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Buck Institute Working on Two Plans to Finance $41M Novato Campus

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By Alex Philippidis

The Buck Institute for Age Research said this week it is working on a pair of plans to secure financing for the $41.4 million laboratory and support building planned for its Novato, Calif., campus — a project to be partially publicly funded through California's stem cell agency — following a year of delays wrought by the economic downturn.

Buck is awaiting word from Washington on its application for a $15 million facilities grant through the American Recovery and Reinvestment Act, the $787 billion economic stimulus measure enacted in February by President Obama. The institute expects to receive an initial score in October, and a final disposition by December on its application for grant funds to build the 65,708-square-foot second research building.

If Buck is turned down for ARRA money, the project could still be built through a new bond of up to $80 million, James Kovach, the institute's president and chief operating officer, told BioRegion News on Thursday.

"Our intent is to do everything we can to get the building up," he said in an interview. "It depends on the numbers, and it depends on a lot of variables right now. I can say we're going to do our absolute best. … We're going to do everything possible to get the building built."

Kovach said Buck recently issued a formal request for proposals from prospective lenders interested in underwriting the second research building. Buck, a private research institution focused solely on aging and age-related disease, would use part of the proceeds to retire an existing $55.6 million bond with a variable interest rate set week-to-week based on the financial market, and use the remainder for construction and equipment costs for the project.

The institute expects to select one or two lenders for the new financing.

"The idea is to find out what our score is, and how much equity we're going to get through the grant — to hope for the best, which would be the full grant, but prepare for the worst, in terms of having the option to issue through the bond the differential to actually get the building built," Kovach said.

"We're trying to run in parallel [with the stimulus fund review process] and basically make a decision in the next month or so," followed by the writing of the bond prospectus, he said.

"We will have made the decision at about the time we're finding out the initial score of the grant, then we'll be writing the prospectus" during the eight-week window between the initial score and final disposition of the ARRA grant request, Kovach added.

Whether through ARRA or a new bond, the financing would help pay for a facility designed to house up to 25 faculty members, including 12 new principal investigators, along with a cell banking facility, a cafeteria, and fitness center.

The cell banking facility would take up "6,000 to 7,000 square feet. Minus 80 freezers, you could store thousands of cell lines in that," Kovach said. "The need is out there because there is no public biorepository on the West Coast that is as high in quality as the Coriell Institute" for Medical Research in Camden, NJ.

He said Buck's planned biorepository will also have the advantages of its location, on a granite mountain that meets earthquake-resistant building codes, and within a 30-minute drive from two airports, making it convenient for researchers.

The institute originally envisioned breaking ground in September 2008 for the lab/support building, designed as an addition to Buck’s existing 185,000-square-foot research facility [BRN, June 6, 2008]. But as the financial markets soured last fall, Buck, as with many institutions planning facility projects, found it harder to raise the funds it needed for a groundbreaking, resulting in the institute delaying its construction and talking with prospective partners about financing alternatives. [BRN, Oct. 6, 2008].

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Buck had received a letter of credit from the Bank of New York when it issued the original $55.6 million in tax-free bonds, since the institute lacked its own bond rating. When the financial markets froze last year, the bank got out of the letter-of-credit business, telling the institute it would not renew the letter in 2012 as originally planned.

Also, the original bonds were issued on the basis of an interest-rate swap that replaced the institute's variable interest rate with a fixed rate at 4.99 percent. But Buck's counterparty in the transaction was a holding company of Lehman Brothers, which went bankrupt in September 2008, touching off a period of financial upheaval, and forcing the institute to find a financing alternative.

"These were areas of financial uncertainty that really made it difficult for us, and many, many other smaller and larger places to obtain funding. It was a liquidity issue," Kovach said.

'Pretty Good Record'

Buck was approved last year for a $20.5 million grant from the California stem cell agency toward the lab building. The institute will use that grant, plus whatever it gets from ARRA toward the project, with the remainder coming from the proceeds of the new bonds it is looking to issue.

That remainder, according to Kovach, will be "somewhere between $5 million if we got the whole $15 million [ARRA stimulus] grant, and $15 million extra beyond the CIRM grant to build the building."

He said the institute is also pursuing donations for the project, and has some prospective donors, but no agreements as of yet.

Buck was one of 12 institutions in 2008 to receive a total $271 million in funding from CIRM toward their projects, which total 800,000 square feet. In return for the money from CIRM, the 12 institutions that secured the grant money agreed to speed their construction schedules to ensure their facilities would open within two years, with researchers and equipment in place [BRN, May 12, 2008].

The Buck Institute project is the only one of 12 CIRM-funded facility projects totaling $271 million that has not set a construction timetable, Robert Klein, chairman of the agency's governing board, the Independent Citizens Oversight Committee, said during a Sept. 22 economic development panel discussion at the 2009 World Stem Cell Summit, held in Baltimore.

"We think in this economy [that] to have 95 percent of the projects in construction is a pretty good record," Klein said. "Eleven of 12 is tremendous work."

Two other CIRM-funded facility projects have been delayed by financing issues. Klein said San Diego's Sanford Consortium for Regenerative Medicine has won a guarantee from the University of California system for a $60 million bond to underwrite construction of its planned $100 million, 100,000-square-foot lab building, whose planned opening has been postponed to 2011. The guarantee had been held up by California's budget squeeze, he said.

The building is planned for a North Torrey Pines Road site near the facilities of Sanford's member institutions — Burnham Institute for Medical Research, the Salk Institute for Biological Studies, the Scripps Research Institute and the University of California, San Diego.

At the University of California, Santa Cruz, site-preparation work got underway last month for a 92,000-square-foot Biomedical Sciences & Engineering Facility set to house the $12.9 million CIRM Institute for Biology of Stem Cells. The institute, which has won about $7.2 million in CIRM grant funding, would occupy the fourth floor of the five-story biomedical building, being constructed with $64.4 million in proceeds from

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the sale by California of $199.9 million in general obligation bonds to the UC system, in a "private placement" transaction, in which the bonds were offered only to UC [BRN, Aug. 21].

Klein defended the CIRM facilities program and criticized an Aug. 31 Nature news article highlighting the Buck, Sanford, and UCSC delays: "I'm disappointed at the scientific press because they've taken on the public press' approach of focusing on the negative."

He said that 85 percent of the project would be completed in 2010 as originally stipulated, and that CIRM credits its $271 million in facilities spending with attracting an additional $1.1 billion in public and private funds toward construction of the projects.

"That's real stimulus," Klein declared. "Timing is very important in an economic stimulus program, because you've got to move things forward. The voters have got to see progress. And one of the things they can see is facilities being built."

"Voters who see buildings understand tangible impacts. And the construction unions understand jobs, particularly in this economy," Klein added.

Kovach said Buck can construct its project in less than two years from groundbreaking because it will be the mirror image of the institute's existing research building. "But technically, we will need an extension from the original date."

CIRM would consider an extension for Buck, which is supposed to have started construction by March 2010, since the two-year construction timeframes allow extensions from the schedule for events completely beyond the control of the grant recipients, Klein told BRN.

"With the economic revolution that went on, the Bank of New York discontinued [Buck's] bond financing. I'd say that was beyond their control," Klein said.

Buck won't decide on seeking the extension until it learns the outcome of its request for ARRA funding within the next month to three months, Kovach said.

"We finally have settled into our final strategy, and it's a very good strategy. The economy has stabilized, and the banks — you can tell when they're being very serious, which they are. They see this as a worth, high-quality deal. Their interest is there. We've been working on this a long time, and I feel like we've gone back and forth through this tortuous path," Kovach said.

"I can finally see the goal line. We're in the red zone, and that's where you like to be."

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