Ivanhoé Cambridge, the real estate investment arm of Canadian pension plan Caisse de dépôt et placement du Québec, has entered a joint venture with Sydney-based manager Lendlease to develop life sciences properties in key markets in the US.
Life sciences is one of the hottest asset classes, with investors clamoring to enter the market. Venture capital investment in life sciences hit a record high of $32.5 billion, according to CBRE. A lot of attention is paid to the US’s three largest clusters: Boston, San Francisco and San Diego. While the venture will target opportunities in these markets, it is also targeting early entry into so-called secondary life sciences markets, namely Philadelphia and Chicago. Jonathan Pearce, executive vice president of leasing and development in North America for Ivanhoé, told PERE that those markets are seeing significant growth and buildings are being leased up quickly.
“We not only want to play in the well-established arenas but want to look at the next emerging markets,” Pearce said.
The partnership is looking to initially place around $500 million of equity into its chosen markets, which also include the New York/New Jersey area, Los Angeles and Orange County, California. The size of the investment will depend on the size of the market, with the venture more likely to develop a property in the 300,000 square feet range in Philadelphia rather than one exceeding 1 million square feet, as would be the case in a larger life sciences market.
Chicago and Philadelphia have employment in life sciences of 57,000 and 52,000, respectively, per CBRE data. By comparison, only the three main life sciences clusters and New Jersey employ more life sciences professionals. Some of the smaller markets Ivanhoé and Lendlease are targeting are also seeing outsize growth. Orange County saw the highest rate of employment growth in the US between 2019 and 2020, growing by 10 percent. That was compared to just 2.7 percent in the sector’s broader employment market.
The strategy will primarily be focused on development but can also take on conversion opportunities, reflecting the ESG component of reusing real estate. Conversion plays can also help the two groups to access more established markets like Boston, with Lendlease expected to source many deals off market. Ivanhoé and Lendlease partnered last year on the development of 60 Guest Street in Boston, a 320,000-square-foot development project that demonstrated the thesis of targeting underdeveloped submarkets in established life sciences clusters.
The venture is set to target double-digit, “development-like” returns, Pearce said. The partnership will take a varied approach to holding assets, with some being sold post-development and some held as cash-flowing assets. Once a portfolio is created, there is scope for additional LPs to commit capital to help scale the venture, Pearce said. The investor is set to significantly increase its life sciences portfolio but declined to be specific about targets. Ivanhoé has strong convictions in the sector, believing it to be less vulnerable to disruption compared to other real estate asset classes.
“What we like about the sector is you can’t do science at home. The use and type of this office is going to evolve more,” Pearce said, adding that individualized medicine and therapies are driving the evolution in the usage of life sciences space.