Understanding the Costs of Converting an Office Building to a Life Science Facility

To understand the costs of converting office buildings to life sciences facilities, LoopNet spoke with a variety of professionals in the San Francisco Bay Area that invest in, operate, lease and construct life sciences properties. This article is the first of two focusing on this asset class, and this installment centers around key life science building attributes and the construction costs related to conversion projects. A companion article focuses on how to manage the day-to-day operations of these complex facilities.

Providing context about a life science facility, David Klein — a co-principal of life science incubator BioCube, based in San Jose, California, and Transwestern’s broker for the facility — suggested that "you think about an office building like an unsharpened pencil; it's like a pencil with a dull point," because the building systems (for electricity and air handling, for example) are not robust. “A life science building [on the other hand] is like a pencil with a very sharp point. It does things in a very fine way.”

To get to that more refined building, Tyler Morley — a principal at Metcon, a Bay Area-based general contractor specializing in life sciences build-outs and conversions — said that “these conversions are really all about infrastructure with regards to mechanical, electrical and plumbing [systems]. Older buildings are tougher than newer buildings [to convert] because overall, all of their infrastructure is older and needs upgrading.” Such properties generally need to be gutted to the slab and rebuilt. In the case of converting “younger” office properties to life sciences facilities, sophisticated systems, that can safely and reliably accommodate scientific experiments are installed over basic systems that served office users whose most complex tool is most likely a computer.

Anthony Gonzalez, a co-principal and CEO of BioCube, has been involved in several office-to-life-sciences conversion projects. He emphasized that “there's a huge amount of money that needs to be poured into these facilities.” He said that potential requirements include seismic upgrades to the building, the installation of vigorous HVAC systems, significant power upgrades and, in some cases, the installation of freight elevators. Exterior upgrades and roofing system replacement are other changes that are typically made to older buildings, Morley said, that add to the costs.

Peter Conte, senior vice president for life sciences services at Transwestern, noted that when it comes to conversion projects the process is much more selective than people realize. “You don't just need the power, the air handling (and therefore roof strengthening), you need to make sure [you have the right number and type of parking spaces], per whatever the city or county zoning and use codes dictate.” Conte added that you also have to make sure that “all the ancillary services like loading docks and freight elevators are there.”

Gonzalez added that consideration of the “deck-to-deck heights between the floor and ceiling have become critically important for air distribution, process piping [for transmission of fluids and gases],” and other components. Overcoming this challenge is not impossible,” he added, “but it will take more thoughtfulness, time and money.”

Getting your hands dirty when conducting due diligence should be part of the process, according to Gonzalez. “Normally when we look at office spaces, we try to pop the ceiling tiles and make sure that we have enough height. We usually like to see at least 18 inches and that will give us a good clearance. As a finished product, we like to have at least nine-foot clearances. However, what we're starting to see in the [life science] industry are much larger and taller pieces of equipment, so many companies are now seeking facilities that have nine to 11 [feet],” especially for tenants using machinery or automation.

In terms of costs, Morley calls mechanical, electrical and plumbing systems “the trinity,” saying that MEP components are generally the most expensive, respectively, in a conversion. Conte noted that one “challenge with laboratory environments is that you need 100% outside air,” so relying on systems used for comfort cooling in an office won’t work in the laboratory environment.

Morley added that structural support is another consideration if you're trying to bring labs to upper floors; “that's going to cost you more money and be more logistically difficult.” And that begs the question of elevators with enough capacity to lift equipment to those floors.

“Some buildings have better roof structures that enable equipment to be placed on the roof,” Morley said. But if the equipment can’t go there, a generously sized parking lot will be necessary to accommodate equipment and processing of gases, liquids and/or chemicals.

For a facility where he is converting half of a 70,000-square-foot office building, Gonzalez said “we're hovering around the low $300s per square foot,” in costs for the base building without tenant improvement allowances. This figure excludes furniture, fixtures and equipment.

“We basically removed all the air handling. We removed all the process piping, and we literally replumbed the entire building. The only thing that we are not touching are the common restrooms and the kitchen,” Gonzalez said. He said that they had to install a freight elevator as well.

“We've had to basically rework all of the electrical and we're in the process of adding an emergency generator. And we're also in the midst of a power upgrade; that particular building came in with a 2,000-amp service and we need 4,000-plus amp service, so we're doubling our power ability.”

Conte noted that TIs to build tenant spaces currently run at about $300 per square foot on top of the costs incurred to convert the base building. “If you have vivarium’s [for plants or flying animals] or specific clean room requirements … that number can ratchet [up] very quickly,” Conte said.

Morley concurred with those figures, saying that base building conversions (excluding the cost of purchasing the building) can start at $250 per square foot for a basic lab but can go as high as $1,500 per square foot if specialty build-outs for clean rooms, for example, are constructed. “If there's a lot of process piping, cooling and exhaust and makeup air requirements, and they have a lot of power needs,” costs will rise. “A lot of times the hazardous chemicals are dealt with in fume hoods and components like those, that also add to costs.”

But requirements for clean rooms where you have strict limitations on the number of particles in the air will move the per-square-foot cost toward $1,500, Morley said. He explained that for clean rooms, a great deal of HEPA filtration is required and in some cases, “we'll have the entire ceiling full of HEPA filters and those are heavy, so they lead to structural requirements that can be very expensive. [Additionally], those mechanical systems require more power, leading to more robust and expensive electrical costs.”

The wear and tear on building systems, such as the HVAC in a life science facility, are significant, shortening the life of these systems. “Equipment wears out quickly,” noted Gonzalez, indicating that the life expectancy of most of the major components of a life science building — if maintained properly — is 10 to 15 years. In a typical office building, that figure would extend to 20 to 25 years, “but you lose one-third of the functionality in life sciences properties because the systems run all day and never shut down,” Gonzalez said.

Klein added, that in an office building, systems turn on at six in the morning then cycle down by seven or eight o'clock at night but “in a life science environment, they have mechanical and electrical systems that never go down.”

Gonzalez added, “some of our clients may be doing light manufacturing. They may be here over the course of two or three shifts. Given that our buildings never sleep … our bathrooms are more frequently used, as are break rooms, general facilities, roll-up doors,” and other elements of the building.

“In a life science building, your uptime is a very key criteria to the success of your life science building; you cannot have downtime,” Klein said. In an office building, if the air conditioning breaks, people can work from home until it’s fixed. It's inconvenient, but it's not critical, Klein explained. “In a life science environment, if the air conditioning goes down, we're out of business and our clients are out of business,” he said. “They have experiments that are ongoing, that are in either cool environments or in freezer environments. And if that equipment goes down, it will potentially invalidate those experiments.”

With the life science industry “shattering records for employment, venture capital funding and laboratory/R&D space demand and pricing,” according to a CBRE report, it’s no wonder office-to-life-science conversions are garnering significant attention.

But according to Patrick Sentner, the new global president of the Society of Industrial and Office Realtors (SIOR), “we are also seeing, with the industrial sector, [that] skyrocketing growth can be a challenge when space is not readily available,” indicating that these conversions will be necessary for some time to satisfy growing demand.