New biotechs have plenty of ideas, no lab space

From The Gainesville Sun - By Anthony Clark

Farshid Rouhani was surprised by the lack of large lab spaces available for private companies when he started Geneaidyx LLC earlier this year.

Rouhani and Mark Brantly lead a team in the University of Florida College of Medicine researching a genetic protein deficiency. They started the company to commercialize a diagnostic test for a rare lung disease called genetic COPD and need an office and lab space to house 20 employees who will move over from their UF lab.

"It was impossible to find lab space of at least 5,000-plus square feet," Rouhani said.

Given the caliber of the university and the companies spinning out of its research labs, Rouhani said the lack of lab space doesn't add up.

He said his investors were equally incredulous.

"For a while, my investors did not believe that was the case until they physically visited the Gainesville area and then we started together jumping in the car and looking for space," he said.

Geneaidyx is one of the lucky ones. Rouhani said one of their investors bought an 8,000-square-foot office building about a half mile from Progress Park in Alachua for $615,000 and is putting in another half-million dollars to convert half of the building into lab space.

The renovation is delaying the company, but it could be operational by the end of the summer, he said.

Other biotech companies have struggled to find lab space as they grow out of university labs and incubator programs, often cobbling together two or more facilities at a time to meet their needs.

Grants and venture capital that finance many biotech companies are often restricted to product development and cannot be spent on real estate, while developers and lenders are reluctant to take a chance on building and financing high-cost space for companies that have not established a track record of profitability and cannot guarantee a long-term lease.

Patti Breedlove, director of the UF Sid Martin Biotechnology Incubator in Progress Park, said the need for lab space has been an ongoing issue and a concern in economic development circles that without a solution companies might move to other areas.

She convened a meeting with six Alachua-based companies last October that needed a combined 75,000 square feet of lab and office space and knows of another company in Gainesville that is looking for 25,000 square feet.

Breedlove has been working on the issue, talking with several developers and UF about various scenarios and costs.

One possibility under discussion is to expand the incubator program to open a phase-2 building for more mature companies that graduate from the biotech incubator, she said.

Since the October meeting, the incubator was able to give one tenant enough lab space to meet its needs on a temporary basis. Another is looking at a building that should be vacated soon. AxoGen moved into a larger office in Progress Park that allowed it to bring different departments under one roof. Others continue to work in cramped conditions spread over two to as many as four facilities.

"We do a lot of musical labs in the park," Breedlove said. "Our program in particular pays close attention to what's available and communicates freely with people who need space."

Developer Phil Hawley said several companies are talking to him about building lab space and he is exploring the possibility. He said he has also heard from banks that are interested in putting together deals again.

Hawley and partners built a speculative 33,000-square-foot office and lab building in Progress Park in 2007 that was fully leased before it was completed, so they built two more buildings. Progress One, Two and Three total 105,000 square feet that they were able to lease during the recession.

Hawley said they knew some of the tenants would likely fail, but they felt confident enough that other companies would expand into the vacated space even though they could not show five years of profit and loss or commit to a five-year lease — typical scenarios for a traditional bank loan.

"There is a lot of change in tenants," he said. "A lot of developers can't get comfortable with that and a lot of bankers can't get comfortable with that."

The developers built the buildings to be as flexible as possible to accommodate companies as they grow or contract, starting with an empty shell and built so walls can be added or knocked down, and allowing for lab equipment to be moved, Hawley said.

Nanotherapeutics started in about 8,000 square feet in Progress One and grew to occupy most of the building as other tenants moved out.

The company will open up the space when it moves into its new building under construction near Progress Park, which will provide some temporary relief to the space shortage, Breedlove said.

Hawley said building lab space for startup companies is a niche market. Part of it is educating the companies to work within a budget while also meeting their needs.

"They'd have a big wish list and we'd say, ‘That's nice. That's the Mercedes model. You're a startup. You can get by with this' and we'd help them spend that money wisely."

Lab space can cost twice as much to build as office space, said Matt Webster, vice president of the diversified projects division at Charles Perry Partners Inc.

CPPI builds lab space every year with about 70 percent for universities or state institutions and the rest for private clients such as RTI Surgical and Exactech, he said.

Labs can include fume hoods that vent chemical exhaust through the roof, specialized cabinets, sink islands and high-quality countertops that hold up to chemical corrosion.

Labs also have much higher energy costs since the exhausted air has to be continuously replaced with fresh air instead of being recirculated, compared to about 5 percent fresh air for a typical home, Webster said.

The added operating cost can be an issue for companies in Gainesville where electricity costs are high compared to other areas, he said.

Breedlove said a lot of the undeveloped land in Progress Park was sold to a publicly traded real estate investment trust that leases land to developers instead of selling it.

"Many developers don't choose to work with that model in terms of how they make their money," she said. "It's a less financially workable arrangement for them."

In Hawley, Progress Park may have a willing developer, but after he and his partners sold the land and buildings to the real estate investment trust, he said a noncompete clause prevents him from building space for his former tenants. He could build for other companies.

"We still have a lot of demand and need more space so I'm toying with the idea of putting a group together and doing another building," he said.

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Virginia MacKoul

Virginia is a graduate from the University of Florida's College of Design Construction and Planning with a degree in Sustainability and the Built Environment, and a minor in Urban Regional Planning. Virginia joined the Front Street team in 2011, as an intern. Upon graduation, Virginia joined the Front Street team full-time as the Director of Client Services. Ms. MacKoul’s addition furthers Front Street’s continued growth and expansion within Gainesville and other North Central Florida markets. She was promoted to Director of Marketing in 2014 and now manages the firm’s team of interns and oversees all marketing and branding activity. Virginia was born in Boston and moved to Lee County, Florida in 1997. Virginia graduated her high school's International Baccalaureate program and started at the University of Florida with a focus on Architecture. Virginia shares Front Street's passion of giving back to the community and those in need. Virginia's hobbies include photography, cooking, football, movies, music, and spending time with her dog, Brinkley.

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