Pandemic Increases Appeal of Life Science Buildings
Blackstone Sells BioMed to Itself
In a first for Blackstone (BX), the investment giant announced it will sell its life-science property holding company, BioMed Realty Trust, to itself. The fund that currently owns BioMed Realty Trust needs to exit its holdings and return cash to investors. However, these investors said that, rather than taking proceeds from a sale or IPO, they would like to continue to own the Trust. Therefore Blackstone is selling BioMed Realty Trust to another one of its funds for $14.6 billion.
The nuanced transaction highlights investors’ appetite for life-science backed buildings such as those where startups rent lab space in BioMed Properties. Wall Street appears to believe these companies will continue to innovate and be integral to the fight against COVID-19 and other health issues. As part of the deal, investors had the option to cash out. According to Blackstone, most stayed in and some even invested more money.
When Blackstone first acquired BioMed in 2016, its properties stood at 91% occupancy. Now, BioMed’s 93 properties are 97% occupied. About half of those tenants are at work on COVID-19 testing or vaccine development, and all have paid rent in full since the start of the pandemic.
However, life science buildings do come with their own set of risks. Research and science companies often require new ventilation systems as well as proper disposal for hazardous waste. This can be costly, but at a time when many office buildings and retail centers are sitting vacant, science-backed buildings look more attractive. Furthermore, Blackstone analysts think demand for these buildings could grow even more as some move their operations back to the United States.
Global Trends Put in Real Estate Context
With traditional commercial real estate in flux since the pandemic’s start, Blackstone’s real estate group has adapted to changing market dynamics. Over the past several months, e-commerce, streaming services, and life science companies have been booming under stay-at-home orders in a health crisis. Alongside life-science properties like BioMed’s, Blackstone has bought up fulfillment warehouses and media production centers to respond to that demand.
This strategy appears to be paying off. When the $14.6 billion BioMed sale is finalized, Blackstone will lock in a $6.5 billion gain from the purchase in 2016. This will be the third most lucrative deal of any Blackstone fund, behind its disposition of Hilton Hotels in 2018 and Equity Office Property Trust in 2019.
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