The deals represent a small but promising bright spot for a downtown economy rankled by the coronavirus and bouts of civil unrest and looting that have stained its reputation. Early-stage bioscience companies, especially those born locally through breakthroughs at Chicago-area universities, have historically ditched Chicago when they're ready to grow because the city lacks high-quality, available lab space.
But two prominent real estate developers, Chicago-based Sterling Bay and Dallas-based Trammell Crow, have taken key first steps over the past year into building such space and are now proving that companies like Xeris will stick around if there's room for them. And against a backdrop of sweeping layoffs in other industries and questions about the future vibrancy of the central business district, there's a lot riding on Chicago developers helping the city win its share of talent, jobs and tax revenue from a landscape of life sciences startups that has been supercharged by a global pandemic.
"It is a monster moment in time" for Chicago's life sciences industry, says CBRE broker Dan Lyne, who co-founded one of Chicago's early forays into the life sciences startup community in 2014 with the launch of 25,000-square-foot health-tech incubator Matter. While that was a single step, he says, the recent leasing momentum and new lab space development "is a kick through the door and a huge jump into the room with both feet, saying to the global life sciences community that Chicago is open for business in a very sophisticated way."
There's a lot of that life sciences business to go around. COVID-19 has not only fueled funding for companies searching for a vaccine, but also helped drive more money into biotech and pharmaceutical companies overall, industry experts say. Venture capital investment in U.S. life sciences companies during the 12 months ended June 30 was $17.8 billion, a record for any yearlong stretch, according to research from brokerage CBRE.
That has led to a bigger pool of startup tenants with the financial backing to perform research and a need to find high-quality lab space quickly. Among the 13 markets with a significant supply of life sciences lab space tracked by CBRE, companies were actively seeking 14.7 million square feet of lab space during the second quarter, up 34 percent from the beginning of 2019.
If a lot of those companies end up signing leases in Chicago, it would buck the recent trend. The area has been a sieve for smaller biotech ventures that have turned to more mature life sciences markets to grow including Boston, San Diego, the Bay Area and North Carolina. And there's a growing number of companies seeking relatively small lab spaces in places that will help them recruit and retain life sciences talent, says John Conrad, CEO of the Illinois Biotechnology Innovation Organization, an industry trade group. "Those buildings exist on the East and West coasts. They just never existed here."
But that has started to show signs of changing. Sterling Bay, best known for transforming office buildings in the West Loop and Fulton Market District, turned a research building next to the former Lurie Children's Hospital site in Lincoln Park into lab space for life sciences startups. It recently inked deals there with burgeoning tenants in Northwestern University spinout Exicure, molecular engineering technology company Evozyne and Vanqua Bio, which is working on treatments for neurological disorders.
Trammell Crow made a mammoth bet on the sector last month when it broke ground on Fulton Labs, a $250 million, 425,000-square-foot life sciences-dedicated building in the trendy Fulton Market District that it is developing on speculation, or without any tenants signed. That's the type of project real estate investors haven't backed in Chicago, in part because it's very expensive—25 to 35 percent pricier than traditional offices, some developers estimate—and difficult to repurpose when tenants move out.
The only way to prove that life sciences companies will make long-term commitments to Chicago is by building high-quality lab space upfront, says Trammell Crow Principal Johnny Carlson, since most early-stage drugmakers need to get scientists into lab space within weeks or months of securing financial backing. The ability to deliver space quickly is one of the main reasons Trammell Crow landed Xeris at 1375 W. Fulton Market, a 14-story office building it developed to capitalize on downtown office demand that was booming before COVID hit, but also built with the high-tech power, ventilation and safety infrastructure needed to house lab space if demand arose. When burgeoning drugmakers are looking for lab space, "now we're on the map and we can do it in a few months," Carlson says.
Xeris CEO Paul Edick, who has spent 42 years running a handful of life sciences companies, says a lot of talent grown at local life sciences giants like Abbott Laboratories, AbbVie, Baxter International and Takeda Pharmaceuticals—which moved its headquarters last year from Deerfield to Boston—have left for the coasts "because there's no effort, government or otherwise, to retain those (early-stage) businesses."
Edick says Trammell Crow and Sterling Bay can make 2020 a crucial inflection point for Chicago's reputation among the life sciences community if they learn from Xeris and other biotech startups about how to build the kind of lab space such companies crave. "I'm encouraged, but we've got a ways to go," he says.
Winning a lot of that business is also a priority for Gov. J.B. Pritzker, who last year named life sciences/health care as one of six key industries the state is focusing on to lead economic growth over the next several years. That means leveraging tax credits for companies that relocate research and development to Illinois or offer business apprenticeships, Pritzker said during a July 29 groundbreaking ceremony for Fulton Labs.
Edick says local and state governments can do a lot more to help lure companies like his that have nothing to do with tax credits, which are only so valuable to research-heavy life sciences startups that are typically rife with annual losses they can write off anyway.
"I need help for employees, things for people," Edick says, starting with re-establishing downtown's reputation as a safe place to do business.
"We've taken that all away—it's gone," he says. "Until we have leadership that can reinvigorate that, it's going to make it hard for companies like us."
John Pletz contributed.
