CMBS loans backed by laboratory and research/development facilities have
Now, life sciences buildings are also demonstrating how lucrative they are for developers and private-equity owners.
This week, ratings agencies published presale reports on a $2 billion, cash-out commercial mortgage securitization arranged for BioMed Realty, the largest owner of biotech R&D properties in the country.
The proceeds are being used to refinance a portfolio of 17 biotech and pharmaceutical R&D lab properties Biotech has acquired, renovated or constructed over the past five years as a Blackstone Group portfolio company and real estate investment trust-structured firm.
The new mortgage not only covers BioMed’s original costs for the various properties leased by 43 firms, but provides a $349 million equity payout to BioMed – leaving it with implied equity of just over $1 billion for a lab-property portfolio appraised at around $3 billion, according to ratings agency presale reports.
The refinancing efforts behind the LIFE 2021-BMR Mortgage Trust transaction were driven largely by BioMed’s biotech lab tenants that remained open for business throughout the pandemic crisis. Nearly half were providing "essential" work during 2020 combating the spread of COVID-19, according to DBRS Morningstar.
“Despite the disruptions and uncertainty [of COVID-19], the collateral has largely been unaffected,” the report stated. “All assets in the portfolio have remained open and operational, allowing lab tenants to conduct essential work, with 50% of the tenants in the portfolio actively working on vaccines, therapeutics, and testing solutions to help combat coronavirus.”
Despite the deal’s high leverage of 127.8% loan-to-value (per Moody’s Investors Service), the estimated debt-service coverage ratio of the deal is 3.79x, according to DBRS Morningstar, based on estimated annual net cash flow of $124 million.
The 2.4 million-square feet of R&D properties included in the collateral include 15 assets that were previously securitized in a 2017 transaction. BioMed has invested about $282.5 million in capital improvements since 2017.
“The portfolio represents a critical mass of Class A properties in the nation’s most prominent education and research hubs of Cambridge, Massachusetts (66.3% of net cash flow [NCF]), San Diego (19.4% of NCF), and San Francisco (14.3% of NCF),” according to DBRS Morningstar’s report.
The leases have weighted average remaining terms of 6.5 years, and 67.8% of the base rent is derived from investment-grade clients.
Because of the long-term nature of the leases, and the sudden rise in market value for R&D facilities, DBRS Morningstar estimates the in-place base rents in the portfolio are about 29.4% below market, “driven by growth in the life-sciences sector and historically low lab vacancies.”
The capital stack of the LIFE 2021-BMR Mortgage Trust deal (structured as a REMIC transaction) includes seven classes of notes, including an $877.1 million tranche with preliminary triple-A ratings from DBRS Morningstar and Moody’s.
BioMed is a portfolio firm of Blackstone, which originally acquired the realty firm in 2016. Last November, Blackstone sold BioMed Realty to a group of existing BioMed investors in a $14.6 billion recapitalization of BioMed Realty, “as part of a new long-term, perpetual capital” strategy,
