BioDirt's 3Q Recap 🧬

Welcome to your 3rd quarter life science/commercial real estate world review.

To start things off, check out this headline (and the accompanying Bisnow article): 'We Don't Care About San Francisco': LA Life Sciences Has A Supply Crunch

And here’s a collection of info I pulled from various pieces that give a good summation of where I think we’re at:

Despite reports that some California markets may have built more lab space than they can handle, demand in Los Angeles remains strong. 

Not only does the LA life sciences market generate $27.3B in annual economic activity and employ more than 122,000 people, but its lab vacancy rate is also at 3%, far below the average 14.4% life sciences vacancy rate seen in other major national markets.  

Of course, not all lab space is created equal, and to keep up with rapidly changing technology, today’s facilities need to be as flexible as possible.

With the recent rate cuts, tenants are expected to start making moves again, sparking hope in the real estate industry that the downturn is turning around.

REAL ESTATE HIGHLIGHTS

AstraZeneca leased the Instil Bio campus in Tarzana. The brand new 128,000-square-foot facility at 18408 West Oxnard St was never occupied by Instil.

Some transaction details. The 15-year lease starts in July and ends July 31, 2039. The initial base rent is $627,276.00 per month ($3.90 per SF, NNN; $7,527,312.00 annually), and the base rent will escalate by 3% per annum. AstraZeneca is also required to pay certain operating expenses and tax expenses as additional rent.

In an all-cash deal, Alta West Partners and an affiliate of Glendon Capital Management and A2 Capital Management purchased the Lakeview Innovation Center, a premier Class A research and development (R&D) and office property totaling 276,529 square feet on 22.1 acres in Thousand Oaks, California. 

Renovated in 2023, Lakeview Innovation Center offers upscale amenities, including an on-site Equinox fitness club, Earthbar, a pickleball court, walking trails, a tenant lounge, and multiple outdoor patios and collaborative spaces. Currently, Lakeview Innovation Center is leased to a diverse tenant base, including Marvell Technologies and Rawlings, who benefit from the property’s exceptional infrastructure, which includes lab-grade HVAC, excess power capacity, ample clear heights, loading docks, and backup generators. Additionally, the property offers expansion opportunities with M2 zoning, supporting up to 123,000 square feet of additional density for life-science, R&D, or office users.  

The new ownership group, led by Steve Elson and Brad Pennington of Alta West, has extensive knowledge of the submarket and a successful track record in the office, life-science and R&D sectors. The team intends to make strategic upgrades to common areas, restrooms, signage and landscaping, positioning Lakeview Innovation Center as the top choice for leading, innovative companies seeking the highest quality lab and office environment in the market. 

The Carnegie Institute deal closed at 75 S Fair Oaks for 60,000 square feet. The Pasadena Star-News first announced - in February 2022 - that Carnegie would relocate its entire national climate and biological research operation from Baltimore and Palo Alto to Pasadena, to work mainly on climate-change mitigation. 

City of Hope extends its 170,512 square foot lease at The Campus at SGV (4900, 4910, 4920 Rivergrade Road, Irwindale).

LIFE SCIENCE OPPORTUNITIES

New to market: NOHO West. 6150 Laurel Canyon Blvd, North Hollywood.

This 4-story 235,000 square-foot office space development is engineered for the life science community. A modern office, NOHO West supports amenities, outdoor space access, as well as office and laboratory needs. The building enjoys vibrant views of the San Fernando Valley while offering easy access to academic institutions and workforces.

NOHO West occupies a strategic position in the eastern corridor of San Fernando Valley within easy reach of downtown LA, Pasadena, Thousand Oaks, and next-door access to Studio City, Toluca Lake, University City, Van Nuys, and Sherman Oaks.

Owner-user investment opportunity. 2380 Conejo Spectrum Street, Thousand Oaks, is on the market for $22M. The 97,353-square-foot property is 100% leased through the beginning of 2026 to Sage Publications (46,193 SF) and Atara Bio (51,560 SF). However, the space is largely unoccupied, and neither tenant plans to renew its lease, providing for 2 years of income to offset space planning expenses.

1280 Rancho Conejo, Thousand Oaks continues to be on the market for $22.5M. The 33,659 SF Conejo Spectrum property is 100% leased to Atara Biotherapeutics (NYSE: ATRA, “Atara”) through January 2032. The Property was delivered to Atara in turnkey condition following a $15.5M ($462 PSF) capital improvement initiative by a leading life science ownership group in 2021. Ownership intentionally designed the improvements to universally appeal to the most discerning life science tenants in the market, which provides an investor with maximum residual flexibility. With 7.33 years of remaining lease-term from Atara, 1280 Rancho Conejo provides an investor with a long-term, secure, and escalating income stream from a leading biotechnology company.

BISNOW LIFE SCIENCES SUMMIT RECAP

Here are some overarching themes and common thoughts from Bisnow’s Life Sciences Summit.

• Los Angeles’ space needs are not the same as in San Diego or Cambridge.

• Brilliance - more bioscience degrees than any region in the country, but…

• How do we keep people here?  

• Need the right type of space in LA. Build flex/swing lab space to help speed to market.

• Scientists want the creative office vibe/amenities and not stuck in windowless box 

• Still more demand than supply in LA.

• High demand / high construction costs, but…

• Construction cost is stabilizing.  

• Functionality goes first with sustainability in mind.

• Flight to quality, lab space is not a commodity.

• Data centers integrating into life science technology.

• Entitlements are difficult in LA right now.

• Quantum computing - high ceilings, cooling - life science retrofit.

VC LIFE SCIENCES FUNDING GRAPHS & TAKEAWAYS

BIOPHARMA ANALYSIS (ALL DEALS)

Dollars up, deals stable in 2024; investment led by SoCal $100M+ financings

• Investment surge in 1H 2024. In 2023, insider rounds comprised almost half of the equity financings, making it the smallest investment in four years. Renewed optimism from IPO activity and strong M&A lifted the investment pace as crossover activity returned. This helped boost investment by 34% in 1H 2024, on pace to exceed 2023 and 2022’s year-end dollars.

• Less activity, led by mega $100M+ deals. Investment surged in 1H 2024, while deal activity remained steady, resulting in large deal sizes. There were fifty $100M+ financings (ten over $200M). Twenty-nine of the fifty $100M+ deals in 1H 2024 included new crossover investors.

  VC-incubated early ideas or backing repeat teams after successful exits drove many of the %100M+ deals. Clinical stage was bifurcated, as 50% of the $100M_ deals were pre-clinical or Phase I, and 50% were Phase II or later.

• SoCal leads big deal activity. In 1H 2024, Southern California has emerged as the leader in $100M+ deals (twelve), surpassing Massachusetts (eleven) and Northern California ( nine).

• Mega See and Series A deals. Twelve of the fifty $100M+ deals were first-financings in 1H 2024, versus just six in all of 2023. Of these twelve, there were five pre-clinical deals, four Phase 1, one Phase II, and tho Phase II. Crossovers joined eight of these investor syndicates, anticipating continued IPO optionality.

(source: HSBC Venture Healthcare Report)

VC INVESTMENT IN HEALTHCARE US & EUROPE

New investor-led rounds boosted investment in 1H 2024, led by biopharma

Investors return to lead new deals in 1H 2024, led by biopharma. New investor-led rounds in healthcare rose in 1H 2024, led by biopharma, the largest healthcare sector. An influx of large biopharma deals in 1H 2024 increased investment by 34% from 2H 2023 driven by a rise in private M&A and an opportunistic IOP environment. This provided needed liquidity to venture investors and crossover investors, encouraging their return to private investment. (source: HSBC Venture Healthcare Report)

Biopharma First-Financing By Indication

Huge deals drive metabolic and auto-immune indications

• Early-stage continues to dominate first financing. In 1H 2024, early-stage deals dominated, making up 73% of deal activity (60% pre-clinical; 13% phase I). This was similar to 77% in 2023.

• Platform dollars were up, but deals were down; oncology and neuro investment soared while deals remained stable. The number of platform deals declined in 1H 2024. However, seven large deals, exceeding $50M each, boosted investment dollars beyond 2023 year-end levels, matching 2022’s investment pace.

  Oncology reached an 18-month high in Q2 with 15 first financing deals, making it one of the few indications, along with neuro, to maintain stable deal activity in 1H 2024. In neuro, almost half of 2023’s first financings were clinical stage (eight of nineteen), but only two out of ten were clinical stage in 2024.

• Metabolic and auto-immune see a surge in large deals while orphan/rare decrease. In 1H 2024, a few outsized deals created buzz in the metabolic and autoimmune sectors with Hercules ($400M), Metsera ($350M), and Mirador ($400M). There were no first financing deals in Orphan/Rare in 1H 2024.

• First-financing Seed and Series A pre-money valuations drop slightly. Seed pre-money median valuation was $10M in 1H 2024, down from $15M in 2023. Series A pre-money was $42M, compared to $50M in 2023.

(source: HSBC Venture Healthcare Report)

NOTABLE LA-BASED FUNDINGS + HIGHLIGHTS

PBS Biotech - PBS Biotech offers single-use bioreactors and process development services for cell product manufacturing.
Funding date: 9/24/24
Funding amount: $8,499,999 
Address: 4721 Calle Carga, Camarillo

PictorLabs - a Los Angeles-based company that uses AI-powered virtual staining to transform the practice of histopathology.
Funding date: 9/23/24
Funding amount: $30,000,000
Address: 11390 W Olympic Blvd, Los Angeles

AcuraStem - a patient-based biotechnology company pioneering how treatments are developed for neurodegenerative diseases — including sporadic ALS and FTD.
Funding date: 9/3/24 
Funding amount: $4,000,000 
Address: 150 North Orange Grove Blvd, Pasadena 

Hedgefog Research - development and production of medical imaging devices, vision testing products, large-area flexible electronic circuits, advanced photonic and magnetic sensors, and software development, including edge-fog-cloud distributed computing systems for healthcare IT. 
Funding date: 8/26/24 
Funding amount: $1,099,994 
Address: 1891 N Gaffey St, San Pedro 

Nammi Therapeutics - developing platforms and products that selectively activate anti-tumor immunity within the tumor microenvironment while minimizing systemic activation.
Funding date: 8/6/24 
Funding amount: $1,000,000 
Address: 10940 Wilshire Blvd, Los Angeles 

Armata Pharmaceuticals - a clinical-stage biotechnology company that develops bacteriophage therapeutics to treat bacterial infections that are resistant to antibiotics.
Funding date: 7/30/24 
Funding amount: $5,250,000 
Address: 5005 McConnell Ave, Los Angeles 

9 Dots - a non-profit organization that develops critical thinking and creativity skills in students with science technology education. 
Funding date: 7/25/24 
Funding amount: Undisclosed 
Address: 990 W 190th Street, Torrance 

(source: CrunchBase)

INCUBATOR SPACE

BioLabs at The Lundquist Institute is excited to announce a new opportunity at the Torrance location. A private lab suite is available, offering approximately 450 square feet of secure badge access space. This fully furnished lab features a private Biosafety Cabinet (BSC), 8 lab benches, and access to shared amenities, including over $2 million worth of equipment, cold storage, BSCs, chemical fume hoods, and a fully stocked café.

WHAT I’M CONSUMING AND ENJOYING

🏗 Bisnow interviewed David Oh, regional director of science and technology at Boulder Associates, to learn more about the challenges the LA life sciences market is facing as it attempts to create facilities that can accommodate the technology of the future. 

📈 While biotech IPOs have rebounded this year, with 18 venture-backed startups going public in the US, equaling the total for all of 2023, according to market tracker PitchBook Data, the WSJ believes the performance of three drug developers who recently went public will act as a barometer of investor interest in biotechnology initial public offerings.

🧪I found this OpEd in Genetic Engineering and Biotech News to be a good take on what lies ahead: Double Impact: Interest Rates and Prospects For Biotech Growth.

Thanks for reading. If you want me to look into something or have some ideas for the newsletter, reach out, and I’ll get right back to you.

And, as always, we're here to help you with your real estate needs.

Ted Simpson
Founder and CEO
Commercial Real Estate Advisors
(c) +1 310.384.6512
(e) [email protected]
CA DRE License #0109718

P.S. Whenever you’re ready, here are 3 ways I can help you with your real estate.

1. A new home for your business. So, you want to move, but you don’t know the market. I can help.

2. Time to renew your lease? Don’t quite trust your landlord? Consider me your personal polygraph. BTW, I recommend starting the lease renewal process six months out at a minimum.

3. Sublease your space. You’ve outgrown your space and need to move but don’t want to pay two rents? I got you.