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Seven Years After MaRS Lands Incubator In Toronto, Nonprofit Plans for a Second

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Ilse Treurnicht
CEO
MaRS
Seven years after 13 individuals, businesses, and other organizations joined to form the MaRS Discovery District in Toronto, the nonprofit organization operates a successful research-office incubator campus, and is poised to start developing another.
 
MaRS — an acronym that once stood for “Medical and Related Sciences” — is preparing to break ground on a 900,000-square-foot building that will comprise the second phase of its campus. It will rise next to the 700,000-square-foot first phase, which houses 67 tenants at 101 College Street on the southeast corner of College and University.
 
The campus had been occupied by the old Toronto General Hospital, until it merged into University Health Network, and vacated a site rich in research history. The first clinical trial for insulin took place at the hospital, in a facility built in 1913.
 
While MaRS completed the first phase in May 2005 on its own — at a cost of $230 million, plus another $100 spent fitting out tenant space — the nonprofit has chosen to do phase two with a big-name partner. On June 26, MaRS announced it had selected life sciences landlord Alexandria Real Estate Equities following a bidding process managed by Urban Strategies.
 
MaRS would be the third project outside the US for Alexandria. The Pasadena, Calif., real estate investment trust was chosen in May by Scottish Development International/Enterprise Scotland to co-develop the $1.2 billion BioQuarter in Edinburgh, a 100-acre life sciences campus to consist of some 1.4 million square feet of new life science space. [BioRegion News, May 14]
 
A month later, India’s National Building Construction Corporation, with technical support from Singapore’s JTC Corporation,hired Alexandria to develop the $132 million second and third phases of the 106-acre Bangalore Helix bioscience park, which will total 750,000 square feet of lab and office space. [BioRegion News, June 11]
 
BioRegion News spoke with MaRS CEO Ilse Treurnicht about the planned expansion of the research campus and its significance in bringing biotech to Toronto.
 
Could you please talk about phase one of MaRS?
 
We have a 15-story science building, which is research and primarily occupied by scientists from the university health network and the Hospital for Sick Children. And then we have an additional new building which is also lab-enabled, which is eight stories. It houses our incubator as well as the Ontario Institute for Cancer Research, a multi-tenant floor with a number of private-sector tenants as well as the McLaughlin-Rotman Center for Global Health. NPS Pharmaceuticals is there.
 
Then our incubator, which is 40,000 square feet, we have 27 young companies in that. I would say two-thirds of them are life sciences companies. Then the heritage building contains most of our business tenants, that is where our venture capital firms, our financial institutions, service providers, a couple of law firms, and companies that don’t need lab space [reside]. We have some mid-stage companies like Transition Therapeutics, that don’t use labs on site. We have three global pharma[ceutical companies’] business development offices there — AstraZeneca, Glaxo[SmithKline] and Merck. We have the tech transfer office for the University of Toronto and a conference facility as well.
 
Phase one was built around the historic site of the old Toronto General Hospital. That kind of anchored all of the design features as well as what could be constructed or not. Phase one is three interconnected buildings fairly distinct in character, interconnected with a four-story atrium which will continue into the new phase two building, which will be a totally standalone clean new site.
 
How will the second phase differ from the first in terms of mix of space or types of uses?
 
I think it’s fair to say it will certainly leverage on what is already the mix that is established in phase one. It is directly physically adjacent and interconnected. We don’t see this as a diversion of strategy or something that is not a build-on phase one. The model of MaRS has always been from the beginning that our tenant strategy was very much to try and bring on all the players in the innovation food chain together — a mix of research, technology transfer, incubation space, graduation space for mid-stage companies, service providers, community builders — all those players in the same space. We see building on that.
 

An artist’s rendering of the 900,000-square-foot second phase of the MaRS Development District in Toronto, to be co-developed with Alexandria Real Estate Equities. Construction is set to start by the end of summer, with the projected completion timeframe early spring 2010.
(courtesy MaRS)
I think the one other piece is because of the size of it, it will give us the opportunity to have hopefully some additional international tenants that are looking to establish a base in this area. I expect it will again be a mixture of public and private users.
 
Will that be determined as leases get done, or will space be set aside for lab, office and other uses?
 
The building is built in the Alexandria model, with fully flexible space throughout the building, so the correct floor-to-ceiling height, infrastructure to accommodate complex air handling systems and so on, so that one would not at any point be restricted from reconfiguring a certain area of the building into labs from office. That way we gain maximum floor plate [use], maximum efficiency and maximum flexibility. The building is designed to have very large floor plates, about 40,000 square feet. So there was a lot of thought put into what a floor might look like for different types of configurations within a 22-story, absolutely state-of-the-art science building.
 
What role will Alexandria have in phase one as a result of the agreement for phase two?
 
We certainly see this as a very strong partnership. They will obviously have their hands full building this fairly large building over the next two and a half years. We have mechanisms in place to look at efficiency of where those two parcels intersect. There is shared parking underground and there are a lot of shared systems. And I think once the building is operational, we will continue to evolve those efficiencies. Our job right now, MaRS corporate runs phase one. We oversaw the construction of it and manage the property management and leasing for it. We have an operational building that we will continue to manage while the construction is happening.
 
So MaRS will continue to manage phase one after phase two is completed?
 
Yes, although I’m sure that things will evolve over time. There will be certain things that would absolutely not make sense to duplicate, particularly given the fact the two buildings are really interconnected.
 
Does the agreement give Alexandria any kind of rights to buy either phase two or one, to own the properties that they will be developing?
 
No. It is a ground lease agreement, and we own the land of phase two and continue to own the complex of phase one.
 
Has Alexandria figured out what amenities will go into phase two?
 
Only broadly. They obviously are looking to bring some of their proprietary products to Toronto, and we are very excited about that. We know that we have very significant additional demand for incubation space, and also for graduation space for those incubator tenants. We’re looking to build some of that kind of space out. Some of our existing tenants are also looking for expansion space already. The Ontario Institute for Cancer Institute, for example, is looking to expand on the same level and they will in fact have an interconnected floor into phase two.
 
How is MaRS accommodating tenants that wish to expand?
 
We’ve taken some expansion space in the district for the next two and a half years, and that is mostly for our incubator tenants that are graduating. It is about 5,000 square feet in one spot, and I think about another 5,000 in another location, with room to take more, down the street from phase one. Our challenge over the next two years will be to manage the ongoing demand of people who want to be in this environment.
 
How much incubator space will be built in the second phase?
 
That’s not firmed up yet. I would expect it will be more [than phase one]. That will be driven by demand. The companies that have graduated from our incubator so far have essentially graduated because they needed more space than we could provide them, and not because they ran out of time. Our incubator has only been open a year and a half.
 
Why is MaRS building the second phase with a partner rather than alone as with the first phase?
 
We’re delighted to both have had a very positive RFP process, and secondly to have one of the world’s leading science building developers work with us and create the physical infrastructure so that we can focus more of our energy on the rest of the programming and building companies. MaRS was never structured to be a real estate developer. We did phase one because the concept was so unproven in Canada, and at the time there was a fairly significant office glut in Toronto, so there wasn’t much interest from developers at that point, so MaRS just simply had to take on the development itself.
 
What persuaded MaRS to choose Alexandria?
 
We were fortunate to have very strong proposals, so this was a very competitive process. We had not a single issue that would drive the decision. But for MaRS, there’s a certain vision that was very much catalyzed, and very strongly held. The board of directors has been the custodian of that. A big part of the process was also how we would work with the development partner to protect the integrity of that vision over time. It wasn’t just about putting up a building that people would fill randomly. So I would say our RFP process was more complicated than some others you would see for a stand-alone science park.
 
We had multiple responses [to the RFP] and we then created a short list of three and worked from there. We were very encouraged that we had absolutely outstanding players bid and respond to the challenge of not just coming to Toronto — because many of those proponents were from the United States — but also then to work with the concept of trying to articulate how they would accommodate our desire to implement MaRS’ vision and grow it.
 
What is phase two’s projected construction schedule?
 
They hope to be in the ground before the end of the summer. It will probably take two and a half years to build, so we’re looking at early spring 2010.
 
What is the importance of MaRS as an anchor of Toronto’s biotech cluster?
 
The University of Toronto and its 11 affiliated research and teaching hospitals is the largest life sciences research cluster in Canada. . . One of the things that catalyzed the development of MaRS is a sense in the community that we need to get much better at converting that fantastic science into strong global companies. And that’s really our mission: To be that commercialization engine.
 
The reason why the MaRS complex really caught the imagination of the original group of founders and the institutional partners around it is that the site is right in the middle. Its location is across the street from the University of Toronto. It is directly adjacent to the university Health Network, Sick Kids, Mount Sinai Hospital, all of the major hospitals. It’s just across the street from the provincial parliament. And it’s just up the street from Canada’s largest financial district. And it’s an extremely concentrated biotech cluster because of that density of research institutions. We see that as a very interesting feature of MaRS’ location.

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