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UrbanLand | Building for Biotech

Building for Biotech

Jim Daly, July 2008 Download PDF

Biotech is getting buy-in from a host of private investors and public agencies that recognize the ability of biotechnology research to create healthier economies and healthier populations.

Since the 1970s, the biotechnology industry has been solving some of America’s most pressing problems by creating everything from medical therapies to systems for reduction of energy use and waste. In the past decade, the industry has also been instrumental in bringing together strategic partnerships that are rebuilding local economies. Biomedical research institutions such as universities, nonprofit groups, and medical organizations have been driving a range of development alliances that have generated new projects around the world.

Academic institutions need more laboratory space to do better research and to do it more quickly, but also to gain greater returns on their investments. More and more developers are helping these institutions build specialized facilities and incubator spaces for the startup companies that universities spin off. Additional impetus has come from state governments, which are investing in this market to create new jobs and reinvigorate underperforming economies.

Such activity illustrates how universities and industry, working together, have found ways to capitalize on the shift from an industrial economy to one that is knowledge based. “Research can build new business, but universities need ways to capture and commercialize their knowledge,” explains Bill Dean, director of the Piedmont Triad Research Park in Winston-Salem, North Carolina, and past president of the Association of University Research Parks (AURP). “To move ideas forward, universities need to build environments that can sustain innovation. The key is to balance the fast-paced culture of business, which is interested in the bottom line, with the culture of academia, which is focused on education and the development of new ideas.”

Much has changed since the birth of Research Triangle Park, one of the first research parks in the United States. Created in 1959 near Raleigh, North Carolina, it was designed as a research and development center for three universities—the University of North Carolina at Chapel Hill, Duke University, and North Carolina State University. Today, encompassing 7,000 acres (2,800 ha) that contain more than 20 million square feet (1.86 million sq m) of space for about 150 companies, it is one of the largest science parks in the country.

Yet this kind of development requires patience. As is the case with any private development, it takes time to plan and build incubator facilities and for them to secure tenants; they rarely reap rewards overnight. Tenants of these facilities have specific needs. Many researchers come from academia, and they demand higher-quality design and fit-out than is common for speculative office space. Accreditation from the Leadership in Energy and Environmental Design (LEED) green building program is expected in order for facilities to attract new companies. This is not easy to achieve because research consumes a large amount of energy.

Still, the number of university-related research developments has been increasing in suburban and urban locations throughout the United States, especially in California, Florida, Massachusetts, New York, and Texas. Much of this development is happening in downtown areas, where universities have historically located their medical schools. Particular hot spots are Baltimore, Boston, Philadelphia, San Diego, and San Francisco, all of which are home to numerous universities and research institutions that are fueling this growth.

One of the novel examples of recent biotech development is the East River Science Park (ERSP) in New York City, which is being developed on cityowned property by a public development agent, the New York City Economic Development Corporation (NYCEDC). Currently under construction, the ERSP ultimately will contain 1.1 million square feet (102,000 sq m) of office and laboratory space. Lenzie Harcum, vice president for business development, bioscience, at NYCEDC, believes the project will address the fact that New York City lacks biotechnology incubator space despite the presence of 11 major academic research institutions. He maintains that the ERSP will “diversify the local economy, create high-paying jobs, and help the city to recruit and retain top scientists and businesses that want to reinforce their relationships with these academic centers.”

According to Characteristics and Trends in North American Research Parks: 21st Century Directions, a 2007 study by Battelle Technology Partnership Practice in cooperation with AURP, university research parks in the United States and Canada account for 124 million square feet (11.5 million sq m) of space and have room to add another 150 million square feet (13.9 million sq m).

As the ERSP illustrates, incentives from the public sector have enabled—and accelerated—this growth. An important milestone was the Bayh-Dole Act, passed in 1980, that allowed universities to profit from research developed under federally funded programs. The legislation even goes so far as to encourage commercialization of drugs and therapies created by university researchers, which in turn has instigated many academic researchers to establish their own biotech companies.

Whereas biotechnology was once considered a risky investment, the private sector now realizes it is a viable place to put money, with banks and other funding sources much more willing now than in the past to invest in specialized facilities for research. A small but growing number of private developers are leading the market in this area, including San Diego, California– based Phase 3 Properties; Pasadena, California–based Alexandria Real Estate Equities Inc. (investors in the ERSP); and Cambridge, Massachusetts–based Forest City Science + Technology Group. Venture capital companies are also targeting startup biotech companies.

Most significant, both public and private agencies recognize that biotech is a proven tool for economic development. This is especially true for cities that once depended on manufacturing for their livelihoods, because biotech has the ability to boost employment.

The Battelle and AURP report estimates that every job in a research park creates 2.57 additional jobs for the local economy.

For this reason, some universities and local governments are partnering on biotechnology developments as a way to initiate urban renewal. One example is the Science + Technology Park at Johns Hopkins, which is part of an 88-acre (36-ha) redevelopment project in east Baltimore, Maryland. The first research building of Phase I was completed in April, and the full buildout of the park will include laboratory buildings and corporate office space, as well as housing, retail facilities, and parking. Partners on the project are the city, Maryland, and a consortium of private developers that includes Forest City and Baltimore-based Presidential Partners. A promotional Web site promises that the project will add 6,000 local jobs.

The East River Science Park has drawn a number of public and private investments, including $700 million from Alexandria Real Estate Equities, $13.4 million in capital funds from New York City, and $27 million from the state for infrastructure work in connection with the project, in addition to funding from the New York City Investment Fund, the New York City Industrial Development Agency, and the U.S. Department of Commerce’s Economic Development Administration.

Not all research-related developments are soambitious—or need to be. The models are diverse. Private companies often develop single research buildings or develop facilities in partnership with a university, or a university and developer may work with state and city agencies, as is the case in Baltimore. Sometimes, a nonprofit entity may be designated to coordinate the development and management of a research park; at other times, an institution may choose to develop new properties one at a time, with financing from either the private sector or the institutional side. Neil Fox, a developer who has been working in the biotechnology market since 1988, founded Phase 3 Properties in 2000. The company is now working on projects across the country, from Hawaii to New York.

“Private developers, who are constrained by market conditions, can help universities to build more costeffectively and assume a large part of the risk for new research space,” he says. Developers are increasingly building speculative research space for startup businesses without an anchor pharmaceutical tenant, as had been the model in the past. They are hoping to capture the momentum from research coming out of universities by providing top-notch incubator space for new businesses. For example, Phase 3 converted a former hospital into the 108,000-square-foot (10,000-sq-m) San Diego Science Center, dividing it into offices as small as 2,000 square feet (186 sq m). The building offers more than just move-in laboratory space: Phase 3 equipped the incubator facility with a number of shared amenities that can help young biotech companies succeed, such as conference facilities and core lab facilities, as well as a cafeteria and a health club.

Indeed, many developers realize that small perks can be a big draw for young companies. To entice new businesses, the University Technology Park in Chester, Pennsylvania, offers reduced-rate telephone and Internet service, as well as access to library resources at Widener University, which jointly developed the tech park with the Crozer-Keystone Health System, a longtime collaborative partner. The two institutions created the technology park together, transforming a 20-acre (8.1-ha) parcel of land between them to support their activities and entice private firms that specialize in technology, research, and small manufacturing.

The partners also shared the goal of creating a new economic base for the manufacturing town. The University Technology Park received funding from Pennsylvania’s Keystone Opportunity Zone program, which reduces specific state and local taxes in an effort to spur development in underused areas. The federal government offered support through the Economic Development Administration.

Though to some observers, New York City’s investment in the East River Science Park might seem to be an uncertain proposition, proof exists that this kind of investment can pay off. Wake Forest University recently took a calculated risk when it helped create the Piedmont Triad Research Park. Universities, research organizations, and businesses joined forces, hoping to revive Winston-Salem, which was once known for furniture and textiles, but had suffered huge job losses. The initial impetus to expand the Piedmont Triad Research Park came from the North Carolina Emerging Technology Alliance, a group of academic, business, and government leaders, and the Winston-Salem Downtown Development Corporation. Ten years ago, Wake Forest University started planning for a 12-acre (4.9-ha) site in downtown Winston-Salem and brought in a private developer, Greensboro, North Carolina–based Samet Corporation, to develop an initial building. Since then, Wake Forest University Health Sciences has led an initiative to expand the research park and has drawn many investors, making it possible to amass 230 acres (93 ha) for future growth on its original site and two additional locations in downtown Winston-Salem. Dean attributes the success of the research park to Wake Forest’s ability to “turn scientific ideas into enterprises that create a pipeline for the local economy and into technologies that foster the betterment of the global population at large.” Clearly, biotech is getting buy-in from a host of private investors and public agencies that recognize the ability of biotechnology research to create healthier economies and healthier populations.

In the future, even more players may get into the game. Pharmaceutical companies are one likely candidate because they are always looking for promising research to supplement their own pipelines. Down the road, they may find it is more cost-effective to develop new incubator facilities for university-based investigations than to subsidize research and development for new drug therapies in-house.

While universities will continue to generate ideas and look for ways to develop new space, they will continue to need support from the public sector to fund new research programs—mostly through grants from the National Institutes of Health—and creative streams of government investment for laboratory facilities. In fact, certain states have used settlement money from the tobacco industry or attempted to pass bond initiatives, which have been most successful in California (for stem cell research) and Texas (for cancer research). Perhaps more government agencies will take cues from the private sector, which has already proven that building for biotech can be good business.

 

James M. Daly, partner of Francis Cauffman Architects, is the
Philadelphia-based director of the firm’s science and technology group.

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