Blackstone Bets on Property Industry Positioned to Withstand Pandemic

BioMed Realty’s holdings includes 4570 Executive Dr. in San Diego.

Blackstone Group is placing a big bet on one type of workplace that didn't need a lot of adaptation for the coronavirus outbreak. After all, a portion of the staff was already donning personal protective equipment at work and sitting far apart from coworkers before social distancing was the norm.

The New York-based private equity giant is focusing on real estate needed for medical research laboratories as vaccine and other related research picks up in the pandemic. To that end, it agreed to sell BioMed Realty for $14.6 billion to another of its funds as part of a new long-term hold strategy.

BioMed is the largest private owner of life science office buildings in the United States, with an 11.3 million-square-foot portfolio concentrated in key markets including greater Boston, San Francisco, San Diego and Seattle, as well as Cambridge in the United Kingdom.

The move to hang on to the BioMed portfolio and recapitalize it reflects of the strength of the life sciences and biotechnology sector. Part of that resilience is a result of it being one of the few sectors that were actually well positioned to withstand and even benefit from a pandemic.

“When coronavirus first hit, life sciences generally froze like a lot of industries, but the lab, R&D space, with people already working in labs, using [personal protective equipment] and naturally socially distanced with benching, was virtually unscathed,” Ian Anderson said in an email.

Now, with new attention from investors all over the world, Anderson said “there’s been an increase in demand for lab and biomanufacturing space in many markets.” He noted federal funding has been allocated to the Washington, D.C., and Baltimore region where companies have urgent requirements for space that needs to be ready for occupancy as soon as possible.

“Coronavirus has also changed the equation for some manufacturing and distribution real estate needs whereby companies are looking to grow their domestic operations, and not be reliant on foreign sources and supply chain disruptions as has occurred in 2020,” he added.

In North Carolina, life sciences research and manufacturing helped move the Raleigh-Durham area into the No. 1 spot for real estate prospects in the Urban Land Institute’s influential annual emerging trends report.

Owners are already moving to reposition their buildings. Just outside Boston, in the U.S. biotech research capital of Cambridge, Massachusetts, Principal Real Estate Investors is seeking a partner to convert two office buildings into lab space.

Blackstone filed a notice with the Securities and Exchange Commission about the launch of a new fund called Blackstone BioMed Life Science Real Estate, along with five related feeder funds. Blackstone BioMed Life Science Real Estate is set to acquire BioMed Realty.

“Life science is one of Blackstone’s highest conviction themes, and we have made a number of important investments in this space across the firm,” Kathleen McCarthy, global co-head of Blackstone Real Estate, said in a statement. “In real estate, many of our investors are eager to maintain or increase their exposure to life science office, and this recapitalization enables them to do that with an extraordinarily high-quality company as well as a trusted partner in Blackstone.”

In connection with the recapitalization, existing BioMed investors were offered the option to exit for cash or reinvest their proceeds from the sale.

The investment will generate $6.5 billion of cumulative profits for the current fund holding the investment, Blackstone Real Estate Partners VIII and BioMed co-investors.

BREP VIII, an opportunistic real estate investment fund, and co-investors acquired BioMed in January 2016. Since that time, Blackstone said it has concentrated the portfolio in core life science markets with strong growth potential.

This past July, Blackstone held final close of Blackstone Life Sciences V, raising $4.6 billion to invest the sector. The BioMed recapitalization is expected to close within five business days of the conclusion of the go-shop period that allows competing offers.