ADISA Video: Real Estate Investing in Life Sciences

In an interview with ADISA board member Greg Mausz, Nexpoint’s chief financial officer and executive vice president of finance, Brian Mitts, provides insight on how life sciences investing functions in real estate.

“So, it’s in pharmaceuticals and biotech, but it’s not the companies themselves, it’s in the real estate that they utilize,” said Mitts.

Mitts explains that with the manufacturing process, when there’s any kind of biotech, pharmaceutical type of drug or therapeutic, the building will need certain manufacturing, such as clean rooms and cold storage.

“So that’s the difference that’s needed today that doesn’t really exist and the demand is fairly insatiable,” said Mitts. “There’s a lot of federal funding that’s coming with this as well, so it’s not a very price sensitive customer. They don’t want to own the real estate; they don’t want that on their balance sheet. And so, there’s a huge opportunity for us to provide that for them and there’s a lot of specialty that goes into it. Like I said, it’s not just like owning industrial or office.”

Video Transcript

Greg Mausz   00:10
Welcome to another edition of Focus on Alternatives, brought to you by ADISA, the Alternative and Direct Investment Securities Association. For more information about investing in alternative investments, please visit adisa.org and check out the resource library. My name is Greg Mausz, I’m your host and I’m joined by Brian Mitts. Thank you for coming in. We’re going to be talking life science investing. Can you walk us through just what is that at a high level?

Brian Mitts   00:37
Sure, so life science investing, the way we’re doing is real estate. So, it’s in pharmaceuticals and biotech, but it’s not the companies themselves, it’s in the real estate that they utilize. And there’s a huge need for this post covid that I’m sure we’ll get into here in a second. But that’s basically what it is, is we’re investing in lab, office industrial. It’s sort of a sub-sector of both office and industrial.

Greg Mausz   01:04
And why should an investor look at life sciences real estate versus trying to do life sciences like, owning the stock directly or an ETF or fund?

Brian Mitts   01:13
Yeah, there, there’s a lot of ways to own life sciences, but there’s very unique in the real estate sector. There’s very few companies that do this. A lot of this real estate has been offshore over the last couple of decades and now it’s coming back onshore. So, there’s a lot of opportunities in the real estate sector that you can’t get just investing through these companies because they don’t own that real estate. They’re leasing that real estate from companies like ours.

Greg Mausz   01:36
Okay. And I’ve been reading more and more about life science investing. What trends are you seeing and how things have changed over the last couple of years?

Brian Mitts   01:45
Yeah, it started with the onshoring. We’re seeing a lot more, especially manufacturing coming back into the country. And so that’s creating an opportunity to, these industrial type sites that have maybe been dormant for a while or underutilized. And the needs are very special because with this manufacturing, they need clean rooms, they need cold storage, they need a lot of power and redundancies. And so, to go in and, and take these older industrial sites and upgrade them to that is, is where the real value lies for us as real estate investors.

Greg Mausz   02:19
So, talk more about how these buildings are specialized then.

Brian Mitts   02:23
So, with the manufacturing process, when you’re doing pharmaceuticals or any kind of biotech, pharmaceutical type of, drug or therapeutic, you need certain manufacturing, just like you would with a semiconductor chip. You need clean rooms; you need cold storage. That’s doesn’t exist in your typical sort of industrial shell that you see today. So that, that’s the difference that’s needed today that doesn’t really exist and the demand is, is fairly insatiable. There’s a lot of federal funding that’s coming with this as well, so it’s not a very price sensitive customer. They don’t want to own the real estate, they don’t want that on their balance sheet. And so there, there’s a huge opportunity for us to provide that for them. And there’s a lot of specialty that goes into it. Like I said, it’s not just like owning industrial or office.

Greg Mausz   03:12
Sure. Now, are there key locations for these buildings versus, you know, just the broad U.S.?

Brian Mitts   03:18
Yeah, it, it depends on which, which area you’re talking about. If you’re talking about the research and office part, that’s, historically that’s been focused around San Francisco, Boston, San Diego, that’s where your life science research industry really exists today. But the cost of business there is becoming so expensive that that’s expanding out now. Raleigh Durham and the research triangle is a, a place that, that’s become a hotbed. Dallas Fort Worth is becoming, a destination for these types of investments. From the manufacturing perspective, it’s, it’s sort of resurrecting the rust belt a bit. Where you’ve got that manufacturing infrastructure in place and you’re starting to see some of these companies move manufacturing back to those areas.

Greg Mausz   04:01
Got it. And it’s, I would say necessity real estate because the work that they’re doing, it’s the health I it’s a global health issue, right?

Brian Mitts   04:09
Yeah, it’s very essential real estate. And again, they’re, they’re not very price sensitive and these are long-term contracts, 20, 25 years with five 10-year extensions. So, it’s a very unique asset class in the real estate sector.

Greg Mausz   04:23
So how do financial advisors and investors access this?

Brian Mitts   04:26
It’s, it’s really hard today because there’s only, there’s a couple of publicly traded companies like Alexandria that does this. But they’re mostly focused on the lab part and they’re in those traditional areas. So, to really kind of hit this new renaissance, you have to go to an alternative sponsor. We happen to be one of those, but there’s, there’s not many doing this in this sector yet, so it, it’s still very hard to invest in this, but we’re looking to bring product out in the near future and I’m sure others are as well.

Greg Mausz   04:58
Okay. So, there’s traded REITs that they can buy into, but then I guess it’s a non-traded REIT that, alternative, uh, asset managers are, are, are compiling together. Is that right?

Brian Mitts   05:09
Yeah, I would think so. I think like a Blackstone probably doing something in their BREIT product, around this asset class. Um, but I think others are, are finding that, that this is becoming a really unique opportunity and they’re, they’re crafting product around it.

Greg Mausz   05:23
So, is it better to go traded REIT or non-traded REIT when accessing this sector?

Brian Mitts   05:28
I think probably non-traded for this, uh, at least for now. Because that, that’s going to get you into the newer areas where I think the most excitement is. Building another research lab in Boston, you know, is kind of you can already invest in that. And not that there’s not a need for it, but it’s not where the real excitement in a Raleigh Durham is.

Greg Mausz   05:49
Got it. Well, Brian, thanks for walking us through life sciences.

Brian Mitts   05:53
Yeah, thank you.

Greg Mausz   05:54
And thank you for watching. For more information about alternative investments, please visit adisa.org. Thank you.

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