Why this company ponied up $99M for a mid-Peninsula building?

As Graymark Capital's principals scouted the Bay Area for their next real estate buy, one stood out: A 230,000-square-foot, single-tenant building near Highway 101 in San Carlos.

In the year that it took the San Francisco-based real estate investment firm and partner Nuveen Real Estate to finalize a $99 million deal, San Carlos has firmly established itself as an up-and-coming venue for biotech real estate development. The building, at 150 Industrial Road, is little more than a mile north of where Alexandria Real Estate Equities Inc. (NYSE: ARE) is building a 526,178-square-foot lab-and-office complex and recently filed plans to build the 1.6 million-square foot Alexandria District for Science & Technology.

During that time, too, the building's drug-making tenant changed as well. Mylan N.V. (NASDAQ: MYL) bought the cystic fibrosis products business of Novartis AG (NYSE: NVS), including the 100-person San Carlos site.

"We just focused on the real estate and everything that was happening in San Carlos, with Alexandria and the Peninsula market," said Rick Lafranchi, a senior vice president with Graymark, which since its founding in 2012 has acquired 2.7 million square feet of West Coast property.

The 62-year-old San Carlos structure, which was converted for drug manufacturing, is Graymark's first life sciences acquisition on the Peninsula, Lafranchi said, and its third overall. The deal marks the second time Graymark and Nuveen have joined forces to buy a building — the first being a building in El Segundo.

Graymark was represented in the off-market San Carlos transaction by Laef Barnes and Todd Campbell of Avison Young. The seller is Vica Capital, according to Property Shark.

"We were attracted to buying an asset in a life sciences hub," said Graymark COO and CFO Jeff Hoppen. "It's fantastic real estate with neighboring life sciences, R&D and high-credit companies. It's a big-plate asset with state-of-the-art manufacturing, labs and a great tenant in place."

San Carlos has become a mid-Peninsula hot spot for biotech and tech tenants, where low-rise industrial buildings have been the norm for decades. Many of those structures now sport "for sale" signs.

"It's a competitive market," senior associate Gavin Hession said. "It's certainly difficult, but opportunities do come up."

This article was published in the San Francisco Business Times by Ron Leuty.
Photograph courtesy of Graymark Capital.