City Office REIT Closes San Diego Life Science Portfolio Sale for $576M
Net proceeds from the sale are $543 million, and the investment has a gain of $425 million.
City Office REIT has completed the sale of its Sorrento Mesa life science holdings for $576 million. Net proceeds from the sale, after closing costs, total $543 million, but the overall investment generated a gain of $425 million, according James Farrar, City Office REIT CEO. The portfolio sold to an unnamed buyer, and were unencumbered by debt, according to an earlier report.
The REIT entered into a definitive agreement to sell the portfolio in August. At the time, City Office REIT expected the sales to be completed through two separate agreements. The northern portion of the portfolio was scheduled to close in December 2021 for $395 million, while the southern portion of the portfolio was scheduled to close in February 2023 for $181 million.
The sale is exemplary of the strong demand for life science space in San Diego, one of the top three life science markets in the country. Demand for lab space in the market has increased 280% since March 2020, according to research from JLL. The demand is driving both leasing and investment activity. According to Tim Olson, senior managing director at JLL, “the incredible growth in the life sciences industry, which is displacing office tenants as offices buildings are converted to lab buildings, have been the driving forces behind the San Diego office leasing activity.”
The growth is so strong that office owners like Kilroy Realty Corp. are focusing on life science tenants. In September, Kilroy completed three major lease transactions in San Diego with publicly traded life science and biotech companies. The lease deals total 330,000 square feet, and will involve the redevelopment of current office space into life science facilities. The company is also expanding its life science exposure. It is currently under construction on Santa Fe Summit, a 600,000-square-foot life science facility in San Diego that it says will meet the growing demand in the market, and it is building out phase two of Oyster Point, a premier life science campus on 50 acres in South San Francisco. One of five, the second phase will feature thee buildings totaling 860,000 square feet and represents an investment of $940 million.
Although life science is booming, City Office REIT is taking a different path. It plans to use the proceeds from its sale to invest in premier office properties in key growth markets across the US. It is currently involved in three acquisitions in Dallas, Phoenix and Raleigh with a total purchase price of $613.5 million.