Irvine-based Healthpeak Properties Inc., Orange County’s third-largest public company with a market capitalization topping $18 billion, is adding a new prime life science campus to its already sizeable San Diego-area portfolio.
The real estate investment trust (NYSE: PEAK), until last year known as HCP Inc., recently unveiled plans for a $164 million, tenant-friendly life science office development called The Boardwalk.
The project will be built just off the San Diego (5) Freeway in La Jolla, not far from Torrey Pines Golf Course.
The development is being built on a speculative basis and will include the construction of two new buildings on land the REIT owns, as well as the redevelopment of another office that Healthpeak also owns.
Construction kicked off this month, and the project will be completed in mid-2021, according to the company. Upon stabilization, the campus is projected to generate an estimated yield on cost of 7%, it said.
Lofty Rents
Area rents for life science buildings are near record levels and run $4.76 per square foot monthly, according to data from the San Diego office of CBRE Group Inc., whose brokers are handling leasing for The Boardwalk.
That’s roughly a dollar more than the going rate for non-medical, high-end office buildings in the vicinity of La Jolla, an area that’s seen Newport Beach’s Irvine Co. and others invest in heavily the past decade.
As of 2018, Irvine Co. owned some 9 million square feet of San Diego office space, spread across downtown, Del Mar Heights, La Jolla UTC, Mission Valley, and Sorrento Mesa. It’s the largest office owner in the county.
Healthpeak’s The Boardwalk project has no connection to Trammell Crow’s recently built nine-story office development of the same name in Irvine, other than CBRE handling leasing for both projects.
Planting Flag
Healthpeak said that The Boardwalk will be its “flagship campus in the core life science market of San Diego,” a notable statement for a real estate firm that already owns more than two dozen life science buildings in San Diego County, including half a dozen nearby in the Torrey Pines area, according to its website.
Those medical and life science buildings total some 2 million square feet, according to local brokerage data. Healthpeak also counts several senior housing properties in the county.
San Diego is Healthpeak’s second-largest market in California in terms of net operating income, trailing only the Bay Area.
Companywide, it operates a portfolio of more than 700 properties. It specializes in life science, senior housing and medical properties.
Swinerton Inc. is handling construction for the Torrey Pines project.
Refocus
In the past two years, HCP has been shedding some of its older senior housing holdings to focus on higher-value medical properties.
“Our portfolio repositioning included $4.5 billion of non-core senior housing sales over the last few years in order to achieve our desired portfolio quality and mix,” Chief Executive Tom Herzog said last month. “We are now able to focus on investing accretively in new, high-quality properties.”
Healthpeak also has life science development projects in South San Francisco and Boston in various stages of entitlement. It expects to break ground on some of them this year.
The REIT’s also been an active buyer of newly built life science buildings in some of its key markets, and it’s been paying top dollar to do so.
It recently completed the $332 million purchase of Alewife Research Center, a new laboratory building in Cambridge, Mass., which it bought in a venture with Dallas-based Invesco.
Alewife was built in 2018, runs 224,305 square feet, and is fully leased. It sold for nearly $1,500 per square feet.
Healthpeak is scheduled to issue its fourth quarter and annual results on Feb. 12.
