Alexandria Real Estate’s empire grows in Kendall Square
The area’s life sciences boom puts the developer on top.
Alexandria Real Estate Equities Inc. made its first modest investment in Kendall Square about 14 years ago, developing a blocky five-story building it named The Science Hotel.
The building, on Memorial Drive, was designed to be an incubator for biotechnology startups as the industry was just emerging in East Cambridge. In the following years, biotech grew explosively in the Kendall Square area, and Alexandria grew, too.
Through a steady stream of property acquisitions over a decade, the publicly traded real estate investment company has become a dominant developer and landlord in the area, profiting from Kendall Square’s meteoric rise to become a national life-sciences center.
Most real estate specialists now rank the area among the hottest districts in the country.
“This is the best market we’ve ever seen,” said Alexandria’s founder and chief executive, Joel Marcus. “We’re really seeing the next generation of biotech firms growing up and becoming big companies.”
In addition to building headquarters for Biogen Inc., Genzyme, and Ariad Pharmaceuticals Inc., Alexandria is transforming Binney Street — it was once a truck route and commuter pass-through — into a bustling biotech boulevard with big-name pharmaceutical tenants, restaurants, and homes. For the first time, the property is becoming a destination not just for scientists but for diners and shoppers, as well.
When President Obama visited Kendall Square recently, he didn’t stop to meet with leaders of the life sciences industry. He grabbed a slice of wood-fired pizza at Area 4, one of Alexandria’s restaurant tenants at the company’s complex of buildings known as Technology Square.
Alexandria specializes in developing corporate campuses for life sciences companies in major markets nationwide. But the story of the big real estate company’s origins is remarkably modest. Marcus started the company in a garage in Pasadena, Calif., where, sitting on second-hand office furniture, he and his partners raised $19 million to launch a real estate firm focused on creating work spaces for science-oriented companies.
It was not a surefire way to make money in real estate. Life sciences companies are inherently risky enterprises whose fortunes depend on developing treatments, obtaining approvals from regulators, and getting drugs onto the market before competitors do. Any misstep can spell trouble for such companies — and for their landlords.
Marcus recalled one of his early investors, the late Joseph Flom, a renowned attorney for the law firm Skadden Arps, telling him: “I’m either going to make this investment with you or I’m going to give the money to charity. Either way, I don’t expect anything back.”
“Of course, he ended up making a lot of money with us,” Marcus said.
Alexandria is now the nation’s biggest landlord to life sciences companies.
To get a sense of its market share, consider this: Of all the new drugs that were approved by the Food and Drug Administration last year, 60 percent of them were developed by Alexandria’s tenants.
The company owns about 31.5 million square feet of property — the equivalent of more than 26 Prudential buildings — from Boston to Raleigh, N.C., to San Diego. It also has a stable roster of high-tech clients.
Among its largest ongoing projects is a 422,000-square-foot headquarters for Uber Technologies Inc. in San Francisco’s Mission Bay neighborhood.
But the company’s largest concentration of real estate is in Kendall Square, where it has invested more than $2.3 billion since 2002. In 2006, Alexandria bought seven buildings in Technology Square, which was originally Polaroid’s campus, for $600 million. It has renovated the complex, brought in new tenants, and added retailers, the popular restaurants Area 4 and Catalyst, a conference center, and an upscale bistro.
Since Alexandria made its original investment in Kendall Square, average asking rents in the area have increased 68 percent, to $69.64 per square foot, according to Transwestern RBJ, a Boston real estate services firm.
Alexandria’s biggest coup by far was the acquisition of several parking lots and single-story industrial buildings along Binney Street.
After steadily buying properties in the area for several years, the company approached Cambridge in 2008 with a proposal to rezone Binney Street to allow a large cluster of 10- to 12-story commercial buildings for life sciences businesses. Eventually, that led to the approval of Alexandria Center at Kendall Square, a 2.6 million-square-foot campus with four large commercial complexes, two residential buildings, restaurants and stores, and a 2.2-acre public park.
“When the proposal came forward, we thought this was probably something that was going to take 10 to 15 years,” said Cambridge Mayor David Maher, who in 2008 was the head of a City Council committee reviewing Alexandria’s plans. “To look at the pace of the change there, I’d have to say they’re significantly exceeding our expectations.”
That’s largely due to the area’s surging real estate market, driven by the expansion of large science and technology companies. Alexandria signed deals to build big buildings for Biogen and Ariad Pharmaceuticals and recently announced plans to build another 10-story, 251,000-square-foot headquarters for Genzyme at 50 Binney St. Genzyme plans to move to the property in 2018.
Tom Andrews, an Alexandria vice president in charge of the project, said the company has also received strong interest from potential tenants of 60 and 100 Binney St. Completing those projects will add retail space and wider sidewalks, which should bring more foot traffic to Binney Street.
Alexandria is also building a 91-unit residential building on Third Street and is planning another 150 units nearby.
“It’s going to create a much different environment,” Andrews said. “And that’s a big part of what’s driving the demand. People want to be here. It’s an important change in the way Kendall Square is perceived by employers and employees.”