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Michigan Region Reeling From Pfizer Flight Can Learn From a Kindred Chicago Suburb

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As Ann Arbor, Mich., ponders its future after Pfizer early next year shuts down its 177-acre campus and eliminates more than 2,100 jobs in the city [see BioRegion News, Jan. 14], a Chicago suburb that faced a similar fate may offer some solace.
 
In 2003, when city officials in Skokie, Ill., learned that Pfizer would leave its 23-acre Pharmaceutical R&D campus there and idle 1,200 jobs, as part of a larger pullout from the village, they encouraged Pfizer to sell the site to Cleveland developer Forest City Enterprises, whose Science + Technology unit had plans to turn the structure into a multi-tenant commercial campus intended to attract life sciences and other technology companies.
 
Pfizer sold to Forest City, which began converting the site in 2005 into the current Illinois Science + Technology Park. Earlier this month, Forest City trumpeted its latest real estate win in Skokie when Evanston Northwestern Healthcare said it would increase its existing footprint on campus by nearly 20 percent, or more than 24,000 square feet.
 
ENH had been occupying 130,000 square feet for call and data centers and offices and training space since it became a tenant in 2006. Earlier this month, Forest City announced ENH had inked a lease for 24,218 additional square feet for offices and conference and meeting areas.
 
ENH currently occupies 6,000 square feet of this additional space and is set to move into the remaining 18,000 square feet on March 1.
 
ENH is one of several tenant businesses that Forest City has drawn to the science-tech campus over the past two years since it bought the site from Pfizer in 2005 for $43 million. Since then it has raised occupancy to almost 50 percent following a year of marketing campaigns. As of Dec. 31, 2007, Forest City spent around $77 million (not including the purchase price) to renovate, modernize and market the campus.
 
“We think that phase one, which is really the buildings that we’re working on right now, is really a $200 million proposition,” Tom Prescott, senior vice president with Forest City Enterprises and director of development at Illinois Science + Technology Park, told BioRegion News. That amount “could easily be another $350 million,” he added, if Forest City proceeds with plans to build more than 1.3 million square feet of new space at the campus — though a decision to do so will depend on market activity.
 
“We think of it in terms of being a $500 million to $600 million project,” Prescott said of the overall science-tech park development.
 
Following Pfizer
 
Forest City’s success with the Skokie site is being watched closely in Ann Arbor. Michael Finney, president and CEO of Ann Arbor SPARK, the region’s public-private economic-development agency that focuses on life sciences, automotive R&D, and software/information technology, told BRN earlier this month the group expects the Pfizer site to be redeveloped for multiple tenants.
 
“We view this [Ann Arbor] as a similar opportunity” to what Forest City faced in Skokie, Finney said in an interview. “Our expectation is that it will be a multi-tenant facility. I’m not aware of any single users that have made their interest known.”
 
Pfizer has hired real-estate firm Staubach to find a buyer for its Ann Arbor campus, which consists of 27 buildings built between 1960 and 2005 totaling more than 2 million square feet. The property also comprises about 29 undeveloped acres “with corner frontage creating significant redevelopment potential,” Staubach wrote in a promotional brochure.
 
“They [Pfizer] are in the process of leaving an absolutely first-class site,” Finney said. “It’s such a high-quality site Pfizer had invested from $400 million to $500 million in it over the past two years.”
 
That range of figures reflects a six-year Pfizer project, announced in 2001, to refurbish the Ann Arbor facility at a cost of between $600 million and $800 million. In return for the project and a promise that it would create 600 new jobs, Pfizer received a Single Business Tax credit from the state valued at $25.8 million over 20 years, a 12-year abatement of its state education tax valued at $10.7 million, and a 12-year, $47.7 million property tax abatement from the city of Ann Arbor.
 
“This opens what should be a great new chapter in our ongoing partnership with Pfizer,” Ann Arbor Mayor John Hieftje told Business Facilities magazine in 2001.
 
In Skokie, by comparison, Forest City received a $5 million state grant, as well as $10 million from the village government generated by proceeds from two general obligation bond issues supported by a new Tax Increment Financing district. The state and village subsidies were tied to Forest City’s promise to create at least 3,250 jobs on site, more than double the 1,500 Pfizer jobs lost as a result of its shutdown.
 
Pfizer left behind a Skokie campus of about 1 million square feet. The drug giant inherited the campus in 2002 after acquiring Pharmacia for $57 billion. Three years earlier, Pharmacia took control of the building after merging with GD Searle, which used the campus to study products ranging from NutraSweet to Celebrex to the first oral contraceptive. Searle maintained the campus a few miles from its headquarters, also in Skokie, at 5200 Old Orchard Road, where 300 additional employees were based.
 
Soon after acquiring the campus from Pfizer, Forest City demolished eight buildings totaling more than 300,000 square feet and retained the remaining 660,000 square feet spread among five buildings that included a central power plant building and four R&D/lab buildings. The campus’ 1,000-car garage was also spared from demolition.
 
Forest City has rights to develop on the campus as many as 1.3 million additional square feet of new space in five new buildings, which would swell the science-tech park to 2 million square feet.
 
“It’s really dependent on the success we have, so we’re trying to keep an inventory of space available, ahead of the curve, if you will,” Forest’s Prescott said. “I think we’re looking at this as a long-term perspective, but we haven’t really assigned a specific time frame to that. It’s more market dependent.”
 
Tenants at the science-tech park occupy 250,000 square feet within three buildings totaling 515,000 square feet. The fourth building is a 150,000-square-foot vivarium yet to be redeveloped, pending the outcome of talks now in progress with prospective tenants. “We think that we will lease that entire building to one entity at some point in time, but we’re not quite there yet,” Prescott said.
 
As a vivarium user emerges, followed by construction and leasing of future buildings, Forest City expects to fill them with a collection of tenant businesses along the lines of its current mix. Asking rents range from $14 per square foot net for office space to $25 per square foot net for a mix of office and lab space to $35 to $37 per square foot for space in the campus’ 160,000-square-foot all-lab building, where the science-tech park has its offices.
 
Of the space still available, 80 percent is lab or lab space with adjacent office space intended for researchers.
 
Science + Technology Park tenants include Astellas Pharma, Midwest BioResearch, Thermo Fisher Scientific, and nanotech companies NanoInk, Nanotope, Polyera, and NanoBusiness Alliance.
 
Those companies are a small slice of the 200 companies, including contract researchers and contract manufacturers, engaged in the life sciences statewide, according to the Illinois Biotechnology Industry Organization, which also said those companies receive support services from another 114 businesses.
 
“The one thing we’re trying to not be is an incubator,” said Prescott. “We have some younger startup companies, but generally those are companies that have received some significant first-round financing, so they are beyond the incubator stage.”
 
Forest City also wants to house in Skokie new offices spawned by divisional or product-launch spinouts of established companies. One such company is Astellas, Japan’s second-largest drug maker, which moved into the science-tech park after seeking a satellite office close to its US headquarters in nearby Deerfield.
 
Astellas and the other tenants represent the fruits of a year of active marketing of the campus, following approvals, demolition, renovations, and infrastructure improvement that took more than two years.
 
“For our science and tech park, life sciences is a component, but [tenants] could come from a lot of sectors,” said Prescott. “It could be bioscience, it could be pharmaceutical. We do have a lot of nanotechnology companies here. We’re talking to some software companies.”
 
That allows Forest City to better tap into early-stage companies in the various tech specialties nurtured by area universities. For instance, all of the campus’ nanotechnology tenants have spun out of Northwestern University in neighboring Evanston.
 

“The one thing we’re trying to not be is an incubator.”

The distance to the school — five miles — marks an exception to Forest City’s conventional practice of locating science-tech parks adjacent to or in partnership with major university campuses.
 
“We viewed this as a rather unique opportunity because of the infrastructure that’s in place with all the lab components, the fully completed lab space that’s really in pristine condition here that Pfizer left behind when they vacated,” Prescott said.
 
By embracing area universities, Forest City backfilled Skokie with a broader mix of tenants than what it has envisioned for the campus. According to its website, the campus “will serve as a catalyst to transform Illinois from a scientific research hub to an economic engine for bioscience technologies.”
 
Proximity to Northwestern is just one strength of the Skokie science-tech campus, said David Miller, the president and CEO of iBIO and the separate iBIO Institute, which focuses on education and training.
 
Miller told BRN that another strength is itsproximity to incubators and research programs of other schools, including the University of Illinois at Chicago, and the University of Chicago in Hyde Park, Ill. Further north in Lake County is a concentration of life science managers, many of whom he said have migrated to biotech clusters on the West Coast. For those managers and others, the campus is just 5 miles southwest of Chicago O’Hare International Airport, he added.
 
“I think when folks get to a certain size, or if they are developing specialities, they may come up there,” from incubators at the universities, Miller said. “I think it will be a natural transition from the incubator spaces to marry the technology with the management talent that’s up in Lake County, though if they’d rather live in Hyde Park, they’ll be able to do that. And if they want to live in the city [of Chicago], it won’t be that hard.”
 
An economic-impact report prepared in 2005 by Forest City consultant Applied Real Estate Analysis sought to quantify that optimism with the actual potential for life sciences activity in Skokie.
 
The 47-page report, which can be read here, concluded that Forest City’s multi-tenant campus could generate $1.8 billion in total statewide economic activity and create 3,250 direct jobs toward about 14,000 total new jobs statewide. The jobs data were based on an employment multiplier of 4.24. They did not include 1,000 construction jobs.
 
“The proposed Illinois Science + Technology Park will enhance Illinois’ competitive position in gaining federal funding and enable the state to keep and attract top scientists, technicians, and entrepreneurs,” the economic analysis predicted. “It will reverse current conditions in which the economic benefits of research conducted in Illinois [relocate to] the coasts,” namely the Boston-Cambridge, Mass., region and the San Francisco Bay Area.
 
“With this project and the availability of approximately 700,000 square feet of existing wet lab and supporting facilities, there will be an immediate doubling of Illinois’ current supply of research and development facilities,” the analysis concluded. “This will give Illinois significant momentum toward establishing itself as a base for bioscience innovation and marketing, stopping the ‘brain drain’ and securing the state’s future as one of the nation’s top bioscience clusters.”
 
Fueling some of that optimism was the fact that Pfizer sold its Skokie R&D campus to Forest City in the same roughly one-year period that Japanese-owned Takeda Pharmaceutical chose to build its Global Research and Development Center in Deerfield, Ill. — where another Japanese pharma giant, Astellas agreed to build its North American headquarters — and specialty pharmaceutical and drug delivery company Hospira chose Lake Forest, Ill., over Wisconsin as the site of its HQ after it was carved from the global hospital products business of Abbott Laboratories.
 
“I call it the year of the grand-slam home run,” Miller said.
 
Since the report was released, the pharmaceutical industry nationwide has struggled, though Prescott said that that development played a minor role in Forest City’s decision to focus on faster-growing segments such as nanotech, where Northwestern has especially pushed to commercialize new discoveries in recent years.
 
But it did play a role all the same: “Did we have [nanotechnology] at the top of our list in terms of target markets when we bought the campus?” Prescott said. “Probably not.”
 
Skokie’s concentration of life sciences companies isn’t large enough to spill over into downtown or other commercial sites, let alone fill the campus, said Tom Thompson, the village’s economic development coordinator.
 
Thompson told BRN that Forest City’s redevelopment has benefited Skokie in ways that go beyond cluster-building. For instance, the campus has compelled the Chicago Transit Authority to build a new stop in the village’s downtown for its “Skokie Swift” elevated line. The new stop will be next to the science-tech park.
 
“This will be a destination station because of the research park and because of the rejuvenated downtown,” Thompson said.
 
The Forest City redevelopment has also raised land values and stoked redevelopment of nearby properties, he added. “What’s happened with the research park is that there’s a lot more interest in redeveloping property, particularly for a mix of commercial and residential uses.”
 
For example, a half-block from the southern end of the science-tech park, Metropolitan Development Enterprises of Niles, Ill., last year completed a mixed-use project with 61 luxury condominium apartments and 22,598 square feet of street-level retail space.
 
As of Jan. 18, the project’s website advertised a 3-bedroom, 2-bathroom condo whose asking price will be $424,800. Six cheaper units remain, all of them 2-bedroom, 2-bathroom units selling for $353,800.
 
Those prices are well above the $267,000 median price for a condo in Cook County recorded during the third quarter. The median price includes prices in Skokie, which were up 8 percent year over year, according to the Illinois Association of Realtors.
 
“It’s one of those developments that maybe would have been built anyway, but certainly was planned in response to the research park,” Thompson said.
 
While the real estate market softened over the past six months, Thompson said, “we’re still talking to developers very regularly.” Some believe that even with the housing slump, the market will be solid enough to justify development [of additional space by Forest City] if the science-tech park grows as planned, he said.
 
Among those are Chicago-based Prinmar, which has proposed building 225 condos and 112,500 square feet of retail space in a 156-foot-tall building in Skokie. The proposal surfaced earlier this month after the village reached an impasse in talks with a developer it selected last May.
 
Skokie isn’t the first place where Forest City has shifted strategy for a tech park in mid-project. In Cambridge, Mass., the developer originally envisioned its University Park campus as a mecca for software companies, before adjusting to the market and pursuing more life science tenants.
 
Forest City remains just as committed to drawing life science companies in Skokie, Prescott said. He termed “terrific” the reception to the campus from the Skokie region’s life science community, but added: “The challenge has always been translating that excitement into signed leases.”

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