Billions In Maturing Debt Puts Life Science Tenants In the Leasing Driver's Seat

Commercial property owners typically screen potential tenants to ensure they can make rent payments and don’t have a history of eviction, but with $270 billion of commercial real estate debt maturing when interest rates are rising rapidly, the tables are turning — especially when it comes to well-capitalized life science users.

Life sciences deals often involve significantly higher landlord contributions compared to typical office deals, underscoring the importance of conducting thorough due diligence to ensure landlords can honor their capital obligations to tenants, according to a report from commercial real estate brokerage Savills.

“Well-capitalized landlords, especially those with long-term investment horizons, are weathering the storm and remain eager to engage in fruitful transactions,” according to Savills. “This is where savvy life science tenants can turn the tide in their favor.”

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In the current economic environment, Savills recommends tenants take the following steps when negotiating real estate transactions:

• Investigate their potential landlord’s financial health, investment strategies and long-term objectives.
• Monitor market dynamics and be on the lookout for landlords who have impending loan maturities — especially if they’ve purchased properties at values that are no longer justified based on current market conditions.
• Develop partnerships with strong landlords who are well-capitalized or have a long-term outlook.

Savills also recommends understanding how the landlord finances their operations — landlords with diverse capital sources or a long-term investment strategy likely are more resilient. Tenants also ask landlords to escrow funds or provide performance bonds for financial obligations to make sure they have the resources to pay for their commitments.

Defaults and foreclosures have started happening in markets nationwide as some landlords, including those who own life sciences properties, are unable to reach agreements with lenders on loan restructurings or tap into other capital sources.

“For life science tenants, this is an era of opportunity,” the Savills report states. “The market conditions, though tumultuous, are fertile grounds for securing advantageous lease terms and building partnerships with landlords who have the capital and vision to thrive.”

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