Alexandria: Breathing life into Seattle

The top life-sciences REIT that has created a Pacific Coast biotech hub

Joel Marcus probably does not get much sleep when he is in Seattle. The founder and executive chairman of Alexandria Real Estate Equities has his hands full as the top life-sciences REIT works to turn Seattle into a Pacific Coast version of the premier biotech hub in Cambridge.

Alexandria positions itself as a unique, mission-driven, urban-office REIT that differentiates itself by developing cluster campuses in prime locations catering to the technological needs of life-sciences companies. Tenants of Alexandria properties pursue research and innovation in fields ranging from agricultural technology to what Marcus calls the “next life-science frontier” – the search for treatments and cures of neurodegenerative diseases, such as Alzheimer’s and Parkinson’s.

Marcus planted the Alexandria flag in Seattle in 1996 when it helped create the Lake Union life-science cluster. It was a positive move for Alexandria, which is based in Pasadena, California, and created its first life-science cluster in San Diego. Two transactions in August show how Alexandria has grown with the expanding life-science sector in Seattle.

Alexandria has announced that one of its tenants, Adaptive Biotechnologies Corporation, signed a 12-year, full-building lease at 1165 Eastlake Avenue East, a sustainable, 100,000sqft office/laboratory development that will allow Adaptive to expand from a nearby Eastlake site, also owned and operated by Alexandria. Project delivery is slated for 2020.

According to Danny Ismail, lead analyst for office coverage at Green Street Advisors, “life science fundamentals remain encouraging in Seattle, especially within the Lake Union sub-market, where lab vacancy is in the low-single-digits, similar to that of Cambridge and South San Francisco”.

The Adaptive transaction illustrates Alexandria’s strategy of building top-quality assets in markets that host tenants with top-tier financial profiles. On the company’s second-quarter results conference call, Marcus noted the excellent quality of Alexandria’s tenant base, which generates “53% of our annual rental revenue from investment-grade or publicly traded large-cap client tenants with a weighted-average lease term of 8.4 years”.

Alexandria’s Joel Marcus hopes to create the Pacific Coast version of the Cambridge biohub

Occupancy across the portfolio is at 96%, supporting 32.6% growth in rental rates on renewals over expiring rental rates. Annual contractual rent escalations are about 3%, which co-president and CFO Dean Shigenaga says “drives growth in same-property net operating income year to year”. Same-property NOI rose 4.3% in second quarter of 2019 – or 9.5% on a cash basis – compared with the second quarter of 2018. “Our leases are triple-net, so we’re able to pass almost all of our operating costs to our tenants,” Shigenaga says. “That mitigates volatility to earnings or net operating income.”

High occupancy and strong leasing terms also build financial firepower. Alexandria typically has “a line of companies waiting” to lease space in its properties in San Francisco and Cambridge, Marcus notes. As a result, “we’ve reached a point where we can say we really have built a fortress balance sheet with over $3.4bn (€3bn) in liquidity and a weighted-average remaining debt term of greater than 10 years”.

Alexandria put that firepower to use last summer when it paid $145m to acquire three parcels of land in Seattle, collectively known as the Mercer Mega Block. Seattle’s mayor called it a “transformational investment” and plans to use the bulk of the sale proceeds on housing and transit improvements – for its part, Alexandria is paying $138.5m for the land, and will make a one-time $5m contribution to help the city address homelessness. 

The campus will help create better living options for Seattle – Alexandria will build an affordable-housing tower with at least 175 units on one of the parcels, and dedicate a portion of the campus to a 30,000sqft community centre.

Seattle is already the top “emerging life-sciences cluster” in the country, according to CBRE. Alexandria’s investments might help it reach the next level.

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  • QN-2570

    Asset class: Direct Real Estate.
    Asset region: Europe excluding Switzerland.
    Size: 150m.
    Closing date: 2019-10-30.

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