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A Compendium of Property & Capital News
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Aug 10
A Compendium of Property & Capital News

Alexandria RE Seen Buying Moderna Plant; NKF-Listed Norwood Deal Could Hit $120M

July 24, 2020 — By Joe Clements
One Upland Rd., Norwood MA

NORWOOD—Talk about moving at warp speed.

Proceeding to critical Phase III trials on a breakneck pace for its promising Coronavirus vaccine, Moderna Inc. has become a household name amid signs the Cambridge pharmaceutical company’s COVID-19 cure could gain approvals in mere months. Indeed, about the only event proceeding more rapidly in Moderna’s orbit right now are efforts to harvest its high-end biomanufacturing faciility being forged from an aging Norwood industrial facility. According to Real Reporter sources, investor ardor has been so charged for the Newmark Knight exclusive that One Upland Rd. abutter Alexandria Real Estate Equities has pre-empted a charged, fast-moving process with an offer the 243,000-sf building’s Midwest owner apparently has not refused, an agreement said to be approaching $120 million.

“That is true,” a CRE professional tracking the listing says regarding industry chatter that Alexandria has committed to buy the 1980’s-era facility occupied until next week by an auto technician school, with the pioneering life sciences REIT out-maneuvering a “Who’s Who” of institutional capital and Tier One life sciences investors to win the day.

“It is very synergistic,” the source adds in pointing to Alexandria owning the Moderna-occupied building next door on the former Polaroid Corp. suburban campus repositioned this past decade, a Campanelli Cos. and TriGate Capital transformation which successfully brought Moderna to the park via a summer 2016 lease running to June 2032, that agreement for 190,000 sf initially unveiled by Real Reporter. The decision by Moderna to do its state-of-the-art biopharmaceutical plant at One Upland Rd. was similarly driven by the firm’s existing facility being there at 1 Moderna Way, according to others spoken to who champion the trend of creating biotechnology opportunities in suburban Boston’s manufacturing sector.

Parties on both sides of the One Upland Rd. sale negotiations are remaining mum on the Alexandria pact, including NKF Co-Head of U.S. Investments Robert E. Griffin Jr. whose Capital Markets group has Vice-Chair Edward C. Maher Jr. and Executive VP Matthew E. Pullen handling the high-profile assignment along with Executive VP James M. Tribble and Managing Director Samantha N. Hallowell.

Griffin did not respond to inquiries as of press deadline regarding progress on the sales effort, a campaign which first came to light in early June via a Real Alert item. Initially projected to trade in the realm of $400 per sf, or roughly $97 million to $98 million, favorable progress in the Moderna COVID-19 vaccine work soon stoked investors to push pricing into the nine-figure range, with the cost of entry moving closer to $105 million ($432 psf) earlier this month and then soaring past $110 million ($452 psf) until Alexandria reportedly flexed its considerable muscle towards $120 million ($496 psf) in a stand that would continue an aggressive spending spree regionally in the late 2010s and now seemingly into the new decade.

It is a stretch during which the firm has achieved a quarter-century of focus on life sciences projects through the guidance of founder and Executive Chairman Joel S. Marcus. Thomas J. Andrews is the REIT’s Co-President and Regional Market Director overseeing its growing metropolitan Boston market where the NYSE-traded REIT has been since entering in 1997, its 2006 purchase of the sprawling Technology Square in Cambridge among the highlights noted during the 25th anniversary celebrated last year.

Suburban Boston has been increasingly on Alexandria’s radar, as evidenced in last week’s announcement of a venture being undertaken in Watertown with National Development. The acquisition of Moderna’s existing Norwood property was made in spring 2018 at a consideration of $87.2 million.

Moderna has certainly been in the news of late thanks to the aforementioned progess on a vaccine so encouraging it has pushed the firm’s stock pricing up rapidly, a trend helping accentuate the efforts by One Upland Rd. landlord Baum Revision to find a taker for the property well ahead of the ambitious upgrade about to commence once the auto school vacates. Moderna is “chomping at the bit” to get going, one source says in explaining the firm is already in about 50,000 sf of the building gearing up for the expansion which is supported by a 15-year, triple-net lease extending to Sept. 2035.

A buyer would likely be mollified by NASDAQ-traded Moderna’s market capitalization of about $20 billion which NKF notes in informational materials followed its distinction for having the largest biotechnology IPO ever. One Upland Rd. has been deemed a “mission-critical” facility for the tenant which has over a dozen other drug treatments it is pursuing, and another selling point cited by NKF is “substantial” expansion potential on the 25-acre complex providing “an exceptional opportunity to capitalize on Greater Boston’s insatiable demand for life science inventory.”

Research from NKF in peddling One Upland Rd. shows requirements for biopharmaceutical manufacturing space along Route 128 has spiked from about 400,000 sf at year-end 2019 to over 1.4 million sf today. “It is the hottest-growing (category) today that tenants are looking for,” agrees one observer who credits supply chain disruptions with China and a desire to keep the manufacturing and research capabilities closer together for helping drive demand.

As if an absolute triple-net lease were not enough, One Upland Rd.’s new steward could be further steeled in having the tenant invest an expected $50 million to retrofit the building. The lease ($23.45 per sf) is 41 percent below that for comparable biopharmaceutical rents, NKF further calculates, an aspect “offering durable in-place cash flow with embedded upside” while garnering 1 percent annual escalations and a quartet of five-year renewal options each with a 3 percent biennial rent increase. There are no tenant termination or contract options in the pact and Moderna has also committed to the town of Norwood that it will relocate 250 existing employees to the facility and another 100 new hires will be working from the site.

Although Moderna’s deal is well below market rates, NKF informational materials stress the parcel would enable its owner to achieve market rents by developing the expansion space, that ability evidenced in the existing Moderna building at 1 Moderna Way where in-place rents average $31.50 per sf with annual rent increases of $1 per sf.

Still, no matter how bright the future may seem for the winning bidder, NKF’s client in the process of selling One Upland Rd. might seem especially poised to fete the fate of the property, with Chicago-based Baum Revision having bought the building in February 2019 for $23.5 million. At the time, the property’s future was clouded given the auto training school’s lease expiration looming and the biotech element less defined. “I imagine they are turning cartwheels right now,” one source remarked when asked of the owner’s attitude while praising Baum Revision leadership for a track record of prescient purchases, offering that, “they are pretty sophisticated—they know what they are doing.” By one estimate, the capitalization rate for One Upland Woods would be sub 5 percent should current pricing hold.

Another observer agrees with the assessment of Baum Revision’s demeanor, but maintains there are plenty of cheerleaders for the evolving events surrounding the One Upland Rd. situation. “Everybody right now is rooting for Moderna,” says that CRE veteran.

Thomas J. Andrews Matthew E. Pullen Edward C. Maher Jr. Robert E. Griffin Jr. James M. Tribble Samantha N. Hallowell