There was a time when anyone interested in financing, running, or merely being employed in the life sciences had to go to the Boston or San Francisco area. Those regions had the ideal combination of educational institutions with strong research departments, easy access to capital sources, and large life sciences talent pools. But in recent years, Phoenix has begun to emerge as a top life sciences location, according to the Arizona Technology Council. This means that there is a growing need for life sciences real estate in the Phoenix area. If you are interested in a joint venture for real estate in the life sciences, contact Harrison Law, PLLC at (480) 320-2310 to discuss your options for protecting your investment.
What Is Life Sciences Real Estate?
This type of real estate is designed and built to facilitate the advancement of medicine and healthcare. It is often leased to tenants and needs significant modifications before re-leasing to new tenants.
Life sciences real estate is real estate specifically used to research, develop, and manufacture items such as:
- Biotechnology-based food and medications
- Medical devices
- Biomedical technology
- Food processing
- Other products that can improve the lives of organisms, specifically humans
What Are Examples of Life Sciences Real Estate?
This type of real estate can be new, purpose-built lab facilities or repositioned buildings that were originally an office, manufacturing or industrial space, or big box retail or department store that has been completely redesigned.
Life Sciences Buildings and Non-Life-Sciences Buildings
The biggest difference between life sciences buildings and non-life-sciences buildings is their infrastructure. Specifically, life sciences buildings have different requirements for things such as:
- An HVAC system
- Clear heights
- Wet and dry labs
- Specialty spaces, such as clean rooms
- Lab-specific utilities
- Safe hazardous materials disposal
- Temperature-controlled storage
- Incubation chambers
- Specialized testing facilities
Three Examples of a Life Sciences Building
A life sciences building can take many different forms depending on its specific purpose and who designs it, but these buildings tend to take one of three basic forms:
- Incubator/accelerator. This building is geared toward early-stage companies that are developing and testing the efficacy of their products. These buildings are pre-built, generic lab spaces. They can be as simple as a single bench in a shared suite or as complex as a space that accommodates 15 full-time equivalent (FTE) employees with 10,000 square feet or more.
- Graduation space. This is a larger, more bespoke space designed to a specific company’s unique needs after it has achieved certain levels of success in research. Like the incubator/accelerator property, this type of property is exclusively limited to research and development and does not allow for manufacturing or storage.
- Clinical/Current Good Manufacturing Practices (cGMP) space: This is a much larger space for more advanced companies. It includes manufacturing space, warehouse space to store raw materials and finished product, and continued development and quality control lab areas. The design and construction of these spaces must meet established federal standards for the results to be accepted by the Food and Drug Administration or other regulatory authorities.
Can a Joint Venture Purchase Property?
Yes, a joint venture can purchase property. To do so, there is an agreement between two or more people or businesses who are putting money and other resources together to purchase this real estate. The agreement is put in writing as a real estate joint venture contract. Harrison Law, PLLC may be able to help you create this contract if you are entering into a real estate joint venture.
People and businesses enter joint ventures to purchase real estate for many reasons. Financial need, time management, and the need for a particular expertise are among the most common reasons.
How Is a Joint Venture Structured?
There are always at least two sides to any joint venture. One side is the capital member who provides the money for the venture. The other side is the operating member who handles the operation of the venture. The operating member often handles things such as sourcing, acquiring, finding financing, and managing, developing, and reporting progress or setbacks. The two sides usually form a limited liability company (LLC).
In a traditional real estate joint venture, there are three common types:
- Co-wholesaling. One seller helps another find a buyer for the property and then shares the profits from the sale.
- Fix and flips. One person with the cash and one person with the experience buy, fix or update, and then sell a piece of property. They then split the profits from the sale.
- Landlord agreements. The owner of the property leases it to tenants while attempting to sell the property. When the property is sold, the owner splits the profits with the tenant.
What Is a Joint Venture in Real Estate?
A joint venture in real estate is a mutually beneficial partnership between two parties that each have something the other party needs. When a joint venture purchases property, all parties are responsible for costs, income, profits, and losses of the project or venture. The real estate joint venture contract should lay out the specific rights of each party, including profit distribution, management rights, exiting rights, and ownership transfer rights.
When looking at joint ventures in life sciences real estate deals, it becomes a little more complex. The key players in these deals are often educational institutions, commercial life sciences businesses, government bodies or local government authorities, private equity or venture capital funds, and real estate investors.
What Are Pros and Cons of Joint Ventures in Life Sciences Real Estate?
These ventures are often appealing because of the shortage of operators in the space. This shortage gives the investors exclusive access to the skills, deal pipeline, and expertise the operator has. The ability to pool significant amounts of money helps reduce the risk involved. Additionally, the large-scale scheme of a life sciences real estate development requires long-term investor commitment and a significant monetary outlay, which is easier to do in a joint venture.
Life sciences real estate joint ventures are often more restrictive than typical real estate joint ventures. This is because there are not as many operators in the life sciences space. Both investors and operators want to protect their investment in the joint venture and ensure the project does not end up failing because of an inexperienced member. Some of the restrictions that may be placed in a life sciences real estate deal include:
- Transfer rights may be limited to requiring investor consent or a predetermined list of people or companies.
- The deal may include different levels of control to safeguard investors’ interests.
- There may be alternative default remedies if the operator is in material default or fails to meet certain performance standards given that operator removal may not be an option because of the specialized sector and lack of readily available and suitable replacements.
Are You Considering a Joint Venture in Life Sciences Real Estate?
In addition to advancing human health and wellness, joint ventures in life sciences real estate deals can be quite lucrative. If you have never been involved in this type of joint venture, consider contacting Harrison Law, PLLC at (480) 320-2310 to discuss the pros and cons. Our legal team may be able to help you decide whether this is the right real estate deal for you.
© 2023 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
