Institutional Money Is Flooding Life Sciences

The large institutional money is starting to place bets on life sciences on both sides of the Atlantic

“At this point in the US, life sciences is an asset class that you can’t ignore anymore,” says Nicole Riley, a counsel in Goodwin’s Business Law Department and a member of its Real Estate Industry group. “We have folks who are asking us how to look at this asset class from an underwriting perspective.”

Given the current economic conditions, Riley is even more surprised by the inflow of capital into the sector. In October, 29 life science funds had closed almost $16 billion, according to Riley. 

“I think one of the things I find so fascinating is the amount of money that’s rolling in even amidst the global pandemic,” Riley says. “The VC [venture capital] funding right now seems to be at an all-time high. That’s an enormous amount of money that’s going to be flowing to these companies that are being created on a regular basis.”

This influx of capital is pushing life science firms into new markets.

“It is exploding beyond even the three major markets here in the US,” Riley says. “We’re seeing more than a half a dozen clusters pop up in the secondary markets.”

Land costs in the traditional hubs are one reason life sciences firms are branching out, but it’s not the only driver. They are also seeking markets where land is available for their facilities, according to Riley.

“Developers are looking into changing office towers to labs, but that has its unique issues associated with it given the chemical storage and zoning requirements,” Riley says. “So I think to the extent that there’s no available land in an existing cluster in the Boston, San Diego and San Francisco universe, people are definitely looking towards these secondary markets.”

Riley says there are a lot of up-and-coming markets in the US that would make good homes for life sciences clusters. She wonders if some of these markets, such as Raleigh or Philadelphia, will eventually become primary markets.

“There are a lot of them [markets] peppered throughout the United States that can become a good environment for the cluster growth,” Riley says. “They have good universities available. They have a lot of funding. And they certainly have the talent pool and the municipalities that are willing to open their arms with things like financing.”

In the U.K., James Spence has seen a “huge amount” of interest in the sector over the past six months. “The biggest shift is the amount of sophisticated institutional capital raises and spenders looking to move into this space that haven’t had much experience in this area,” he says. “They recognize it as a distinct sub-sector within the real estate market in the UK and across Europe.”

Spence says this increased interest in life sciences is coming from a “broad range of investors.” “We’re seeing big institutional real estate funds out of New York and also some European players,” he says.