Building an All-Research Facility? Pick Your JV Partners Well

Summer 2012

It is no secret that there is a real science to developing science lab space and it begins by selecting joint venture partners ever so carefully. A prime example of how to do this was the recently signed deal to develop Longwood Center, a major life sciences and biotechnology building in Boston.

The facility is located in the Longwood medical area of the city, home to numerous medical, research and academic organizations including Harvard Medical School, Beth Israel Deaconess Medical Center, Brigham and Women’s Hospital, Dana-Farber Cancer Institute, Joslin Diabetes Center and Children’s Hospital-Boston. Throughout the fits and starts of recent real estate cycles, this area has had only a one to five percent vacancy rate for Class-A life science properties in the last 10 years.

Clarion Partners, a leading real estate investment manager, entered into a joint venture for Longwood Center on behalf of one of its institutional clients. The project will be developed in partnership with National Development, Charles River Realty Investors and Alexandria Real Estate Equities. It will be anchored by the Dana-Farber Cancer Institute, one of the world leaders in cancer research and care, which has leased approximately 154,000 square feet at the facility.

The 11-story, 413,536-square-foot life sciences building will include flexible laboratory, office and retail space designed to support tenants throughout the research and development process. It will even have a large Zebrafish aquarium for all-important work on human genome research. “This project truly represents the next chapter in leading-edge global research and development,” said Mark Weld, managing director and portfolio manager in Clarion’s Boston office. “This is a very exciting project for all of our partners, not just because it is a good real estate deal but also because of the work that will go on in that building. Who knows what will be produced there over the next 15 years?”

Weld said that although the vacancy rate has been low in this area of Boston for the past decade and there is considerable pent-up demand for space, a project like this is not without its risks. He explained that the research business is a highly speculative one and it takes a real understanding of it to be successful in developing a facility such as this one. Clarion’s interest in investing in this project is based on the team that has been assembled.

The JV partners in this deal:

Clarion Partners — Clarion Partners is the financial powerhouse in this deal with more than 30 years experience investing in real estate. Headquartered in New York, the firm has offices in major markets throughout the U.S. as well as Mexico and Sao Paulo, Brazil. Clarion has more than $24 billion in total assets under management for over 200 institutional investors both domestic and international.

Alexandria Realty — Alexandria is a significant part of the partnership and Weld said that its involvement in the project allowed Clarion to become comfortable investing in it. “Alexandria is led by Joel S. Marcus,” he said. “Alexandria is the industry leader in this type of project. Alexandria understands that while every tenant has special needs, a project can also have base building and tenant improvements that are consistent over a significant period of time so that you can move tenants in and out and accommodate their needs as they grow or shrink.”

National Development — National Development is a pure developer. National finds sites and figures out how to get the project done, according to Weld. National originally got the land for this project under control. “National was the original visionary of this project. National will oversee the process, along with Alexandria. Thomas M. Alperin is president of National Development.”

Charles River Realty Investors — Charles River is a closed-end localized value-add fund. Brian H. Kavoogian, is president. Charles River and National are closely connected. Charles River was formed in 2006 by Kavoogian and National Development.

Weld pointed to two other groups that are key to this project:

Dana-Farber Cancer Institute — Weld praised Dana-Faber for its help in designing the project. “Dana-Farber was engaged to be a tenant in this building, but it is more than a tenant, is has been like a partner to us because it has been very involved in the design. Having the Dana-Farber people involved in the design upfront of the building serves to produce a great result.”

John Moriarty & Associates — Another key to the success of a project such as this is the general contractor. “On this job, John Moriarty & Associates is the GC. All of us on the project have known John personally for 25 years. He is one of the larger contractors in this area and highly experienced with this type of project. This building is on a tight site, it is complicated to build and it is very sequential. You need a GC experienced in this work,” said Weld.

The Art of Negotiation

While there were no real bumps in the road in putting the deal together, there were considerable negotiations that went on before the deal was inked. “As the capital partner in the deal, Clarion needed to know from our operating partners who would be responsible for what regarding delivery of the project and how risk would be shared. Because most of the partners had worked together in the past, the discussions were somewhat easier than if it had been a group of new joint venture partners,” said Weld.

“We spent a lot of time documenting how that all works,” commented Weld. “There is a very disciplined protocol in place. The good news about this project is that it is designed and construction is under way. We don’t have to go through weekly meetings on the progress of the plans. We have a protocol among the partners. Within that protocol, each partner has its own level of responsibility.”

Weld said that National and Alexandria are working closely with the architect, Boston-based Elkus Manfredi Architects, and GC Moriarty every step of the way. “The third leg of the stool,” explained Weld, “is leasing and marketing and that is coordinated through Alexandria because it knows all of the life science companies by virtue of having a 20 million-square-foot portfolio throughout the country.”

Then it comes to Clarion’s ongoing role in the project. “Every two weeks--it will go out to every month at some point--we all get together and go through where we are in the construction process and where we are in terms of requisitions,” said Weld. “There is a very detailed process on how progress gets evaluated and then how money gets released as you move through the process. It is a monitor and a financial exercise but because of the nature of Clarion Partners, we get involved on the ground at these meetings. Sometimes capital partners are more like a lender and if things are all going well, they don’t worry about it. We prefer, without being intrusive, to say to our partners that we are an integral part of the process; we are your partner. That way, if something begins to need more attention, we don’t have to stop the presses and figure out how we got to where we are. To that extent, you need to have people who are comfortable talking to each other.”

For more information

Alexandria Real Estate Equities
Charles River Realty
Clarion Partners
Dana-Faber Cancer Institute
Elkus Manfredi
John Moriarty & Associates
National Development