Blackstone Raises Wager on Life Sciences With $3.5 Billion Property Deal

Now the firm’s interest is intensifying. Earlier this fall, Blackstone recapitalized BioMed Realty, the largest private U.S. owner of life-sciences property, for $14.6 billion. The firm is also close to acquiring another two life-science buildings in the Boston-Cambridge market for $1 billion, according to people familiar with the matter.

“The pandemic has only amplified the need for vital drug discovery and shined a light on the importance of innovation in life sciences,” said Nadeem Meghji, Blackstone’s head of real estate for the Americas.

Blackstone is one of the world’s largest real-estate investors with $341 billion of assets under management. Mr. Meghji said life science is one of the firm’s “high-conviction” bets—property types Blackstone believes are among the biggest beneficiaries of emerging macroeconomic trends.

The firm also has been making big investments in industrial properties, which have gained in value as distribution hubs for booming e-commerce, and in Hollywood studios and offices driven by new content creation.

The portfolio of lab buildings, which Blackstone is buying from Brookfield Asset Management, consists of 2.3 million square feet of space. Most is on a 30-acre campus adjacent to the Massachusetts Institute of Technology. More than 95% of the portfolio is leased thanks to strong demand from pharmaceutical and other life-sciences companies that want to be close to the school’s students, faculty and research activities, Blackstone said.

The life-sciences sector has been one of the few bright spots in the commercial real-estate industry this year. Many other property types, like hotels and malls, have been hammered hard by the pandemic, which has discouraged shopping and travel.

Most office space has been hurt by the enormous number of businesses that are allowing most of their employees to work from home. But life-sciences businesses have a harder time doing that because lab work requires specialized designs, ventilation and other infrastructure.

“You can’t create a new drug from your living room or kitchen,” Mr. Meghji said. “You need to be in physical lab space.”

Blackstone’s life-sciences bet still has risk. The strong demand for life-sciences space this year has driven up prices to near peak levels. There is also the danger of new supply saturating the market.

The firm is betting it can mitigate that risk by investing in top markets like Cambridge, where it is more difficult to develop new lab space. “We’ve really been prioritizing the top biotech clusters where you have the greatest depth of demand and talent,” Mr. Meghji said.

Blackstone also has been a big investor in life-sciences companies this year. In July, the firm raised a $5 billion life-sciences private fund and in August, it invested $275 million in Cryoport Inc., a temperature-controlled-logistics business.

“This is a very long-term trend for us that will persist far beyond the end of the pandemic,” Mr. Meghji said.

Write to Peter Grant at [email protected]