Oxford completes US life sciences market expansion

After acquiring a portfolio of research labs and offices in San Diego, the Canadian pension is preparing to launch a branded platform later this year.

Oxford Properties has expanded into the last of the major life sciences hubs in North America with the acquisition of nine assets in San Diego from Blackstone’s BioMed Realty earlier this month for $464 million, PERE has learned.

The transaction marks Oxford’s entrance into the booming San Diego biomedical research and development market. It also comes as the Canadian firm prepares to launch a branded life sciences real estate platform later this year, sources close to the matter tell PERE.

Suter: San Diego was the last major life sciences market missing from Oxford’s portfolio.

The firm, which invests in real estate on behalf of the Ontario Municipal Employees’ Retirement System, has made a concerted effort to diversify its life sciences exposure, deploying $2 billion during the past 12 months alone, says vice-president of investments Tycho Suter.

Oxford first dabbled in the sector as a lender, providing financing for Blackstone’s acquisition of BioMed Realty Trust, then a listed REIT, in 2016. The pension investor began buying properties in 2017 in the Boston area, the biggest life sciences market in the world, and invested there exclusively until late 2020.

It has since expanded into eight of the other major life sciences markets throughout North America, including the San Francisco Bay Area, Seattle and Vancouver, leaving San Diego as the final piece to be fitted into puzzle.

“San Diego is a very significant life sciences market, likely the number three-ranked market in the world, and we had been trying to get into it, but it’s been very competitive,” Suter says. “This was a nice way for us to get into the market and really cement and cover the major life sciences markets on the West Coast.”

The portfolio spans 650,000 square feet across 13 buildings, a dozen of which are located in San Diego’s Sorrento Mesa and Sorrento Valley neighborhoods, near the heart of the research corridor on the city’s northwest side. Most of the properties are one or two stories tall and have a combination of office and laboratory space.

Overall, the properties are 98 percent leased, giving Oxford cashflow to balance out its heavy exposures to new development and repositioning in the sector, Suter says. The firm has more than two dozen projects in the works throughout North America. Stabilized assets do not often trade hands in the life sciences world, Suter notes, as most of the real estate is controlled by REITs and open-end funds.

“These income producing properties don’t usually trade and it’s even more rare to see a portfolio of this size and quality,” he says. “This does not occur very often in the life sciences space, or at least has not to date, so it was a great opportunity for us to come in at scale and in a high conviction market.”

From Q4 2020 through the third quarter of 2021, one-third of the transaction volume in San Diego’s life sciences real estate market were portfolio acquisitions, according to the data tracking firm Real Capital Analytics. While this pales in comparison to Boston, where more than 70 percent of transactions were for portfolios, it is significantly more than most markets, which saw no portfolio deals last year.

San Diego is the fourth largest laboratory and R&D real estate market in the country, with 17.7 million square feet of related property, according to the brokerage CBRE. The city also ranks fourth in terms of total employment in the industry, at roughly 69,000.

Now that Oxford has a presence in each of the top seven US life science hubs plus Toronto and Vancouver, Suter says the firm will focus more on expanding its footprint in each of those locations rather than venturing into smaller markets.

“We don’t want to just be a single asset holder in one market, we’d prefer to have fewer markets but more assets within each market,” he says. “So, we will look to expand in each of these markets, including San Diego.”