Think “innovation” and you might picture some scrappy entrepreneurs toiling away in a kitchen or garage, hoping the landlord doesn’t notice what they’re up to. But the reality is that turning science into big business often requires far more sophisticated infrastructure—and the landlord who provides that infrastructure sometimes has one of the best windows into the process.
For the life sciences industry, one of the largest landlords, and closest observers, is Alexandria Real Estate Equities. The Pasadena, CA-based urban office real estate investment trust (REIT), founded in 1994, has grown into one of the country’s largest developers of world-class collaborative science and technology campuses. Alexandria has put up buildings in virtually every key life science cluster in the U.S., from San Francisco, San Diego, and Seattle on the west coast to Boston, New York, and Research Triangle Park out east. Its campuses, often featuring dramatic lobbies, community organic gardens, conference and event centers, restaurants, and collaboration spaces, have in many cases become centerpieces of the local innovation ecosystem.
Lately, Alexandria is aggressively expanding its reach. It has recently announced two new startup platforms designed to support the growth of seed stage or very early stage companies—the AgTech Accelerator in Research Triangle Park, NC, and Alexandria LaunchLabs in New York City. Both are accompanied by separate new investment funds of between $10 million and $25 million. Alexandria already has its own venture arm, Alexandria Venture Investments, and is a co-founder of Accelerator Corp., a roughly $60 million early stage VC fund (more on the new funds and Accelerator below). Meanwhile, the company has landed a major deal to build Uber’s headquarters in San Francisco’s Mission Bay area—one of several projects ongoing outside its traditional focus on life sciences. Amidst such moves, its stock hit an all-time high of $114.62 per share on Sept. 8, [Disclosure: Alexandria is a business partner of Xconomy—underwriters, sponsors, and partners have no special influence on our editorial operations.]
The company’s presence in key clusters around the U.S. gives Alexandria co-founder and CEO Joel Marcus, who sits on several boards, including that of BIO (the Biotechnology Innovation Organization) and the Foundation for the National Institutes of Health, a unique view of the innovation landscape. I recently spoke with him about his vision for Alexandria, its new programs for startups, key workforce trends (especially those being driven by the millennials), what he sees ahead for the economy, and the need for more leadership in the life sciences arena, among other topics. Following is an edited transcript of our conversation.
Xconomy: Alexandria doesn’t just build buildings. So I thought a good place to start would be your own description of what Alexandria is, and how that might differ from people’s vision of a real estate company?
Joel Marcus: Over time we’ve evolved our business model to focus on four pillars. First, the real estate. Second, is venture capital, which we think is indispensable to the execution of our real estate mission and our preeminent position in the life-science ecosystem. Third, is thought leadership: it’s crucial to convene high-level thought leaders from across the industry, and we’ve built a collaborative meeting platform to discuss global health challenges and drive progress forward. Then, fourth is corporate social responsibility. We focus on corporate philanthropy, and also the area of sustainability.
X: For people that haven’t been to one of your campuses, how do you describe them?
JM: They are, in fact, campuses. They provide collaborative and innovative environments. We provide great fitness centers, amazing food eateries, like Tom Colicchio’s Riverpark at our New York campus. We have the largest urban garden in New York City (shown below), and have similar gardens on many of our campuses. Our campuses also provide great world-class conference facilities, and we also do a lot of hands-on mentoring. In New York, we’ve recently launched LaunchLabs, which is designed for very early- and pre-venture stage entrepreneurs and companies. We’re providing space, mentorship and a seed fund to help their growth. So it ranges. We try to be very much of a full service operation.
Highly amenitized campuses are now at the forefront of leading companies’ desires. They provide a great tool for recruiting and retention, which these days is becoming very important, especially given that in 10 years the millennials, who want to live where they work, will make up three-quarters of the workforce. Being in a one-off building, or being in a half a floor or one floor of a high-rise building that doesn’t have your name on it, that just doesn’t do it anymore.
X: From your position in clusters around the country, you have a unique view of the economy. What do you see?
JM: On a macro basis, we’re seeing a slow growth mode around the world and the U.S. seems to be in the brightest spot. Therefore, there’s a huge influx of capital seeking safety and yields, and our stock has been one of the great beneficiaries of that—coming from a low in the $70s to about $110 today, just since February, which for a REIT is a pretty dramatic move. The Fed wants to ramp up interest rates while the rest of the world is trying to ramp down, and that’s not because they want to just drive interest rates radically higher, it’s that they want to have some financial wherewithal to move rates down when they need to. But it really is defying the rest of the world—so the Fed seems to be at loggerheads with the general economy.
So from the macro perspective, that’s kind of where we are. I think we’ll continue to see broadly low rates out there, and, hopefully, there will be a continuing abundance of risk capital that will invest in both the life-science and energy industries. So I remain cautiously optimistic, although I think the political side of the spectrum is always sub-par. Unless we get a more clever approach to taxation, to spending, to the budget, and so forth, I don’t see much change in this very slow-growth environment. I mean, it honestly doesn’t matter, actually, who the President is, because Congress can ultimately incentivize—do a one-time tax for companies who have oversees cash and bring back, probably, several trillion dollars of cash to invest in the U.S., in infrastructure, plant equipment, people. But Congress is struggling to come together and do so. I’m pretty negative on the political environment these days, but I’m hopeful the entrepreneurship of the U.S. will outdistance these challenges we’re seeing today.
X: What are you seeing in the life-sciences in particular?
JM: We continue to make amazing innovations that are not incremental. There are roughly 10,000 diseases out there, 500 of which have really been addressed by industry, so we’re in the early innings as far as overcoming and conquering disease—trying to prevent it, treat it, and ultimately cure it. So the best days of innovation are ahead. The watchword is, hopefully, the government doesn’t disrupt this momentum. Hopefully, we can come to a reasonable, value-based pricing system that will make sense for everybody. I think that’s also very, very crucial.
X: You’re known as a builder of life science space. But it seems like you’re doing more lately in tech. For instance, you have a big deal ongoing to build Uber’s new headquarters. How did that come about?
JM: We’re life-science-focused, and we haven’t diversified into tech actually, [although] our tech experience goes back to Google, when we did their first campus—when they were private. But we’ve always focused on our urban campuses in these AAA scientific locations. Today, we find tech is much more aggressive in getting into these locations. Recently IBM Watson came to us in Cambridge and Uber, Stripe, and Pinterest came to us in Mission Bay and SoMa. We didn’t go after any of those companies—they came after us because of our urban campus locations.
X: You mentioned LaunchLabs earlier. It’s gearing up in New York. Can you describe what that is and what led to it?
JM: We believe that in each of our markets we should be addressing the needs of all companies across our ecosystems, from very early formation stage, seed-stage companies, to the mega international giants. More recently, we noticed—in Maryland actually, where we first started a LaunchLabs model in partnership with Biohealth Innovation, which is the cluster’s major catalytic organization for early-stage companies, and then in New York City—that there was an under-served market for companies that were just getting started in their business planning and scientific discovery work. These companies need small, very affordable space, and we felt that addressing this need was, and still is, one of the most important things that we can do to support company growth in the industry.
Our LaunchLabs in New York City can accommodate something on the order of a dozen to two dozen different entities that could run from a small cadre of employees to more than a dozen. But it’s really for pre-venture startups spinning out of institutions that also—on top of affordable space—need the guidance of seed-stage funding, mentorship, and business development programming, and we’re already in due diligence on a number of promising entrepreneurs who have applied. This new startup platform really offers the New York City life science community something they’ve never had, so that’s why we call it LaunchLabs, and we’ll probably extend LaunchLabs to Seattle and San Diego as well.
Similarly, we pioneered the Science Hotel—an offering for growth-stage companies, who would have graduated from a LaunchLabs concept—up in Cambridge, in 2003, and brought that to Mission Bay in San Francisco in 2007. We just think it’s important to be, not just a real estate company that can lease space, but a real sophisticated company that can lease all kinds of space, underwrite all kinds of innovative tenants, and really nurture and help grow and fund the ecosystem in a dramatic way.
X: Let’s talk about the Accelerator Corp., which is an early-stage venture fund for companies a step farther along than those in LaunchLabs, but before those in the Science Hotel.
JM: I helped start the Accelerator Corp. back in 2003 in Seattle with ARCH [Venture Partners] and Lee [Leroy] Hood, co-founder of the Institute for Systems Biology and one of the top biologists in the world. We went through a couple of rounds, went through a CEO change and emerged with a dual-site platform extending from Seattle to New York City in mid-2014. We raised over $60 million between ourselves led by ARCH—along with a number of other venture firms and four strategic partners, including AbbVie, Pfizer, Johnson & Johnson, and Lilly. We felt that this was a very much-needed platform that would bring a single management team, readily available capital that could be applied immediately so companies could avoid going on the road for funding, fully equipped lab/office space, and so forth—a disciplined approach to company growth. We topped the funding off over the last year, and have already done two deals in New York—Petra Pharma at $48 million, where Accelerator funded part and our partners funded the remainder, if you will, a side car investment for the rest. Petra, targeting treatments for a range of cancers and metabolic diseases, is based out of Lewis Cantley’s lab at Weill Cornell Medical College and on the work of Boston’s Nathanael Gray of Harvard and the Dana-Farber Cancer Institute. And then we launched a company called Lodo Therapeutics, which came out of the work of Rockefeller University’s Sean Brady—a really, really great opportunity to do work in the anti-infective area.
X: You launched another type of accelerator earlier this year in North Carolina—called the AgTech Accelerator. What was behind that?
JM: We really incubated the idea back in 2012-2013, because we noticed a big transformation of the Research Triangle Park cluster from a pharma-bio market to much more of an agtech market. Glaxo started to exit that market and thin down quite a bit, and a number of venture funds had gone out of business. And suddenly Monsanto was moving in, Syngenta was moving in, Bayer was moving in, Novozymes was moving in—a number of the big multinational ag companies were moving in, plus a number of really hot ag startups.
And so we spent some time trying to put together a plan and ultimately had to recruit a management team, and then brought funding to bear to create a new company formation engine in the agtech area. No one had ever done it quite like this with seven top-tier venture partners and two strategics. We closed on our first round of about $10 million back in May, and we’ll be topping that out over the next 60 days—probably doubling that amount up to about $20 million and bringing in a number of new investors, plus a major new agtech strategic. That again, is very much like the Seattle-New York [Accelerator Corp.] operation—single management team moving very high-quality opportunities into company formation and really jumpstarting those.
X: Is there something behind it that speaks to a bigger trend?
JM: We think that probably the single most important challenge besides human health is human nutrition. And we felt that by at least starting this agtech accelerator, this would be one big step we could make to helping bring early-stage, risk capital to the area in a way that had never been done before. We’ve got about a million square feet in the Triangle, and are landlord to all the major agtech firms down there, so we felt that it was incumbent upon us to bring a financing model to bear in a market that we think will be the central market for agtech over the coming years. You can just see with the acquisition by the Chinese of Syngenta, the hostile takeover still in process of Monsanto by Bayer, there’s a lot of big aggregations going on in this area, and you’ll see more and more capital put to work.
X: Jumping to the next thing on my list: One Kendall Square, near where Xconomy is based in Cambridge, MA. You just made a big announcement about that. I know it’s not all done, but what can you say?
JM: We entered into a purchase and sale agreement about a month or two ago to buy what we felt was one of the few last remaining iconic campuses in the Cambridge area: One Kendall Square. Combined with our Tech Square and what we call the Alexandria Center at Kendall Square, Binney Street campus, we’ll now have three big campuses totaling over 4 million square feet [in Cambridge], which is kind of amazing. We were attracted to the opportunity, one, because of the irreplaceable location, and two, because the existing leases were substantially below market and much of those leases roll over the next couple of years so we can really convert the opportunity to a very accretive kind of acquisition. We’ll close the acquisition sometime probably in October or November. We’ll look to upgrade the campus, bring some interesting new amenities in. We tend to develop more than acquire because we like to create our own value rather than pay somebody else for their value. We feel One Kendall is very unique and we’re thankful for the opportunity to put that under the Alexandria flag and substantially upgrade it, enhance it, and really create an even more powerful campus for the thriving Cambridge life science cluster.
X: Well, I’ve gone through my list of questions. If there’s anything else that you think we’ve forgotten, or that you wanted to add, this would be a great time.
JM: I think the final thing would be the importance of leadership in the life-science industry. You can see by the recent pricing debacle that there’s a total lack of leadership out there in the industry. We need to reignite just a little bit of how it used to be when Merck was the most admired company in the country, and Roy Vagelos was the most admired CEO. We need to get the participants of the life-science ecosystem to really step up and become the pillars of admiration for our society, because they’re really not there today, and they’re taking a lot of grief in many quarters. So I would say, we see a leadership vacuum which needs to be filled.
X: Do you have any ideas on the steps that are needed to get there?
JM: Well, that’s the subject of a whole different interview.