [and] with the economy … but we are still very excited about all the demand we see across the board” in Boston/Cambridge.
Set to expire in 2010 is a 190,000-square-foot space at 200 Sidney St., and the drug maker’s 100,000-square-foot headquarters at 130 Waverly St. The firm also leases 21,000 square feet at 21 Erie St. that is set to end in 2012 for which it has an option to extend for two additional consecutive five-year terms, according to recent Vertex quarterly filings with the US Securities and Exchange Commission.
Vertex also leases from BioMed an 81,204-square-foot building in San Diego.
According to Gold, BioMed could benefit from a Vertex departure by raising its rent with a new tenant above the pharma’s average rent of about $40 per square foot triple net.
Cambridge has the Boston region’s priciest life-sci rents, with an average asking price for existing space hovering around $53.51 per square foot triple net during the second quarter, according to the commercial real estate brokerage Jones Lang LaSalle. Newly built lab space in the city can lease for as much as $70 per square foot triple net
“If they [Vertex] were to leave their project, there is very high-quality built-out laboratory space that is below market,” Gold said. “Generally I would say none of the assets would be going into a redevelopment type mode; they would all be in a re-leasing mode.”
During the second quarter, BioMed has averaged 20-percent-higher rents across its portfolio on lease renewals compared with previous leases,, McDevitt said.
While the fate of its Cambridge properties remains to be seen, BioMed said several of its other sites nationwide, including those in Boston, will be completed. In Boston’s pricey Longwood Medical Area, BioMed said, it is completing the $700 million Center for Life Science | Boston, an 18-story, 703,000-square-foot life-sci building with four anchor tenants: Beth Israel Deaconess Medical Center, Dana-Farber Cancer Institute, Children’s Hospital Boston, and the Immune Disease Institute, which changed its name earlier this year from the CBR Institute for Biomedical Research to better reflect its principal research programs.
During the second quarter, Gold said, BioMed delivered to the four a total of 241,000 square feet of completed space after securing temporary certificates of occupancy in Q1.
“Based on our achievements thus far, we remain very confident that we will be able to deliver the balance of the leased space to these tenants by the end of the third quarter,” Gold said on the conference call.
Elsewhere in the US, Gold said:
- In San Diego: Illumina took partial occupancy in July of an 84,000-square-foot lab/office facility at BioMed’s Town Centre Drive campus; the REIT extended its 47,000-square-foot lease with Ambit Biosciences at 4215 Sorrento Valley Blvd. by more than five years to 2014; the REIT signed its first lease at the 72,192-square-foot University Science Center since expanding and renovating the property at 3545 John Hopkins Court with an undisclosed tenant taking 21,000 square feet.
- In Tarrytown, NY: The core and shell of two new buildings totaling 230,000 square feet have been substantially completed at The Landmark at Eastview R&D/office campus, located nearly 30 miles north of New York City. The buildings have been leased to Regeneron Pharmaceuticals.
- In Rockville, Md.: BioMed agreed to terms with Novavax, a developer of vaccines against infectious diseases, on an early extension of the company’s 51,000-square-foot lease at 9920 Belward Campus Drive. The lease was originally set to expire in 2013, but instead will end in 2017.
- In Seattle: BioMed has substantially completed core and shell construction at the $35 million, 94,000-square-foot Phase 1 of the Fairview Research Center at 530 Fairview Ave. North.
- In Trooper, Pa.: An undisclosed tenant inked a lease for nearly 17,000 square feet at the previously vacant 27,750-square-foot 2600 Eisenhower Road.
BioMed’s largest lease during the second quarter was signed not by a life-sciences company but by DayStar Technologies, a maker of photovoltaic products that agreed to a 10-year lease for 144,000 square feet at the REIT’s Pacific Research Center in the San Francisco area’s East Bay community of Newark. DayStar will move from Santa Clara, Calif.
“We are seeing significant interest because of the lower cost attribute of PRC compared to what is being offered on the Peninsula side” of the San Francisco Bay Area, Gold said.
McDevitt said BioMed expects an equally strong second half of 2008, even as the economic slump slows the pace — if not the amount — of leasing activity.
“The impact of the broader economy is causing leasing transactions, particularly for large leases, to take more time,” McDevitt told analysts during the conference call. “That said, the limited availability of Class A lab space, the demand for research space is evidenced by the sustained general volume of property tours, LOI [letter of intent] and lease negotiations and the competitive advantages for specific property type gives us confidence that we will continue to deliver results in our leasing program.”