Hundreds of millions of dollars are pouring into plans to help incubate and retain life-science startups in New York City, panelists said at a ULI New York event in May. Locating in Manhattan offers the benefit of a variety of possible partners, including universities, hospitals, and other technology firms, as well as the presence of investors and potential employees, they said.
“The prospect for life sciences has changed in New York. . . . The tide has turned,” said Bill Harvey, managing director for commercial real estate firm Newmark Grubb Knight Frank, speaking during a panel discussion at the New York Genome Center.
“New York is uniquely placed for health technology companies,” said Kate Merton, head of Johnson & Johnson Innovation and JLABS in New York, which recently opened a 30,000-square-foot (2,800 sq m) facility in lower Manhattan between TriBeCa and SoHo.
Foundations in Research
For years, New York City has had several ingredients life-science companies need to get started. Firms often begin with ideas explored at academic medical centers, and New York City has nine such institutions. Top universities like Columbia University and New York University also support innovation. New York City is behind only Boston among U.S. cities in the volume of grants received by the National Institutes of Health (NIH).
However, until recently ideas first developed with help from NIH funding in New York City were often developed into new companies elsewhere. That’s changing. Today, new life science companies based in New York City apply for and win their first rounds of venture capital funding at a rate of roughly $300 million a year, according to the experts on the panel.
Developers like JLABS are creating properties where these new life science companies can open for business. JLABS is a life-science technology incubator that offers a mix of new offices and “wet laboratories” for scientific experimentation. Two other life-science incubators are opening in New York City—the State University of New York (SUNY) Downstate incubator in Brooklyn and Alexandria LaunchLabs in Manhattan. Together, the three incubators will have a total of 100,000 square feet (9,300 sq m) of space.
“For a long time there was not a possible path for where entrepreneurs could go after the academic medical center,” said panel moderator Doug Thiede, senior vice president of life sciences and health care for the New York City Economic Development Corp. “There are now more possibilities than ever for entrepreneurs to grow in NYC.”
The young companies that come to JLABS typically plan to stay for 24 months or less. After that they either apply for more time or move on.
The Need for “Step-Out Space”
New York City lacks the kind of spaces that a life-science company needs when it is too big for a small space in a technology incubator like JLABS. “There is an appetite for this space that is ready to go,” said Robert Albro, managing director of King Street Properties, based in Boston and specializing in science real estate.
Young life-sciences companies need “step-out spaces’ with shorter lease terms that can offer them the freedom to grow. Such a company may have anywhere from 40 to 150 employees; the number can change rapidly and unpredictably as the firm develops its technology.
“Five years out, we had no idea how much space we would need,” said Sam Globus, vice president of business strategy and operations for Celmatix, a New York City–based company that uses big data analytics and genomics to improve fertility treatments. Most conventional property owners offered leases of office space starting at about ten years, he noted. “There was no way our investors would let us make a ten-year commitment,” he said.
Life-science companies also need a certain kind of real estate to thrive. The buildings should not be too tall: laboratory spaces need ventilation that would be inefficient in a high-rise. The floor plates should also be relatively large: 30,000 to 50,000 square feet (2,800 to 4,600 sq m) of space per floor is a good amount. “With 20,000 square feet [1,900 sq m], you are spending a lot for staircases,” Globus said.
In addition, like any other employer, life-science firms want to locate in buildings and neighborhoods that will help them attract the best employees.
Evaluated according to those requirements, many existing buildings in New York City are too tall, are too small, or suffer from some other problem like a lack of windows. Other, less expensive, less densely developed cities, however, have found places to build suitable properties. “You can’t swing a cat around San Diego without hitting some kind of appropriate step-out space,” Merton said.
New York City has committed $500 million toward overcoming these obstacles to create a cluster of new life-science spaces, including $100 million to help unlock space for companies to grow. So far, city officials have identified five potential locations for a cluster of life-science developments, though no announcement had been made by early June.
New York City’s Advantages
Despite the challenge of finding or creating the right kind of space, life-science companies benefit from being in a great location like New York City, which helps attract investors and talented employees.
These companies may also benefit from being close to potential partners for outsourcing some operations. Life science properties often build out 60 percent of their space for labs, leaving the remainder for office space. But life science firms in New York may need less lab space – as little a 40 percent of the total space – because these companies may can find nearby partners to outsource a significant amount of their lab work.
Celmatix’s first offices in a WeWork building in New York had no lab space at all. Instead the company partnered with outside labs. “I would not be sitting out here today if we had not outsourced a lot of our wet lab space,” said Globus. The solution gave Celmatix flexibility to grow, though eventually the firm moved to larger offices that provided it with some lab space of its own.
Life-science companies also benefit from being close to the many technology companies that have offices in the city. Partnerships with these firms can help life-science companies handle their technology and cut down on the need to own and maintain infrastructure like computer servers.
New York City has also created several programs that can help individual companies offset some of the cost of building out laboratory space, including by providing low-interest loans or perhaps even an equity investment. “Life-science companies want to spend their money on science and not on the real estate,” Thiede said.
These laboratory spaces may be less difficult to fit into a building alongside conventional office tenants than it might seem at first. Many landlords who hesitate to provide lab space are already comfortable with doctors’ offices that regularly use hazardous materials like the radioactive isotopes in X-ray machines. “There is nothing in our labs that you can’t drink,” said Globus.
Once the laboratory space at the life-science property is built for one tenant, the same space can often be used by future tenants without a lot of expensive upgrades. “If built-out correctly, people don’t appreciate how reusable lab space is,” said Albro. At his properties, the same laboratory space on occasion has been reused by four or five successive tenants without requiring much work to fit out the space.