A partnership for progress
The recent announcement that UBS Asset Management and Reef Group will be developing the Stevenage Bioscience Catalyst expansion has been a source of celebration in the Life Sciences sector and beyond. The deal, which will see the partnership acquire 33 acres from GlaxoSmithKline, is expected to deliver up to £900m of new investment, resulting in the creation of 1.4m sq feet of laboratory and office facilities and up to 5000 new jobs.
It is also the latest example of how the booming Life Sciences sector lends itself particularly well to JV models that enable market players to combine resources, expertise and opportunities. As we reported on previously, Kadans and Canary Wharf Group have announced plans to build a new 750,000 sq ft wet lab-enabled building in Canary Wharf, demonstrating the enthusiasm of traditional UK real estate investors and developers to access the lucrative Life Sciences market. Another JV deal announced earlier this year is Oxford Science Enterprises (the preferred investment partner of the University of Oxford) tie-up with Lothbury Property Trust to deliver 30,000 sq ft of lab and office space in Oxford city centre.
JVs facilitate the marriage of capital and expertise and so it is clear to see how the model works well in this sector. In the UK’s established Life Science clusters (in particular, the ‘golden triangle’) space is extremely limited. Land is often held by the government, public sector bodies or universities (“the Investor”) who may not have the appetite or expertise to develop it themselves. The scale, cost and complexity of Life Science developments mean that partnership with an experienced operator is essential. A skilled Life Science operator (“the Operator”) can provide not only capital but also development expertise, market knowledge and reputation; all of which will prove a significant draw for future tenants.
When considering a JV opportunity, there are several key points to consider:
The importance of finding the right partner
A good JV will be mutually complementary with each partner offering something significant that the other doesn’t have, for example, land vs experience. For a successful development, it is also essential that the partners are fundamentally aligned in their vision for the development and the future of it.
The role and contribution of each partner in the JV must be clearly established at the outset. Will day-to-day operational control rest with the Operator partner? How much say with the Investor partner have? It will be crucial for the JV agreement to strike a careful balance between allowing the Operator sufficient freedom to control the strategic and operational decisions whilst also safeguarding the Investor’s interests.
Prospective JV partners should balance accountability with flexibility and practicality, to ensure that unanimity between the partners is only reserved for the most critical matters. JV partners should also have a clear mechanism for resolving disputes and deadlocks to stave off stalemates; this is particularly important in a 50/50 partnership.
With each party to the JV playing a critical and unique role, the arrangement should have clear and strict provisions set out to prevent a partner from exiting the partnership prematurely as well as a workable wind-up plan.
If the JV is successful, both partners may want to capitalise on the relationship for future projects and it is important for long-term goals to be considered at the outset. If the Investor partner has other land, does the Operator want priority over future development of it? Does the Investor partner want to impose restrictions on the Operator partnering with others during an exclusivity period?
The rise of JVs is an exciting development for the increasingly competitive Life Sciences sector. Strategic partnerships which allow companies to build on their strengths and combine expertise ensure that schemes remain viable, safeguarding the delivery of space to this critical industry.