This Office Park Sale Shows How San Diego's Biotech Hub Is Edging Toward Record Demand
October 7, 2021
PS Business Parks To Sell Sorrento Mesa Campus to Longfellow for $315.4 Million
Investor PS Business Parks agreed to sell the Lusk Business Park in San Diego to biotech-focused Longfellow Real Estate Partners for $315.4 million, edging the market toward matching its 2019 peak demand for Southern California properties serving the booming life science industry.
The deal is just the latest in the frothy Sorrento Mesa neighborhood, which has seen a series of big biotech-fueled property sales and leases this year. Deals throughout San Diego — and other biotech hubs — are being driven by low vacancies, a limited supply of specialized lab space, rising venture capital interest in the sector and the growth of firms involved in vaccine research and other applications.
"Boston, the San Franciso Bay Area and San Diego remain the premier markets, experiencing the strongest demand and tightest space availabililties," according to a midyear U.S. biotech report from brokerage CBRE. "Demand across all major markets has grown 34% since mid-2020."
Preliminary CoStar data indicates San Diego has seen nearly $900 million in biotech lab and office sales activity this year, depending on the closing dates on pending sales. CoStar San Diego Market Analytics director Joshua Ohl said the region may this year reach the $1.2 billion seen in 2019, the prior period of high demand for such deals in the local market.
The latest deal shows the type of property that's luring investors. PS Business Parks, a Glendale, California-based real estate investment trust, said the Sorrento Mesa property contains nine buildings totaling 371,000 square feet at 6150-6650 Lusk Blvd. and 10225 Barnes Canyon Road, and has room for expansion.
“Our infill 20.6-acre Lusk property with its 1.8 million square feet of zoned life-science development potential is an extremely valuable asset,” said PS Business Parks CEO Mac Chandler in the statement, adding the transaction will allow the company to realize “significant value” for its stockholders.
PS Business Parks said it expected to see $311 million in net proceeds from the sale, after transaction costs. CoStar data shows the buildings were constructed between 1984 and 1989 and purchased by PS Business Parks for undisclosed prices in 1997 and 1998.
A spokesman for Boston-based Longfellow said the company was withholding comment until a sale is closed. The PS Business Parks statement said the prospective buyer’s due diligence period under the deal agreement expired Oct. 6 and a required purchase deposit became nonrefundable. The deal is subject to closing conditions.
The acquisition would be the latest of several U.S. biotech deals in the past three years by Longfellow, among the nation’s most active life science investors and developers, now overseeing a portfolio of more than 12 million square feet of labs and offices.
In the past month, Longfellow acquired a 10-building San Diego office campus in the same Sorrento Mesa enclave for $149.3 million and a self-storage facility in the Silicon Valley suburb of Millbrae, California, which it plans to repurpose for biotech uses after its $80 million purchase.
Since its 2009 founding, privately held Longfellow has completed eight acquisitions in the San Diego region and seven in the San Francisco Bay Area. San Diego is the nation’s third-largest hub for life science supply and demand after Boston and San Francisco, and Sorrento Mesa is seeing significant leasing, investment and development activity geared to that sector this year.
The area had one of San Diego’s biggest commercial deals of 2021, when Chicago-based investors Sterling Bay and Harrison Street acquired eight office buildings and adjacent land from Vancouver-based City Office REIT for $576 million. Biotech firms including Sorrento Therapeutics and Artiva Biotherapeutics signed large leases for new space in the enclave this year.
CoStar's Ohl said the acquisition of Lusk Business Park would bring Longfellow’s San Diego office portfolio to more than 1.5 million square feet of existing facilities.
“Their most recent acquisitions also provide them the opportunity to develop considerably more space, which would bring their holdings to more than 2.5 million square feet if fully developed,” he said.
“They and Alexandria Real Estate Equities are following a similar pattern of buying infill sites, building out lab space at the existing properties or redeveloping them, and also having the ability to add additional square footage on the extra land,” he added.