With real estate deal, drug maker boosts its bottom line
Sanofi Genzyme makes most of its money developing really complicated drugs for rare diseases.
But for the next decade it will make a nice little profit in a far simpler way: by flipping its real estate.
The Cambridge-based drug maker turned heads last year when it leased two whole buildings — about 900,000 square feet — at Cambridge Crossing, a huge mixed-use development that’s underway north of the MBTA’s Lechmere Station. Not only was the deal one of the biggest on record in Boston’s red-hot real estate market, it also meant Sanofi would be walking away from its brand-new headquarters in Kendall Square, which it moved into less than two years ago.
Turns out there was money to be made in a quick move.
Sanofi’s next-door neighbor on Binney Street, bluebird bio, disclosed last week in a regulatory filing that it has a deal to sublease all of Sanofi’s 267,000 square feet at 50 Binney, starting in 2021. It will pay $99.95 per square foot, or nearly $26.7 million a year, to start, with annual increases through 2030. That’s almost 60 percent more than the $62.50 per foot Sanofi pays the building’s owner, Alexandria Real Estate Equities, according to leasing data obtained by the Globe.
Exact terms were not available; Sanofi and Alexandria declined to comment, while bluebird did not respond to messages. But real estate experts said the deal highlights the fierce demand for office space in Kendall Square — one broker said Sanofi received several “strong” bids — and the premium that fast-growing life-science companies will pay there.
“For a long time, Cambridge has commanded a premium to other markets directly surrounding it,” said Brendan Caroll, director of intelligence at the real estate firm Perry. “But lately it seems to be at another level. It’s pretty amazing.”
Kendall Square already commands the highest rents on the East Coast except for prime parts of Manhattan. The vacancy rate for both lab and high-end office space has plunged in recent years, to around 1 percent. Developers with buildings under construction seemingly have their pick of blue-chip tenants.
A few years ago, one of those buildings was 50 Binney, part of a row of new office and lab projects that Alexandria constructed along Binney Street, on the northern edge of Kendall Square. In 2015, Sanofi Genzyme leased the entire building for its headquarters and moved in when it was finished in 2017. But the company — the product of the French drug maker Sanofi’s 2011 acquisition of Cambridge-based Genzyme — had bigger aims, and in December signed a deal to lease two buildings at Cambridge Crossing to consolidate several Cambridge and suburban offices under one roof.
Their new headquarters went back on the market, this time as a sublease. Interest was intense.
“It was a very competitive situation,” said Mark Winters, vice chairman at Newmark Knight Frank, a real estate firm, and a veteran of Kendall Square real estate. “There were five or six really strong bidders.”
The winning bid apparently came from bluebird, a fast-growing gene therapy firm that leased 60 Binney St. — right next door — from Alexandria in 2015. They’ll pay a roughly $20-per-foot premium above their lease at 60 Binney, but have a rare chance to double their square footage under one roof, Winters said.
“A lot of young, growing companies are forced to split their operations into multiple buildings,” Winters said. “Think about what that does to a company’s culture, its collaboration, and ability to innovate.”
For Sanofi, a global pharmaceutical giant with $39 billion in revenue last year, the flip amounts to pocket change. In 2021, the first year of the deal — after accounting for annual escalation clauses — the sublease will generate about $8.6 million in profit beyond Sanofi’s current lease, which runs to 2030. Industry experts say the drug maker will probably split 50-50 with Alexandria, which had to sign off on the deal.
But Sanofi, too, has new office space to pay for. And in Cambridge’s hot and expensive office market, every dollar counts.