ESTIMATING COSTS

Rent Costs

Rent is determined by many factors, none more critical than location. The rent for a building in a biotech epicenter may be double the rent for a similar one located in the suburbs. Construction and cost of operation also contribute to the total cost of leasing biotech real estate. In a normal market, a biotech startup outside an epicenter may spend $15-20/sf for shell or $30-40/sf for finished space. Comparable spaces in an epicenter might go for $25-35/sf for shell and $40-$55/sf for finished space. However, during peaks in the commercial real estate market, these rates were as much as 30% higher.

COST OF BUILD-OUT

The cost of building out shell space ranges from $60$150/sf, depending on the mix of office space (less expensive) and laboratory space (more expensive). For a typical drug discovery company with 65% lab and 35% office space, costs may run $100-125/sf.

OPERATING COSTS

The operating costs of standard office space are steady and predictable, allowing the landlord to comfortably include them in one simple rent rate per square foot.

Costs for biotech facilities, particularly the utilities, are less predictable and the landlord will quote a "triple net" price (i.e. net of taxes, utilities, and insurance), which consists only of the base rent. The tenant will be solely responsible for paying all associated operating costs.

Operating costs include real estate taxes, property insurance, utilities, management fees, certain maintenance & repair activities, landscaping and grounds upkeep, security, and other measures needed to "operate" the building. These are very difficult to estimate until you have 12-18 months experience with the facility. For example, the costs in Southern California are more predictable than in the Northeast, where the cold of winter and heat of summer can be taxing on a building's environmental controls. Until you have a track record on which to base a better estimate, assume that annual operating costs will add $7-15/sf to the base rent.