Vacant warehouse to transform into life science labs

Helios Real Estate Partners wants to redevelop a vacant, 35,000-square-foot warehouse into a biology lab building.

The San Francisco-based developer paid $16 million for 4055 Bohannon Drive in Menlo Park as the first step in the life science conversion. The firm is undertaking the conversion on a speculative basis, a vote of confidence in the Bay Area’s life science real estate market, which ranks at or near the top nationally in most key metrics.

The project entails modifying the warehouse’s exterior to add more natural light and increasing its heating, ventilation and air conditioning capacity, Helios’ Peter Banzhaf wrote in an email. The goal is to prime the site for a new type of user: preclinical companies doing the research and development of drugs and therapies, said Cushman & Wakefield’s Ben Paul, the leasing agent for 4055 Bohannon Drive with colleague Nick Waldsmith.

The project will nearly double the two-story structure’s power capacity to about 26 watts a square foot, Banzhaf said. About 25 watts a square foot is considered typical for a life science building in the Bay Area, according to one estimate.

Helios acquired the Bohannon Drive property from a family trust earlier this month, according to public records; Cushman’s Paul brokered the deal. The team overseeing the conversion — Helios, Cushman and DES Architects + Engineers — has secured its construction financing, approximately equal to the building’s sale price, Paul said. Cushman’s Terry Daly obtained the debt from an institutional lender, Paul said; he didn’t disclose the lender’s name. Banzhaf declined to share a cost estimate for the project.

The last time Menlo Park saw a life science conversion completed was the second quarter of 2019, and it was relatively small — 12,000 square feet, according to Cushman research director Robert Sammons. Demand for life science space in the Bay Area has since hit new heights as lab-renting companies aggressively expand throughout the region, Cushman data show. Menlo Park’s life science real estate sector had a 6.8 percent vacancy rate at the end of last quarter, up from 4.4 percent a year ago but still low enough to be considered a tight market, according to Cushman data.

There aren’t any life science properties coming soon to market in Menlo Park, Banzhaf said. Combined with the spread between life science and industrial rents being $5.50 a square foot, according to Paul, the rationale behind why Helios paid about $457 a square foot for a 57-year-old warehouse and will spend more capital to renovate it becomes clear.

A change to the property’s zoning also factored into Helios’ plans. The city recently amended the zoning designation for the West Bohannon Park area, which includes 4055 Bohannon Drive, to office district from general industrial. The change aligns with a goal in the city’s general plan to have more research and development and office uses in what has historically been an industrial zone, Banzhaf said.

Cushman’s Paul said he expects Helios’ project to finish in the second half of 2023, adding that its general contractor hasn’t been chosen yet. He and Waldsmith plan to start formally marketing it for lease in the fourth quarter, although they’ve already garnered interest from companies interested in taking the entire building, Paul said. The monthly asking rent will be in the high $7-a-square-foot range, he said. That’s more than $2 a square foot higher than Menlo Park’s average ask of $5.47 a square foot a month, according to Cushman data. Paul said the $5.47 rate applies to space for R&D and medical device users, not the higher-end turnkey labs envisioned for 4055 Bohannon Drive.

The project is Helios’ fourth in San Mateo County. It seeks to build about 800,000 square feet across two life science developments in Burlingame as part of a joint venture with King Street Properties and 124,400 square feet of office and R&D space in Foster City with developer SteelWave. Those three projects are under city review, Banzhaf said.

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