Brookfield Asset Management (NYSE: BAM) is getting back into the life sciences real estate sector. A real estate investment fund managed by the company recently formed a partnership with King Street Properties to pursue investments in the space across the country. It's the latest move by a notable real estate investor to expand in the sector.
Here's a closer look at this partnership and some of the other recent deals focused on this highly sought-after property type.
Making a big move back in life sciences
The partnership intends on investing about $1.5 billion of equity into King Street's life sciences real estate pipeline. In addition, Brookfield has agreed to purchase an interest in King Street's operating platform. King Street owns and manages 2.5 million square feet of stabilized assets and has another 2.3 million square feet of properties under development.
The partnership will blend King Street's expertise in the sector with Brookfield's financial resources. It will allow King Street to rapidly scale its platform in established life science markets and expand into those on the rise. In addition, the partners plan to pursue new product types, like biomanufacturing.
The deal marks Brookfield's re-entry into the life sciences real estate sector. One of its investment funds sold a portfolio of lab office buildings to a fund managed by Blackstone Group (NYSE: BX) earlier this year. That deal brought in $3.4 billion for a 2.3-million-square- foot portfolio of best-in-class lab office buildings. Brookfield initially acquired that portfolio when it purchased diversified REIT Forest City Realty Trust for $11.4 billion in 2018. That life science portfolio consisted primarily of assets in Cambridge, MA, a leading life sciences hub near Boston.
King Street also operates in Cambridge. It started building a $170 million, 160,000-square-foot Class A lab development last November with healthcare REIT Healthpeak Properties (NYSE: PEAK). In addition to that market, other major life science clusters include San Francisco and San Diego. Meanwhile, Raleigh-Durham, North Carolina; Los Angeles; Denver; Philadelphia; and Seattle are emerging as hubs for life sciences.
Big-name investors are betting big on the sector
The pandemic has highlighted the importance of life science real estate. Demand for these specialized offices has increased because the healthcare industry needs more space to research, develop, and test vaccines, therapeutics, and diagnostic tests. That's leading real estate investors to pour capital into the sector.
Blackstone has been one of the biggest investors in the life sciences sector. Last year, the company recapitalized BioMed Realty, valuing the life sciences real estate company at $14.6 billion. It also bought Brookfield's life sciences portfolio for $3.45 billion and two other buildings for $1 billion, bringing its total investment to about $20 billion.
Meanwhile, office REITs Boston Properties (NYSE: BXP) and Alexandria Real Estate Equities (NYSE: ARE) are pouring money into the sector. Boston Properties currently has 3.3 million square feet of stabilized properties and is investing more than $500 million on 1 million square feet of lab conversions. In addition, the company owns space in life science clusters to pursue up to 5 million square feet of future development targeting the sector.
Alexandria focuses mainly on life sciences properties. The company gets 82% of its annual rental revenue from pharmaceutical, biotechnology, life sciences, or institutional (academic/medical, non-profit, and U.S. government) tenants. The company acquired 5.5 million square feet of properties in its key life science cluster submarkets for $1.1 billion during the second quarter. These new additions included about 900,000 square feet of operating space and 4.7 million of value-creation opportunities through conversions and other projects.
Healthy demand for this space
Life science companies were one of the big beneficiaries of the pandemic. Investors and governments have poured billions of dollars into the sector to help curb this pandemic and prevent the next one. That's giving life science companies the capital to expand their crucial work, driving demand for labs and other life science spaces. This growing opportunity is leading Brookfield and others to pour capital into that real estate, where they believe they can earn attractive returns.