Site Seeking

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By James V. Cahill

Life science companies require highly sophisticated, capital-intensive facilities to move their science from discovery to market in a timely fashion. Securing functional and cost-effective laboratory space can be a daunting task, but with the proper strategic real estate plan in hand, and an experienced real estate team in place, an organization can procure the right solution to enable it to focus on its critical science.

Strategic Real Estate Plan
The ever-increasing occupancy costs related to the infrastructure needs of R&D and production facilities require an organization to develop a strategic real estate plan to ensure that operationally efficient and cost-effective facilities are developed and major milestone dates are met. The real estate plan identifies the most critical decision-making milestones of the entire project and helps articulate company needs to management. The plan should take into careful consideration the organization’s business strategy and should allow input from the finance team, facilities department and scientific staff. This “Ready, Aim, Fire” approach saves the organization money and time throughout the project and prepares management for the costs associated with laboratories, which can run from $100 to over $1,000 per square foot. A successful strategic plan will include the following components:

Assembly of a team of experienced professionals in the various disciplines required (internal/external). The team should include an architect, real estate advisor, municipal incentives consultant, attorney, construction experts and technical consultants as required for cGMP validation/commissioning, etc.
Analysis of the required scientific labour force, understanding of municipal incentives and optimization of specialized leasehold improvement and FF&E (furniture, fixture and equipment) financing.
Development of a budget/project schedule.
Preparation of market research and financial analysis for the candidate sites with consideration for utility rates/zoning, etc.
Agreement on the proper transaction structure (lease/purchase/hybrid).
Preliminary design and construction considerations for the facility (redundancy, percentage of lab support areas to usable space, etc.)
Understanding the impact of required federal, provincial and local licensing, validation and commissioning requirements and timelines and the development of general laboratory standard operating procedures.
Other Important Factors to be Considered
Educated Workforce: The most critical site location factor is labour. Careful consideration should be given to locating the site near a well-educated and readily available workforce of biology and chemistry scientists, as well as entry-level lab technicians and workers who will be cleaning the laboratories and equipment and maintaining the facilities. These “brain clusters” are typically found close to universities.

Securing Municipal Incentives: Labora-tory facilities are extremely expensive to construct and are mission-critical in nature, so life science companies need to be very comfortable with getting local and provincial support when making the decision to invest tens of millions of dollars into a new or expanded facility. Some areas have identified life science as a target industry, and have developed specific municipal incentive programs to attract and retain life science companies. Incentives can be in the form of low-interest loans, grants, tax and employment credits, training and collaborations with universities, to name a few.

Renovating Existing Space Versus Building Out Space From Shell Condition: Often it is less expensive to design and construct laboratory/manufacturing facilities from a shell condition instead of remodelling existing conditions. The unique nature of the climate control, power and plumbing needs for an individual laboratory — compounded by the expense of renovation improvements that may be at the end of their useful life — sometimes makes it impractical to retrofit an existing facility. Before making the decision to secure this type of space, it is important to have the architectural and construction team carefully evaluate an existing facility and to gain an understanding of the cost implications.

Exit Strategy: Exiting a laboratory facility can be an expensive proposition if there are onerous terms and conditions placed on the tenant within the lease document. The restoration obligations, alteration clauses, decommissioning requirements and renewal terms, for example, should be carefully negotiated to reduce the associated risk and expense of relocating from a facility. Also, many life science companies are finding it necessary to sublease all, or a portion of, their real estate holdings, and the lease agreement for subleasing and assignment provisions needs to be thoroughly negotiated.

For a life science company, the cost of R&D and manufacturing facilities may be one of the largest ongoing expenses. While it is important for biotech and pharmaceutical companies to provide the right working environment for valued scientific workforces, a careful plan and guidance from an experienced team will be important for delivering cost-effective and functional facilities.

James V. Cahill is a practice leader within the Life Science group of the Staubach Co. (Addison, TX). The Staubach Co. provides real estate advisory services to the biotechnology and pharmaceutical industries by reducing the overhead expenses of mission-critical facilities while facilitating a company’s need to get to market quickly.