DivcoWest Pays $86M for San Diego Life Science Asset – What is a Ground Lease?
Featured, Investment, News, Office, San Diego, West, Alexandria Real Estate Equities Inc., DivcoWest, Eastdil Secured
DivcoWest has expanded its San Diego and life science portfolio with the acquisition of 11119 N. Torrey Pines Road, a 72,506-square-foot Class A laboratory building in the Torrey Pines research cluster, for $86 million from Alexandria Real Estate Equities Inc.
Alexandria acquired the 4.4-acre property in 2007 for $42.6 million and redeveloped the standalone building. The building is leased by the California Institute of Biomedical Research, a division of Scripps Research. Calibr has occupied the asset since 2012 and focuses on drug discovery and development for a wide range of human diseases, including cancer.
Gregg Walker, president of DivcoWest Real Estate Asset Management, said in a prepared statement the acquisition presented a rare opportunity to acquire a purpose-built lab in Torrey Pines below replacement costs and secured by credit tenancy. Walker said Torrey Pines is a strong-performing and highly sought-after submarket with long-term upside due to natural supply constraints.
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Torrey Pines is consistently viewed as one of the top life science submarkets in the country and has the highest average asking rents and lowest direct vacancy in San Diego. The acquisition is the first made by a private real estate investor since 2000 and is one of only three research properties in the market not owned by a public REIT, nonprofit or owner/user. The property was marketed to a limited group of qualified buyers by Eastdil Secured.
The LEED Gold-certified lab building was built in 1990 and completely renovated in 2012. The building has on-site showers and lockers rooms as well as conference rooms and a fitness center. It is situated across from the coastal cliffs overlooking the Pacific Ocean and the Torrey Pines Golf Course, which has hosted the U.S. Open as well as other professional golf tournaments. It is a seven-minute drive from UC San Diego’s North Campus and close to several world-renowned research institutes including Scripps Research, the Scripps Institute of Oceanography, the Salk Institute for Biological Studies and Sanford Burnham Prebys.
Walker said the asset complements DivcoWest’s existing local and national life science portfolio. The San Francisco-based company, which has six other offices in the U.S., including Cambridge, Mass., has acquired approximately 59 million square feet of commercial space in the office, R&D, lab, industrial, retail and multifamily sectors.
In November, DivcoWest topped off 441 Morgan Ave., the company’s fifth life science building within its Cambridge Crossing mixed-use development. The 375,000-square-foot lab property will have 12 stories, including two penthouse floors. The company has already completed 1.9 million square feet of the 4.5 million-square-foot development that will encompass 43 acres and feature commercial, residential, retail and dining space. Current tenants include Bristol Myers Squibb, Phillips, Sanofi and Cerevel Therapeutics.
Alexandria stated in its announcement the sale is an example of its value harvesting and asset recycling strategy. The REIT capitalizes on the strong private market valuations by sourcing significant equity-type capital for reinvestment into value-add development and redevelopment projects. As of March 31, Alexandria’s highly leased pipeline of 6.7 million square feet of current and near-term projects is expected to generate more than $610 million of annual incremental net operating income through early 2026.
Peter Moglia, Alexandria CEO & co-chief investment officer, said in prepared remarks the stand-alone asset, no longer fits with the REIT’s focus on aggregating its highly sought-after mega campuses. He said the scarcity of high-quality life science assets combined with the performance of the company’s properties creates strong demand for investment opportunities. Moglia added the sale underscores Alexandria’s ability to monetize its investments at significant profit margins even in challenging times.
Alexandria is targeting $1.5 billion in dispositions and sales of partial interests this year. To date, approximately $865 million in transactions have been completed or are subject to letters of intent and sales agreements. As of March, the REIT had a total market capitalization of $33 billion and 75.6 million square feet of space in North America, including 41.9 million rentable square feet of operating properties, 9.7 million rentable square feet of space of near-term and intermediate-term development and redevelopment projects and 18.5 million square feet of future development projects. The company focuses on life science, agtech and advanced technology campuses in major U.S. innovation clusters including San Diego, Greater Boston, San Francisco Bay Area, New York City, Seattle, Maryland and the Research Triangle in North Carolina.
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The California Institute of Biomedical Research fully occupies the property.
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In the simplest form, a ground lease is a long-term net lease (usually 49 years or 99 years) of land including any improvements on the said land. Assets that can be subject to a ground lease include but are not limited to, vacant land, office buildings, and large residential buildings.
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