A battery manufacturer signed the biggest lease to date at Berkeley Investments’ repositioning of 200 Exchange St. in Malden Center, a project that originally targeted life science tenants. Photo courtesy of Berkeley Investments
Real estate developers originally focused on life science tenants to fill office conversion projects are casting a wider net hoping to capture fast-growing climate tech industry startups.
Clean energy companies’ demand for commercial real estate could fill part of the void caused by the biotech leasing downturn. Life science lab supply in Greater Boston outstrips demand by an 8-to-1 margin, according to brokerage JLL, with just 2 million square feet of tenant requirements having a choice of 16 million square feet of availabilities.
“There’s not enough demand to keep everyone happy,” said Mark Bruso, JLL’s director of Boston research. “The math is the math.”
The prospect of tapping into engineering talent from local universities to tackle climate change has developers and economic development officials salivating at the growth prospects for a Bay State clean energy cluster.
Life science developer BioMed Realty cast a $361 million vote of confidence in the future of the climate tech economy with this month’s acquisition of 750 Main St. in Cambridge.
The property is the home of The Engine, a leading climate tech incubator backed by venture capital firm Engine Ventures, which also is headquartered in the 220,000-square-foot building and has raised over $1 billion to invest in startups.
Beacon Hill legislators are inching closer to agreement on the state’s widely anticipated and long-stalled economic development bill, which could provide hundreds of millions in tax credits for clean energy industry expansion.
Office-to-lab conversions that looked like a can’t-lose strategy as recently as 2022 now are considering deals with clean tech startups, many getting their start at incubators and accelerators such as Somerville’s Greentown Labs and The Engine in Cambridge.
Developers Weigh Plan B Leasing Strategy
The risks for lenders and developers from failed lab conversions are starting to become apparent.
Rockland Trust Co. this month reported a $54.6 million non-performing loan stemming from a lab conversion by Jumbo Capital and Sound Mark Partners’ at the Stony Brook Office Park in Waltham.
Clean tech tenants present an obvious back-up option, biotech tenants still in the market for space overwhelmingly gravitate toward subleases of existing lab space, brokers say.
“Any smart landlord right now is looking at an office building where they have significant vacancy, and if there’s an opportunity for them to introduce critical infrastructure to support these [clean tech] groups, they’ll take a look at it,” said Nate Heilbron, a senior adviser with brokerage Cresa.
But the deals also include significant drawbacks that may prompt developers to think twice.
Clean energy tenants’ lower rents reflect companies’ requirements for a mix of R&D, manufacturing and office space.
“It’s not as easy a pivot as you might think,” JLL’s Bruso said. “There are a lot of physical infrastructure reasons it might not work. There’s also geographical reasons. Climate tech wants to be in the city, but there’s no supply so they generally go north of the city because that’s where there’s cheaper infrastructure that meets their needs.”
Companies developing new physical technology often need much greater power supplies than traditional lab users, and they usually can only afford a fraction of typical life science rents. iStock photo
Power Upgrades, Lower Rents Create Obstacles
Many startups are researching battery technologies connected to the transition from fossil fuels to electric energy sources, which require costly building-wide power capacity upgrades.
Rents are significantly lower than biotech uses, so some developers may opt to wait for the life science space surplus to recede and eventually attract higher-rent-paying life science companies.
And clean tech tenants’ unique processes can create extra capital expenses for landlords after they vacate.
“You need to find the next tough tech company that needs the same space,” said Dave Thomann, a managing director at Cushman & Wakefield. “Finding the one that needs the exact layout can be challenging.”
Older factory buildings fit clean tech companies’ requirements better than office conversions in many cases, said Kevin Sheehan, co-founder of Boston-based Greatland Realty Partners.
“You start to look at buildings that are 100 years old and were built for a printing press or a technology we don’t use anymore, but they end up being perfect for these types of users,” he said.
Greatland Realty Partners is converting two former Liberty Mutual office buildings on Riverside Road in Weston into lab-ready shell space. The project has leased 30,000 square feet to one life science tenant, Modex Therapeutics, but has another 310,000 square feet available in the two existing buildings and an approved development site.
Developers now are studying the potential for the building’s infrastructure to support non-life science tenants, ranging from floor load to HVAC capacity and power supply.
“The question is: is it the right location and the right economic package?” Sheehan said.
Steve Adams
Battery-Maker Heads to Malden Lab Conversion
Boston-based Berkeley Investments has found a way to make the economics work at a pair of non-traditional commercial properties in the inner suburbs.
A sprawling former Bank of America operations center occupying an entire block in downtown Malden was originally envisioned as a life science conversion. Berkeley partnered with Chicago-based Singerman Real Estate and Acore Capital on the $135 million project at 200 Exchange St. in mid-2021.
As life science venture capital funding for expansion declined in 2022, it became apparent that developers had to widen their horizons for tenants, said Dan McGrath, Berkeley’s director of asset management.
The project got its biggest lease commitment in September, when Woburn-based Alsym Energy leased 60,000 square feet for a new headquarters. The company develops batteries for grid and home storage, and recently raised $78 million in venture capital funds.
“We’re seeing there are a lot of other users who need lab space,” McGrath said. “There are a lot of the same requirements.”
And at 64 Pleasant St. in Watertown, Via Separations leased nearly 51,000 square feet at the former Sasaki architects headquarters. The venture-backed company manufactures filtration systems used in the paper industry.
