As it closes in on one of the most valuable land deals in Seattle history, Alexandria Real Estate Equities is betting that biotech can thrive in a real estate market dominated by big tech.
The real estate firm recently reached an agreement with the city of Seattle to buy the Mercer Mega Block, a trio of development sites that lie between Amazon’s campus and the cluster of life sciences institutions around Lake Union. It’s the latest in a long line of bets made by Alexandria on Seattle’s life science industry.
“You probably couldn’t find a site that was more importantly located — not only in the heart of the cluster, but really at the center of the life science effort in Seattle,” said Joel Marcus, founder and executive chairman of Alexandria.
Alexandria plans to pay $143.5 million for the site, roughly 40 percent above the original bid. The offer also came with a one-time $5 million contribution to help the city address homelessness and a pledge to develop affordable housing and a community center on the site.
Real estate for life science companies, particularly biotechs, has historically been severely limited in Seattle. Of all the life science space in the city, just 1.5 percent is vacant, according to a recent report from real estate firm CBRE.
“Space has been tight, and it’s gotten tighter over the last couple of years,” said Chad Robins, CEO of Adaptive Biotechnologies, which recently signed a lease with Alexandria that will triple the size of its Seattle headquarters.
That could soon change. Life science real estate in Seattle is set to grow 44 percent, adding around 2.2 million square feet — the majority of which should be delivered by 2022, according to CBRE. Alexandria is responsible for around 830,000 square feet of that.
Those figures will grow with the recently announced Mega Block deal, which Alexandria has proposed could add 740,000 square feet of office and lab space. The boom in real estate for biotech companies is among the reasons that CBRE ranked Seattle the No. 1 emerging life science hub earlier this year.
From ‘gross-looking’ buildings to tech mecca
It’s easy to look at the Mega Block today and see why Alexandria would be interested. The project is a stone’s throw away from the Google Cloud campus, an Amazon building, and Facebook’s engineering office — not to mention the Allen Institute and a UW Medicine research center.
But it took a lot of imagination for Alexandria to foresee what the Lake Union area could become in the late 1990s and early 2000s when it first began purchasing properties. “Most of what we were looking at was vacant land or gross-looking industrial buildings,” said Marcus. But Seattle also had unique expertise in immunology, and Alexandria was convinced it would become an early biotech hub.
“Clusters take about a 25 year period to really develop,” Marcus said. “We’re into the end of the first generation.”
That long-term thinking has paid off. Alexandria’s Seattle history started in 1996, when it bought the former headquarters of the Fred Hutchinson Cancer Research center and leased it back to the institution. Alexandria would later do similar “sale-and-leaseback” deals with the Gates Foundation and Zymogenetics.
The bet on a biotech cluster around Lake Union has pitted Alexandria against the region’s most land-hungry tenants — namely, Amazon.
But Marcus thinks Amazon’s presence could be a boon for the life science industry. “Nobody quite knows what’s going on yet, but Amazon has built a pretty interesting healthcare team,” said Marcus, referring to Haven, Amazon’s healthcare joint venture with JPMorgan Chase and Berkshire Hathaway.
One major hurdle to Alexandria’s Seattle plans is investors. “Seattle is on the weaker end of venture capital,” said Marcus. Despite being home to Alan Frazier’s Frazier Healthcare Partners and ARCH Venture Partners, the city lacks the “deep pool” of life sciences investors that can be found in the Bay Area and Boston.
Alexandria plans to create an incubator in Seattle called LaunchLabs by early next year, expanding on a program already in place in New York City and Cambridge, Mass. The company also operates an investment vehicle called the Seed Capital Platform. Alexandria keeps most of its investments secret, but Marcus said it was an early investor in Adaptive, which went public earlier this year.
Alexandria now owns 1.5 million square feet in Seattle, and has several projects under construction, including the Atrium at 188 E. Blaine St. (204,000 square feet), 1165 Eastlake (106,000 square feet), and 701 Dexter (217,000 square feet). It also has plans for a 303,000 square foot project at 1150 Eastlake and has purchased land at 219 Terry and 601 Dexter.
The Atrium is expected to complete this fall and has tenants such as the Seattle Cancer Care Alliance and Sana Biotechnologies, a stealthy startup founded by former Juno Therapeutics executives. Cambridge, Mass.-based Bluebird Bio officially moved into the Atrium last week, and Life Science Washington has also rented space in the building.
Another major Alexandria project is the historic Lake Union Steam Plant, the former home of biotech company Zymogenetics. The Fred Hutchinson Cancer Research Center has taken over the lease at the steam plant building and plans to move in next year.
Why build lab space in expensive, crowded urban areas? For one, life science companies see rent as a relatively small expense compared to other investments, Marcus said. They’re also willing to pay a premium to land the right personnel.
Adaptive’s Robins echoed that sentiment. “We don’t want to be out in the boonies. We want to be in the city. That attracts the talent we’re looking for,” he said.
Alexandria builds real estate based on a cluster model that places companies in areas with research institutions, strong levels of venture capital, and employee talent. South Lake Union tenants have close access to major scientific institutions such as the Fred Hutch, the Allen Institute, the University of Washington and Seattle Children’s, among others.
Beyond Seattle, the company also operates large real estate holdings in San Francisco, San Diego, Boston, New York City, Maryland and the research triangle in North Carolina. Alexandria reported net income of $364 million last year on revenues of $1.3 billion.