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REA
July 29, 2020  

Pace Pitches Life-Science Opportunity in NY

Pace University is shopping a piece of its campus in Lower Manhattan as a redevelopment play, in what could be the largest listing in the city since the pandemic crushed the investment-sales market.

The offering consists of part of a two-building complex totaling some 462,000 square feet near the base of the Brooklyn Bridge. The university, via Newmark, is pitching the opportunity for a buyer to redevelop the property as a life-science center with roughly 850,000 sf.

Offers could vary depending on the winning bidder’s strategy, but market pros believe the property will fetch roughly $350 per buildable foot, or about $300 million. The buyer would then commit to spend at least $500 million to develop what’s being billed as the Life Sciences Center at Pace University. Work would begin after the 2023 academic year.

Newmark is expected to launch the marketing campaign this week. Pace is seeking to sell the property outright, but would consider other transactions including the sale of a leasehold interest or forming a joint venture.

The offering has the potential to elicit heavy bidding for several reasons. First, New York City has seen few, if any, large listings since the pandemic forced office buildings to close in mid-March. New York office sales in the first half totaled a scant $4 billion, placing the city second in sales volume, behind the Boston area, for the first time since Real Estate Alert began tracking large trades in 2001.

Second, development plays in general have continued to attract investors amid the economic downturn because the projects presumably will be delivered post-Covid, when market conditions have stabilized.

And third, life-science properties continue to gain appeal among investors and are seen as well-positioned for an economic recovery. The niche asset class has become “one of the most sought-after and discussed investments” in the market, Newmark said in a report last month. “Although general business activity in NYC has slowed post-Covid,” the report added, “interest in the life-sciences sector has thrived, with many local landlords actively considering the feasibility of conversion of existing assets to lab space.”

While Manhattan lags Boston and the San Francisco Bay Area as a destination for life-science companies, there’s been a spurt of development activity in recent years, supported by multiple state and city programs. According to the New York City Economic Development Corp., venture-capital investment in the city’s life-science sector has increased 700% since 2014.

In addition, life-science properties are fetching rent premiums versus traditional offices. “Taking rents” — the actual rents paid by tenants at the start of leases — average $90-100/sf for triple-net-lease life-science space, according to the Newmark report. That compares with a first-quarter average of $81.71/sf for traditional office space.

The two Pace buildings, which are connected by enclosed pedestrian bridges, are currently being used for a mix of academic, administrative and residential purposes. The university plans to vacate one of the buildings after the spring 2023 semester and turn it over to the developer. It would continue to occupy the other building.

The offered property, at One Spruce Street, is on a parcel bounded by Frankfort Street, Gold Street, Spruce Street and Park Row. The site is near the Fulton Center transit hub and adjacent to New York-Presbyterian Hospital, which marketing materials note makes the neighborhood ripe for life-science development.