Customer conversation: Square Mile Capital | Goodwin

0

As investor demand for life science real estate grows at a rapid rate, lenders are actively looking to lend in this space. Goodwin’s partner Jarrid King spoke with Eric Juster, Vice President, Investments at Square Mile Capital, about the outlook for the accessories industry, the potential risks faced by lenders, and how best to address them. mitigate.

JARRID: WHAT ARE THE MOST IMPORTANT FACTORS TO CONSIDER WHEN LENDING A LIFE SCIENCE REAL ESTATE LOAN?

Eric: Location is always important, especially in the life sciences market. We consider which city you are in and whether the property is part of a life science hub. We also analyze the size of the population and the proximity to universities.

For example, in Boston you are near Harvard and MIT, which is one of the reasons Cambridge is the zero point for research and development in the life sciences. On the west coast you have great universities in areas where people want to work.

Life sciences are a very collaborative industry. Large companies invest in smaller startups, and companies of all sizes are looking to work in the same building or in the same neighborhood as other companies.

So these are some of the key touchpoints and factors that we assess for every transaction.

JARRID: WHAT CHALLENGES IS NEW YORK TARGET TO GET TENANTS FAR FROM MORE ESTABLISHED LIFE SCIENCE CENTERS LIKE SAN DIEGO, SAN FRANCISCO AND BOSTON?

Eric: As we walk past COVID-19, the New York market is at or above what it was before the pandemic. New York has an excellent employment base, great universities, and an extensive hospital network. However, it is more difficult for new developments in New York than in other major markets and, as such, attracting pharmaceutical tenants to the 500,000 square foot banner has been more difficult.

Nonetheless, in the long term, we are optimistic about New York City as a life science destination rivaling other more established places due to its high concentration of hospitals and universities and growing demand for capital. -risk and government funding for life science real estate.

JARRID: WE SEE A MUCH MORE COMPETITIVE LANDSCAPE FOR LENDERS IN THE LIFE SCIENCES REAL ESTATE AREA, AND FINDING ASSETS TO LEND IS DIFFICULT; WHERE DO YOU SEE OPPORTUNITIES AND WIN OFFERS?

Eric: The redevelopment presents more opportunities at this time. But when there is a more complicated business plan, such as a redevelopment, partnering with experienced developers who can identify and fix various shortcomings is crucial. You need to know what works and what doesn’t and what has been praised successfully in the past.

We have a network of consultants who we can consult on specific transactions, and it’s an invaluable resource.

Another advantage is our relationship with USAA. They have a life science equity platform in multiple markets, and understanding their analysis of an asset as a developer helps. For example, sometimes they’ll look at a building’s specs and say, “It’ll be fine here” or “It’s a challenge, but here’s how you can mitigate it”. It is beneficial to have this perspective when analyzing potential debt investments. If they feel good from an equity perspective, it gives us a certain level of comfort.

JARRID: HAVE YOU NOTICED ANY OTHER CHANGES IN THE INDUSTRY THAT MAY BE INDICATIVE OF FUTURE TRENDS? EVERYTHING TO WATCH IN SPACE?

Eric: In general, there are a lot of positives. There is more funding. You mentioned New York earlier, but there is more government funding in many cities, especially Washington, DC.

One trend we can’t ignore is technology – the ability to share data and work with other businesses and be able to send data across the world in seconds for other people to analyze. And we haven’t touched on artificial intelligence, which will have a huge impact on the life science industry. The pandemic has been an accelerator for the adoption of the technology.

One potential downside is that, given the experimental and rapidly changing nature of the life science industry, many ideas fail. Where there is a lot of funding in a sector like there is now in the life sciences, we tend to see more cases where companies receive funding but cannot execute their business plan.

There is, however, a silver lining in this trend. Two or three businesses might fail in a particular space, but there could be a business that started in the same building with 5,000 square feet and now needs 50,000 square feet. While there are a few negatives, they are mitigated by more long-term positives.

JARRID: HOW WILL YOU STRUCTURE THE TRANSACTIONS TO MITIGATE THE RISKS INHERENT IN THE LIFE SCIENCES OF REAL ESTATE NEW CONSTRUCTION AND REMODELING?

Eric: You need to understand the market and the types of tenants in the space. As tenants grow they have more specific space needs, while small start-up / start-up tenants need a period of space.

Also, when you have experienced developers, we’ll fund part of the loan to them to build speculative space, and then once the lease is done, we’ll fund what we call “good news” money for leasehold improvements. It is a give and take; as a lender, you want to balance the loan dollars advanced on speculative development against the cash flow amounts expected from signed leases.


Source link

Share.

Comments are closed.