LOVE HIM or hate him, Paul Allen is still the man to see about Seattle's new New Economy. Last week, Allen's development company, Vulcan Inc., said it is committed to constructing a five-story biomedical building near South Lake Union. Analysts are predicting success, but the groundbreaking helps usher in a new era of real-estate speculation— a high-stakes gamble in which landlords essentially become venture capitalists for budding biotech firms.
Vulcan, one of the rare pioneering developers designing space specifically for biomedical companies, likely won't have problems finding tenants. Estimates are that the demand for laboratory space in this city is as high as 5 million square feet. But drawing up the leases is a tricky business. Many newer biotech firms don't have the capital to pay for the superexpensive structural accommodations they need, which can cost developers up to six times more than those for typical offices. And some start-ups may not live much longer than a microbe. So how do developers handle the risk?
Vulcan didn't respond to Seattle Weekly by press time, but Ric Anderson of Lowe Enterprises Inc., who's trying to lure biotech tenants to Lowe's recently constructed building at 1616 Eastlake, says the leasing negotiations are taking his company into "uncharted water." Lowe re-engineered its building with $1 million worth of last-minute design changes to accommodate biotech tenants. Now, Anderson says, Lowe has to decide whether to recover those costs up front or defer them.
Charlie Hampton, an associate broker with Cushman & Wakefield, says developers have reason to be nervous about biotech tenants. Recent headlines spell out the risk in black and white, such as when Wall Street darling ImClone Systems crashed after the Food and Drug Administration rejected its new drug Erbitux.
But Staubach Company president Bob Mooney, who represents biotech companies, says the realities of the biotech wave are going to require that developers invest more now and collect later, because a biotech company's survival depends on investing in research and equipment, not rent. Mooney predicts that developers will easily recoup the cost of laboratory space over the long term.