Wednesday, May 23, 2007

New Lab Space for NoVa?

Developer plots NoVa lab space to attract biotechs
Washington Business Journal - May 11, 2007
by Vandana Sinha
Staff Reporter

After years of coming up dry, Northern Virginia is winning new wet lab space.

The area -- long lambasted for lacking the lab space that could attract a vibrant biotech community -- may be seeing early signs of a long-term turnaround with new plots of lab-worthy land.

Pasadena, Calif.-based Alexandria Real Estate Equities, a leading national lab property owner and developer, is in preliminary plans to market a new 20-acre stretch of research and development land near George Mason University at Innovation @ Prince William Technology Business Park.

Meanwhile, Rockville-based Scheer Partners is helping develop a 50-acre section of the Innovation park for tech and biotech prospects. The local real estate firm also recently began marketing 35,000 square feet of empty office and lab space in a Chantilly office park building.

In addition, when pharmaceutical giant Eli Lilly pulled out of its $325 million development deal in January, the company left Northern Virginia with 10,000 square feet of lab space about six miles from Prince William's Innovation park, where its half-built insulin manufacturing plant still sits on 120 acres now back on the market.

The combination has area leaders excited about starting to bridge one of the chasms separating them from a successful biotech community. But they may need to remain patient. Much of that lab space is, or likely will be, fit only for larger tenants with deeper pockets, forcing biotech startups to keep hunting for smaller headquarters along Interstate 270 in Maryland.

"What happens down in Prince William County will, I think, be the bellwether," says Dan Gonzalez, executive vice president in Scheer Partners' McLean office. "There will be a vibrant biotech community in Northern Virginia, but it won't look anything like Maryland. The 2,000- to 5,000-square-feet startups won't be in Northern Virginia for a long time."

Most of that comes down to economics, Gonzalez says.

With the high costs of building lab space from scratch, developers get more payoff from a larger, established tenant willing to snatch up 30,000 square feet at a time, rather than from the risky startups that can only afford one-tenth of that for their first several years.

The question is: How many of those larger biotechs are eyeing Northern Virginia?

So far, for its 35,000-square-foot Chantilly lab space at Avion Business Park -- former federal government quarters that can't be physically subdivided into smaller pieces for startup companies -- Scheer Partners has found more "tire-kickers" than tenants.

Scheer Partners is in talks with an undisclosed New Jersey cell-therapy diagnostics company that needs 20,000 to 60,000 square feet, Gonzalez says. But he adds, until public or private entities put their dollars toward incubator space for startups, demand for Northern Virginia lab space could remain slow.

At Prince William County's 50-acre Waterford Development plot, which Scheer is helping develop, there is room for 1 million square feet of office and lab space. But the developers say market demand calls for building only 650,000 square feet.

Alexandria Real Estate also says it doesn't plan any lab construction until it scores some tenants. It is aiming for a single, sizable company to fill up its 20-acre plot, originally 40 acres before it sold 10 acres apiece to the neighboring George Mason University biocontainment lab and Virginia Department of Forensic Science lab, both poised to break ground within weeks.

"A big part of this is where we see the market demand," says Jim Richardson, president of Alexandria Real Estate, which has an office in Gaithersburg. "This is an emerging market. It's at an embryonic stage. So we're going to be very careful and prudent when we move through this."

Both real estate parties could find a customer in George Mason. The university's leaders expect to issue a request for proposals by the fall to lease a projected 10,000 to 30,000 square feet of lab space for faculty research, now crowded into the Prince William and Fairfax campus labs.

But the university, whose own biotech spinoff Theranostics Health was shipped to Rockville in March for lack of Northern Virginia lab space, says it is also discussing whether to include an incubator setting in its proposed space to help those startups and future spinoffs.

"Is there demand out there for companies to lease 1,000 square feet? I think there is. Are there 30 of them? Probably not," says Jerry Coughter, assistant vice president for regional economic development at George Mason University. "That's part of the quandary that developers are in."

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