California-based REIT HCP Incorporated, formerly Health Care Property Investors, is considering whether to break ground next year on new life sciences space in the San Francisco Bay Area and San Diego region after it recorded stronger-than-expected leasing activity in those areas in the four months since it acquired a 466,000-square-foot portfolio from Slough Estates Group for $2.9 billion and signaled its entrée into the lab market in those regions.
Addressing analysts last week on its third-quarter earnings conference call, HCP chairman and CEO Jay Flaherty said the company plans to finish building at least the 466,000 square feet of lab space spread among five South San Francisco buildings that Slough Estates had planned to complete in 2008.
Forty-nine percent of that space, or 228,340 square feet, has been leased to Genentech, which plans to occupy the space in the first quarter of 2008. The remaining 51 percent, or 237,660 square feet, has been leased to Amgen, which plans to move in during the fourth quarter. Not including the space under construction, Amgen occupies three South San Francisco buildings totaling about 270,000 square feet.
The 466,000-square-foot space, part of the Oyster Point campus in South San Francisco, is part of Slough Estates’ development pipeline of 3.8 million square feet the company has committed to build in both regions; as well as another 3.3 million square feet in as-yet-unscheduled future development phases elsewhere in South San Francisco and San Diego County.
British-owned Slough Estates, known as Segro, sold the 466,000-square-foot pipeline to HCP, as well as 5.2 million square feet in 83 properties in South San Francisco and San Diego, on Aug. 1 [BioRegion News, Aug. 20].
Since his company’s acquisition of Segro’s parcel became public, Flaherty said that stronger-than-projected demand for life sciences space in the Bay Area and San Diego has prompted HCP to reconsider its original plan of holding off on new construction next year.
“In light of the tightness in the Bay Area, and the improving fundamentals in San Diego, and the success we’ve enjoyed, we’re re-looking [at] our 2008 plan relative to development, which [except for] the Genentech and Amgen buildings identified, actually had no ‘08 starts planned at the time we closed the transaction,” Flaherty said during the company’s earnings call. “We’re re-evaluating that plan now.”
He added that HCP executives “expect to be up in those markets in the next several business days with our partners” to assess what, if any, new construction the company should carry out.
Even after construction is completed, Flaherty said Amgen will sublease “some” of the space and occupy the remainder. The planned sublease would be the second in the region for Amgen. Over the summer, the biotech giant hired the brokerage GVA Kidder Matthews to find tenants willing to lease from Amgen all or part of 365,000 square feet of space in three South San Francisco buildings it was set to occupy. The buildings are located at 1130 Veterans Blvd., and 331 and 333 Oyster Point Blvd.
The subleases are part of Amgen’s cost-cutting effort, announced last August, which includes eliminating 2,600 jobs and saving $1.9 billion in expenses [BioRegion News, Aug. 20].
Amgen’s restructuring “has changed many of our facility plans and projects. We have postponed indefinitely the majority of the South San Francisco build out.”
“Our restructuring has changed many of our facility plans and projects,” Amgen spokeswoman Sandee Irwin told BioRegion News via e-mail. “We have postponed indefinitely the majority of the South San Francisco build out.”
Irwin said Amgen is also studying whether to occupy another South San Francisco building, a 68,000-square-foot research facility at 1140 Veterans Blvd. previously occupied by Raven Biotechnologies.
With all of Amgen’s sublease space in need of filling, “I would venture to say [HCP] is not going to build anything right now,” John Minervini, executive director with Cushman & Wakefield, said in an interview.
HCP used the conference call to highlight leasing successes in the months since announcing its intent to acquire Segro’s US portfolio. Since June, HCP has closed on a combined 708,000 square feet of leases in South San Francisco and San Diego. The REIT said 299,000 square feet of that total related to new or renewal leases on previously occupied space that resulted in an 80-percent increase in rents over the leases that expired.
Among recent deals: At the Lusk campus in San Diego, HCP said it has filled much of the 140,000 square feet vacated by Irish-based biotech Elan, as Helicon Therapeutics signed a lease for 80,000 square feet representing the majority of the lab space; and NuVasive recently signed for 60,000 square feet of office space. The campus is owned by a joint venture of HCP and biotech space developer Dan Ryan’s Veralliance Properties.
“As for the why and how, I think it's been a combo of market timing and deal savvy,” Greg Bisconti, vice president/principal with Burnham Real Estate, whose firm represented HCP in the Scripps Health lease, wrote to BioRegion News in an e-mail.
HCP retained Segro’s leasing team of Marshall Lees, Jon Bergschneider, and Randy Rohner, a decision that contributed to the company’s recent leasing success, Bisconti said.
“[The leasing team] has always been particularly aggressive and creative in pursuing tenants,” he wrote. “HCP has been very receptive to the leasing teams and realistic about market expectations.”