Barings aims to stay on life sciences financing wave

Boston, San Francisco and San Diego are target areas for future conversion playbook alongside select STEM-friendly markets.

Barings is looking to boost its life sciences origination efforts and is focusing efforts on converted properties to boost its decade-plus financing focus on the segment. 

Akbar Tajani, managing director of real estate at the Charlotte-based investment management arm of MassMutual, said the firm is trying to expand its overall portfolio in STEM markets because those markets are anticipated to experience a greater proportion of growth due to tenant, employer and employee composition.  

Barings is angling for more opportunities in cities such as Boston, San Francisco, San Diego where the STEM ecosystem is active and still expanding. “You do not want to be an outlier in the middle of nowhere in your own space,” Tajani said. “You want to be around a lot of life sciences companies.” 

At the end of April this year, Barings widened its lending footprint in San Diego by providing financing for the acquisition and conversion of Sorrento Ridge Research Park, an office asset in the Southern California city. Through a joint venture with Sterling Bay and Harrison Street Real Estate Capital, the asset will be converted into a life sciences development. 

“We look for the same leading indicators that we have looked for since we started investing in the space and those are, in no particular order: public and private research funding, where the universities are that are actually investing in research and spinning out startups; and then related to that is the PhDs and where the educated, skilled labor force is; and then the depth of the private and public companies that are there alongside that particular market’s growth rate,” Tajani said. 

From a June 3 CBRE report, life sciences development has sustained momentum throughout the pandemic and is holding pace into 2022. Under-construction projects in the top 12 US life sciences markets increased 44 percent in 2021, ground-up development increased by 42 percent and lab conversions similarly ticked upward by 49 percent. 

Nick Jann, senior analyst at the Dallas-based real estate manager, said the disparity between demand and supply is causing many building owners to convert existing office space into lab space despite the significant upfront investment. “Owners view these renovations as a down payment on a future of greater rents and higher occupancy over time.” 

Tajani said the conversion process for reworking an office property into a suitable life sciences asset typically requires system improvements to ensure power and air capabilities are up to par. Akin to transportation-geared industrial properties, the converted assets also must factor in loading and unloading of scientific equipment and materials to and within the property. 

San Diego has been one of the most active cities driving the office to life sciences conversion wave in recent quarters alongside Boston, Raleigh, Durham and Philadelphia according to first quarter 2022 data from Cushman & Wakefield. 

More than six million square feet of lab inventory has been added to San Diego from 2015 onward and an additional 3.25 million square feet is currently under construction according to a May 11 report from CBRE. There is 6.5 million square feet of planned conversions and construction slated to take place in the next two to three years, CBRE data shows. 

“I think the momentum of conversions that we have experienced so far continues,” Tajani said. “But there is a finite amount of buildings you can convert and at some point, the rents and the preferences are such that many big tenants will want to get newer, purpose-built buildings. I do see a greater push for new life sciences assets that are purpose-built, modern, and have all the characteristics we are talking about, especially as many of these companies mature and go from series A, B, C of funding.” 

Recently on June 9, Barings bulked its Northeast US life sciences portfolio with an equity play atop its ongoing debt efforts. The firm picked up One Patriots Park, a nearly 144,000-square-foot fully leased Class A life sciences asset in Bedford, Massachusetts, from Jumbo Capital in a $132 million acquisition. 

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