Longfellow Buys $315M San Diego Office Portfolio for Life Science Play

Longfellow Real Estate Partners has acquired a nine-property office portfolio in San Diego from PS Business Parks for $315.4 million. It plans to convert the 371,281-square-foot property into a life science campus.

The properties are located on 20.5 acres at 6150, 6160, 6370, 6440, 6450, 6540, 6640 and 6650 Lusk Blvd. and 10225 Barnes Canyon Rd. in the Sorrento Mesa area of San Diego, and all are two stories. The property is zoned for office, light industrial and other commercial uses, which allows Longfellow the opportunity to pursue a life science use. The area is already home to several notable life science users, including Scripps Research, UC San Diego, the Salk Institute and Sanford Burnham Prebys Medical Discovery Institute.

Investors have been rushing into the San Diego market to capitalize on the growing life science demand—and conversation projects have been popular. In a similar deal, Luminous Capital Management and Virtus Real Estate Capital formed a joint venture to convert an industrial warehouse into a life science facility. The joint venture has secured $33 million in equity capital for the project. The joint venture plans to renovate the property into a facility that will be suitable as a high-image industrial asset for life sciences manufacturing uses, ideally for the production of pharmaceuticals and other therapeutics. To accomplish this, the joint venture will create 28-foot clear heights.

These projects are coming as a response to rising demand for industrial product. Demand for lab space increased 280% since March 2020 and office demand has already surpassed pre-COVID levels, according to research from JLL. The demand is driving both leasing and investment activity in the market.

The demand for life science has also fueled asset pricing. City Office REIT has entered into definitive agreements to sell all of its life science holdings in the Sorrento Mesa submarket of San Diego for $576 million. The properties are trading unencumbered by debt to an unnamed buyer. The sales will be completed through two separate agreements.  The northern portion of the portfolio is scheduled to close in December 2021 for $395 million. The southern portion of the portfolio is scheduled to close in February 2023 for $181 million.  Both sales are subject to customary closing conditions.