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Pittsburgh Life Science Shops Looking for Room May Find It In Cleveland Developer

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Life science companies scrambling to find space in Pittsburgh will soon have another option to consider: Cleveland developer Ferchill Group joined city officials Dec. 4 to break ground on Bridgeside Point II, a $46.5 million, 150,000-square-foot building expected to rise within the 48-acre Pittsburgh Technology Center in the city’s South Oakland section.
 
The center is home to Cellomics, a cellular analysis technology startup that leases all of the Ferchill-built Bridgeside Point I, as well as the Pittsburgh Life Science Greenhouse, the state-funded agency that nurtures biotech and pharma startups.
 
The new Bridgeside Point II will bring lab space to a region that prides itself on its growing life sciences sector. Pittsburgh and 12 surrounding counties account for more than 3,200 firms that employ more than 117,000 people, according to the State of the Industry Report 2007 released in June by the nearly 1,400-member Pittsburgh Technology Council, but one where life science companies have struggled to find suitable space.
 
Generators of new companies include the region’s life science anchors — the University of Pittsburgh, the University of Pittsburgh Medical Center, and Carnegie Mellon University. Health sciences funding accounted for 75 percent of the $385.7 million that Pitt received in 969 grants from the National Institutes of Health in 2005, making the university the nation’s ninth-largest recipient of NIH grants that year. In 2006, Pitt funding rose 4 percent to about $400 million in 1,024 grants.
 
The city’s Urban Renewal Agency selected Ferchill last year over a local builder, Madison Realty Group, which has complained publicly about the decision, as well as the package of state and city subsidies awarded to Ferchill for Bridgeside Point II.
 
Blaise Larkin, president of Madison Realty, told the Pittsburgh Business Times that Ferchill should not have received state subsidies without first securing a tenant. He also denied the city URA’s contention that Madison lacked sufficient financing to undertake the project.
 
A Madison representative did not return a message from BioRegion News.
 
In February, the URA agreed to sell Ferchill the 1.6-acre project site for $480,000, based on a rate of $300,000 an acre. Ferchill also owns a development option for the parking lot next to Bridgeside Point I, but has yet to submit any plan for that site.
 
Ferchill has been awarded $19 million from the URA for a 750-car garage as well as road and utility work, all to serve the project, while Pennsylvania Gov. Ed Rendell announced on Aug. 7 a $7.25 million subsidy for Ferchill under the state’s $150 million Building PA program, which requires recipients to match the funds they receive from the state.
 
Rendell’s press release noted Ferchill’s project would rise within the state Keystone Innovation Zone to promote economic development in Pittsburgh’s greater Oakland section.
 
BioRegion News last week interviewed Chris Ferchill, vice president of development for the Ferchill Group, to discuss why he decided to continue developing Bridgeside Point II, and why his company believes the Pittsburgh region has proven an easier market for Ferchill compared with its home region of Cleveland in which to do business.
 
Ferchill has acquired, developed or redeveloped more than $1.6 billion in projects in Pittsburgh as well as Cleveland, Akron, Buffalo, Detroit, and New York.
 

 
Where is the demand for space coming from that explains your breaking ground last week on Bridgeside Point II?
 
The demand is really in wet-lab space. There was a report in 2006 that said there’s a need for roughly 1 million square feet of wet-lab space in Pittsburgh over the next 10 years. The demand we really see is specific to UPMC [University of Pittsburgh Medical Center] and the University of Pittsburgh. We’ve had numerous conversations with them, in which they’ve said they’re continuing to attract high quality researchers and do not have the current office space in Oakland to house them. The congestion in Oakland is significant and they’re running out of areas to place those [startups] in high quality wet-lab spaces.
 
They’re bringing in top-notch researchers, and these guys are getting recruited by a lot of different institutions in different areas throughout the country. To get them into a space, it has to be a very high level of finish, and has to work for their needs. It’s a scenario of ‘if you build it, they will come.’
 
You mentioned UPMC. Are there other generators of spinout companies?
 
I think Carnegie Mellon is as well, as we’ve had discussions with a lot of technology companies in Pittsburgh as well. I think UPMC is a big provider of the demand. But Pittsburgh is the seventh-largest technology center in the country right now. There are a lot of growing technology companies that are growing out of their current spaces, that are providing demand for our building.
 
Where do these companies go now? Are there other buildings they fill? Do they have to move?
 
They are in current buildings that were never meant to be lab buildings. And that’s where our project kind of sets ourselves apart. We’re building this from an infrastructure standpoint to be a wet-lab building, and therefore we’re able to provide the higher ceiling heights they need, and the fume hoods. We’re able to provide an efficient layout for their bench space. We’re able to provide minimum of vibrations from the structural standpoint, so as they do their research it’s not affected. We’re able to provide the mechanical ductwork that they need to hood their operations.
 
You broke ground on Dec. 4. What is your timetable for completing Bridgeside Point II?
 
We should be able to start tenant improvement work, if we have tenants in line, about the third quarter of 2008.
 
What will the split be between lab to office space?
 
We’ve looked at this as about 70 percent lab, 30 percent office space. And that’s within each tenant’s space. It’s difficult for us to compete from an office standpoint because of the infrastructure we’ve put in to make this a lab building. If an office tenant came to us, we’d obviously entertain any office tenant. But those rents are going to be higher accordingly, based on the increase in infrastructure we’ve put in to make this a lab building.
 
What asking rents are you seeking for Bridgeside Point II, and how will it compare with Bridgeside Point I?
 
You’re definitely comparing apples to oranges when you ask me what the rent is in [Bridgeside Point] II versus [Bridgeside Point] I, because [Bridgeside Point] I was an office building. It wasn’t a lab building. You needed a lot more infrastructure after the tenant improvement work. What the new building will be is, we basically are starting at $30 [per square foot], and then depending on the level of tenant improvement, it goes up from there.
 
What types of tenants do you foresee at II, more start-ups, or more mature companies? And who is marketing that space now?
 
I think you’re going to have a mix of both, truthfully. [Commercial real estate firm] Grubb and Ellis is working with us, specifically Jeff Schultz and Mike D’Amico.
 
Who occupies Bridgeside Point I?
 
We leased all of [the facility] to Cellomics, and then they subleased part of their space.
 
What other development needs remain at Pittsburgh Technology Center, and what role will Ferchell play in filling them?
 
We really haven’t gotten involved in any other development-type need discussions other than wet-lab space at the technology park. That’s the market that we’re comfortable with. I think eventually as we continue to house more employees down there, there will be a service-based retail need — maybe a coffee shop or a drycleaner or a bank. I’m not going to begin to talk about whether there’s a hotel market there that works or what-not.
 
Can those services be carved out of Bridgeside Point II, or will they have to be within a different building?
 
I think there’s an ability to do service-type retail in the garage. Our building is strictly a lab building. If we try to put retail in it, because of the infrastructure we have to put in it, we couldn’t afford it probably. The additional development parcels there would have to support the ancillary development activity.
 
You mentioned tenant interest from spinouts. Are you seeing as much demand from more mature life science companies in the area?
 
We’ve had discussions with more mature companies. A couple of companies that we’re talking to have been in operation for over five years. So I think there are more — I don’t want to call them spinouts. They’re just smaller technology firms that are growing more rapidly today.
 
Any leases signed for Bridgeside Point II?
 
Not yet. I would expect shortly after the first of the year, we’ll start seeing some signed leases.
 
How did Ferchell get interested in building Bridgeside Point II?
 
Because of the success of Bridgeside Point I. I would go a little bit further: It’s really a result of our success in the Pittsburgh marketplace in general. We’re the developers of the Heinz Lofts project, a 267-unit rental apartment complex consisting of five of the former Heinz factory buildings. It’s 98-percent occupied.
 
What kind of rents are you getting there?
 
[Around] $800 to about $2,600 a month, obviously depending on unit size and bedrooms and other features.
 
To what extent does residential redevelopment like Heinz Lofts benefit the development of life sciences projects?
 
When you’re going out and attracting researchers, I think the more amenities you can provide them with, whether that’s luxury housing in the downtown area or market-rate housing maybe for some of their staff, anything you can provide them makes your city more attractive. I think that’s for housing, that’s for retail, for food and beverage, for entertainment, everything to that extent.
 
Your company has developed the Cleveland Clinic Center for Genomics Research. What similarities are there between Bridgeside Point II and the Cleveland Clinic projects?
 
That was a fee-development deal that we did for the Cleveland Clinic, on their campus. They’re both wet-lab spaces. A lot of the infrastructure needs are very similar. The bench-work layouts that we perfected in the [Cleveland] building will be used in Bridgeside Point II. We learned a lot by building the center for genomics research, about how a lab tenant needs to have their space delivered to them.
 
How does developing in Pittsburgh differ from developing in Cleveland?
 
We get great support from the URA [Pittsburgh Urban Renewal Agency]. That’s a significant help here in the Pittsburgh marketplace. They understand the Pittsburgh Technology Center. They understand the programs that are available to jump-start development there. You could really hit the ground running when you start talking to them about a deal.
 
And then I think the technology market in Pittsburgh is so strong, both from an attracting-researchers standpoint, to an attracting-technology-firms [standpoint] and then growing technology firms. We really don’t have that in our [Cleveland] marketplace. And I think a reason for that is, the Pittsburgh medical institutions and technology institutions such as Carnegie Mellon, the University of Pittsburgh Medical Center, the University of Pittsburgh, really seem to work together a lot better than our medical institutions do in Cleveland. So when Pittsburgh goes out to attract and recruit researchers, I think it’s a cohesive effort, as opposed to Cleveland, our Cleveland Clinic and our university hospital, and our Case Western Reserve University, which are kind of on their own path, and they don’t necessarily work together.
 
That working together in the marketplace makes a big difference to be able to attract technology firms and researchers to Pittsburgh, and that’s why you have there the seventh largest technology market in the country right now.
 
Any sense as to why there is more cohesion in Pittsburgh than Cleveland?
 
I think they got it sooner than Cleveland did. If you want to be frank, I think they realized that they weren’t going to be able to live on the steel industry and the blue collar jobs that Pittsburgh was built on. And they realized quite some time ago that they needed to change their market mentality, so to speak. And I don’t know if this happened for sure, but I think they understood they would be more of a force together than apart. And I think Cleveland just didn’t make that shift in paradigm as quickly. I would assume that you couldn’t have gotten those groups to work together unless everyone saw the big picture. And in order for that to happen, I think, the political entities had to be involved.
 
Beyond Bridgeside Point II, what additional life sciences development opportunities does your company see in Hazelwood?
 
I will answer that by saying I do not believe this will be the last building that we do in the Pittsburgh Technology Center. It is our hope to lease this up and begin another project shortly thereafter.
 
Are you looking at any other regions of the country given the general growth in the life sciences industry?
 
Not at this point. In the past year, we’ve looked at the Illinois Institute of Technology area in Chicago, as well as the Washington [DC] Georgetown area.

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