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Chicago REIT to Start 6M-Sq.-Ft. R&D Space In Florida; First Phase to Be Built On-Spec

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Two developments taking shape in recent days in Florida hold the brightest hope yet that the state will finally attract the critical mass of life science businesses it has long sought for its budding biotech cluster.
 
First Industrial Realty Trust, a Chicago-based real estate investment trust, last week said it plans to start construction later this year on the first phase of the 6.2-million-square-feet of research and development space it has rights to build at First Park South Florida in Palm Beach County. 
 
First Industrial has renamed the former Palm Beach Park of Commerce after acquiring 537 acres of the 1,230-acre research park last month.
 
First Industrial has yet to decide how much it will build of the first-phase space, which would be built on spec. The construction is an attempt by First Industrial to meet demand for R&D space that it said has come principally from biotech and biomedical companies wanting to relocate to the Sunshine State, Jeremy Shapiro, senior regional director of First Industrial’s South Florida office in Miami, told BioRegion News.
 
“We’re probably going to have a couple of buildings going up by the end of the year,” Shapiro said.
 
The company has yet to decide exactly how much space it will build and asking rent has yet to be set. Shapiro said the space could also consist of offices and office-warehouse “flex” uses, as well as research, and could be leased to companies outside the life sciences.
 
“The ultimate breakdown of the type of product that will be built will be market driven,” he said.
 
Palm Beach County has no ready-to-occupy space specifically for biotechs, though several light-industrial properties could be retrofitted to attract such businesses, said Kelly Smallridge, president of the Business Development Board, the private not-for-profit group that serves as Palm Beach County’s economic development organization.
 
“The bigger companies want anywhere from 50,000 to 100,000 square feet of space,” Smallridge said. “You can find that here and there, but it’s not lab space with all the requirements.”
 
First Industrial teamed up with the California State Teachers’ Retirement System to acquire the property from S&K Worldwide Realty. The Palm Beach Post reported the purchase price to be $162 million. First Industrial, which announced the deal June 4, would not confirm the figure.
 
First Industrial has set a $750 million spending goal this year on land purchases and development starts for the First Park South Florida project, president and CEO Mike Brennan said June 5 at the National Association of Real Estate Investment Trust Investor Forum.
 
Shapiro said First Industrial was attracted to the property because it was one of the last developable sites of its size in southern Florida. Population and jobs have migrated north from Miami to Broward County and to Palm Beach, yet development there is constrained by the Everglades and Atlantic Ocean.
 
“We’re pretty much tapped out on available entitled land,” Shapiro said. “People are still moving here [because of] employment, quality of life, the ports, proximity to Latin America and the Caribbean, and the bioscience that’s coming in specifically to the Palm Beach area,” Shapiro said. “This is just a natural.”
 
On its Web site, S&K said the property includes more than 350 acres intended for light-industrial use, and 100 acres each for general industrial and commercial use.
 
S&K continues to own the remaining 693 acres of the business park, which it has marketed under the name “Florida Research Park: The Heart of Florida Biotech.”
 
Robert Weisman, Palm Beach County administrator, said S&K recently cleared a hurdle to new development at Florida Research Park and what is now First Industrial’s property when it persuaded the state not to require the widening of Beeline Highway, which passes near the property.
 
“They’ve been working with us on updating their development approvals,” Weisman said. “The biggest issue outstanding was traffic impacts on the main road that was outside of the park.”
 
First Industrial will use 40 to 60 acres along Beeline Highway for an as-yet-undetermined amount of retail space, and possibly an extended-stay hotel. Both would be marketed as amenities to the research park, Shapiro said.
 
REITing Florida
 
Headquartered in Chicago, First Industrial is a publicly-traded REIT that owns and manages more than 100 million square feet in 30 US markets and Toronto, including 2.2 million square feet in Florida.
 
First Park South Florida’s potential 6.2-million-square feet would be more than half of the new space the company could build in Florida. “We can probably build about 10 million square feet in that particular market,” Brennan said at the NAREIT conference.
 
The company reported first-quarter earnings of $57.1 million, up 16 percent from $49.2 million in the first three months of 2006, on revenues of $118.9 million, up 34 percent from $88.6 million a year ago.
 
First Park South Florida is part of an 8-million-square-foot “overlay” zone of properties designed for biotech use because it lies near a key anchor of Florida’s biotech cluster: the Scripps Florida campus within the Jupiter campus of Florida Atlantic University.
 
On March 9, Scripps held its second groundbreaking in two years for a permanent Florida facility — three buildings totaling 350,000 square feet of laboratory and administrative space now under construction within a 100-acre portion of the university campus. The facility is set to open in 2009.
 
Scripps now employs about 200 professionals who work in 74,000 square feet of temporary lab space in two buildings at the university.
 
Scripps illustrates Florida’s success, and struggles, in building a biotech cluster. In October 2003, then-Gov. Jeb Bush successfully wooed Scripps to build an East Coast institute in his state after prodding state and local lawmakers into approving more than $500 million in incentives, including land.
 
On Sept. 23, 2005, Bush led beaming officials in breaking ground on a $137-million, 100-acre campus at Palm Beach County’s undeveloped Mecca Farms property. The celebration was premature. Soon after, a set of lawsuits filed by environmental advocates killed the project, and county commissioners voted to relocate Scripps’ permanent campus to the university.
 
Scripps is the largest of three research institutes drawn to Florida. The other two are the Torrey Pines Institute for Molecular Biology is building a new $40-million, 100,000-square-foot research center in Port St. Lucie, using $100 million in state and local incentives. When completed in 2009, Torrey Pines, based in San Diego, will relocate to the new site and employ 190 people.
 
And in Orlando’s master-planned community of Lake Nona, the Burnham Institute for Medical Research in October plans to break ground on an $80-million, 50-acre, 175,000-square-foot facility where a projected 300 professionals will be based over the next seven to 10 years. Last month Burnham announced its first three hires for the new facility, set to be completed in 2009.
 
State and city governments have approved $367.2 million in incentives for Burnham, which will move next month into temporary space within 14,000 square feet donated by Florida's Blood Centers at its building within Orlando Central Park.
 
Incentive Programs Target Smaller Biotechs
 
While Palm Beach County shelled out about $300 million for Scripps, the Business Development Board’s Smallridge said the county has a variety of programs to attract smaller companies.
 
Among these is the Job Growth Incentive Fund, which awards grants of between $25,000 and $500,000. Fund guidelines call for awards of $500 to $900 per job for companies in pharmaceutical, “science/technology,” and seven other targeted categories where employers maintain 50 to 99 jobs and promise to keep those jobs at least 36 months.
 
The per-job subsidy rises to $2,000 for companies of 250 or more employees that promise to keep those jobs 72 months. County officials can offer slightly larger awards.
 
Palm Beach County also offers ad-valorem tax exemptions of one to 10 years on improvements to real property and/or tangible personal property not already on the county tax roll, under a 10-year program to expire in August 2014. Eligible are manufacturing businesses of 10 or more employees, businesses of 25 or more employees that generate more than half their sales outside the county, companies of 50 or more employees that occupy office space in the county, and any company moving to a reduced-tax “enterprise” zone, except retailers.
 
Scripps’ arrival in Florida has resulted so far in a handful of businesses with life sciences specialties moving into Palm Beach County. Among them are the venture capital firm BioCatalyst, which moved its headquarters last year from Charlottesville, Va., to West Palm Beach; BioTools, a provider of life sciences instruments and niche services that moved in 2005 to Jupiter from Waucanda, Ill.; and Dyadic International, a biotech company that in 2005 moved its headquarters and R&D lab within Jupiter to Abacoa, a master-planned community of managed by medical real-estate planner Rendina Companies.
 

“People are still moving [to the Palm Beach area because of] employment, quality of life, the ports, proximity to Latin America and the Caribbean, and the bioscience that’s coming in specifically.”ere

“The bigger impact has been in terms of what’s within the pipeline,” Smallridge said. “There are three not-for-profit research institutes looking at our county as a result of Scripps. It’s going to take many, many years to develop this cluster. Scripps jumped us ahead, I’d say, 10 years.”
 
One of the three institutes, she said, would be larger than Scripps. Smallridge would not name any of the three, but said their decision to come to Florida hinged on whether they could line up state and county incentives.
 
Pan Handling
 
Florida has gained momentum in both public research funding and private venture capital in recent years. Between 1998 and 2006, the amount of NIH grant money received by state institutions more than doubled from $160 million to $336.9 million. As with 40 other states, Florida’s NIH income dipped after 2005, when the state racked up $372.4 million..
 
During the first quarter, the state netted a total $45 million in venture capital from a single deal, just under the $48.1 million racked up in four deals from all of last year, according to Dow Jones VentureOne and Ernst & Young.
 
“It’s still early, but there’s a lot of momentum there, and they have the technology base,” Garheng Kong, a partner with Intersouth Partners, a venture capital firm in Durham, NC, told BioRegion News. “It takes time [to develop the critical mass of] people, the recycled entrepreneurs, and then the money and the financing can get there pretty quickly.”
 
Intersouth joined with three other firms to raise $20 million in November 2003 for Applied Genetic Technologies Corporation of Alachua, a spin-off from the University of Florida.
 
Florida’s VC numbers should continue to grow if, as expected, Bush’s successor, Gov. Charlie Crist, signs several bills intended to make the state more attractive to biotechs.
 
One set of bills calls for more than $450 million in incentives sought by Enterprise Florida, a public-private group that promotes the state.
 
Among those incentives:
  • A $250-million “Innovation Incentive” available for the state to attract private businesses and nonprofit institutes, up from $200 million last year;
  • $100 million for the state’s nine centers of excellence, four of them in life sciences, up from $30 million last year;
  • $45 million, same as last year, in “Quick Action Closing” funds for use at Crist’s discretion to reel in companies when other state and county incentives produce a smaller incentive package that competing states;
  • About $14.7 million in tax refunds for biotechs and other companies in “qualified target industries.” Such companies can qualify for tax refunds of $3,000 per net new full-time equivalent Florida job created, or $6,000 if located in an Enterprise Zone or Rural County. Businesses receive an extra $1,000 for each job paying 150 percent of the state’s average annual wage, and an extra $2,000 per job paying 200 percent or more of average annual salary; and
  • $12.5 million, same as last year, comprising the entire operations budget of Enterprise Florida.
Bill ‘Marries’ Universities, VCs
 
Another bill Crist is expected to sign (HB 83) would set aside $35 million for two programs intended to spur more creation of spin-off companies using intellectual property developed at state universities.
 
The bill creates a $31-million private nonprofit Florida Opportunity Fund to invest in seed and early-stage venture capital funds, with those funds having to match, at least dollar-for-dollar, what the state invests.
 
The measure also sets aside $4 million for the state university system to create a new State University Commercialization Assistance Grant Program. The three-phase program would allow state universities to fund early-stage company formation and marketing costs based on publicly funded research.
 
In the first phase, according to HB 83, state universities could seek up to $50,000 per project for “early market research, independent evaluation, consultation, and other initial activities” toward a business model for new technology. In the second phase, grants of up to $100,000 would be awarded “to assist with the development of a complete business plan.” In the third, grants of up to $250,000 “shall be available for the implementation and execution of a completed business plan.”
 
Second- and third-phase grants require a dollar-for-dollar match by private investors.
 
“I am trying to create a marriage which doesn’t currently exist in the state of Florida between the early-stage VC community and the universities,” state Sen. Jeremy Ring (D-Parkland) told BioRegion News sister publication Biotech Transfer Week.
 
The remaining $1 million of bill funds would create a new Institute for the Commercialization of Public Research linking the state’s public universities with venture capitalists. The institute would be based at an as-yet-undecided location in south Florida.
 
HB 83 “is a good first step for the state,” Jack Sullivan, president and CEO of the Florida Research Consortium, said in an interview with BioRegion News. The nonprofit consortium joins the state’s public and private universities, businesses, state government, regional, and statewide business groups.
 
Next year and beyond, he said, the state plans to spend more than $4 million on the commercialization-assistance grant program so it can fund the proof-of-concept and prototype development sought by private investors.
 
“There are lots of good ideas and things that can be built on to improve how we commercialize research in the state,” Sullivan said.

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