New York City developer launches life sciences venture

Taconic Partners, one of New York’s largest private owners and managers of laboratory space serving pharmaceutical and biotechnology companies, is consolidating its life sciences portfolio into a new subsidiary called Elevate Research Properties. Elevate will control three life science labs currently under development by Taconic.

Elevate also plans to spend more than $250 million to redevelop an office property it owns with Nuveen Real Estate near several academic medical facilities, including Mount Sinai Hospital, according to Taconic executive vice president Matthew Weir. The building will include 200,000 square feet of office space, with construction scheduled to begin next year.

“We saw that New York had all the basic elements to really grow this sector, but what was really missing was laboratory space,” he said.

Additionally, the new company is exploring opportunities outside of New York, particularly in other East Coast markets, said Mr. Weir, who will serve as Elevate’s president.

Life science research has been booming in many cities since the start of the Covid-19 pandemic, fueling demand for buildings for pharmaceutical, biotechnology and other laboratory uses. According to real estate firm CBRE Group, there was just over 29 million square feet of laboratory space under construction in the U.S. in the first quarter of 2022, for a record high of 55% year over year inc

But after more than a year of unbridled growth, biotech stocks entered a bear market this year as borrowing costs and scientific setbacks have dampened investor enthusiasm. The SPDR S&P Biotech ETF,

an equally weighted index of biotech stocks, is down 43.44% year-to-date, compared to a 21.33% decline in the S&P 500.

Life science companies, especially start-ups, get much of their funding from venture capital firms. These companies, in turn, eventually seek high stock market valuations to exit and capitalize on their startup investments.

“There’s a lot of uncertainty out there,” said Austin Barrett, executive vice president and head of the life sciences practice group at real estate broker Savills. He said the funding pipeline from venture capital firms and government agencies remains strong.

But he added, “If companies can’t go out and raise big public funds, they won’t be able to hire anytime soon.”

With a total of 4.9 million square feet of existing life science space, the New York City market is still in its infancy, according to real estate firm Colliers.

The nation’s leading markets, Boston and the San Francisco Bay Area, each have more than 30 million square feet of life science real estate, Colliers said.

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Historically, the suburbs have been better suited for laboratory real estate, with plenty of space and more affordable rental rates for sprawling research and development campuses, said Aaron Jodka, U.S. capital markets research director at Colliers. But advances in technology and architecture have made it possible to build labs on higher floors of office buildings, opening up more development opportunities in New York.

The city has other ingredients for a growing life sciences industry, including $5.6 billion in venture capital and $3 billion in federal research grant funding poured into the sector over the past year. “You’re beginning to see a really strong recipe for future growth in the life sciences space,” said Mr. Jodka.

Founded in 1997, Taconic owns commercial and residential properties. The company is best known for the redevelopment of a massive building on Eighth Avenue, which it sold to what is now Alphabet in 2010 inc

Google department.

Mr. Weir said he is not concerned that the turmoil in biotech stocks will hurt demand for laboratory space, in part because he believes demand for new therapeutics and other technologies, such as climate and agriculture technology, will offset the current losses will endure on the stock markets.

“The disruptions in the public market right now are a fundamental reset,” Mr. Weir said. “The aging population, the advent of personalized medicine, technologies like mRNA — there’s just so much momentum in the market that these issues will continue at the macro level.”

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write to Kate King at Kate.King@wsj.com

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