KKR Invests in Major Boston Life Science Project

400 Summer Street. Image courtesy of WS Development

KKR now owns a stake in 400 Summer Street, a premier life science project presently under construction in the Seaport District of Boston. The new ownership interest comes courtesy of a major investment in a joint venture with the project’s developers, WS Development and the Public Sector Pension Investment Board. KKR has not revealed the percentage of its investment in the approximately 635,000-square-foot, state-of-the-art project.

WS Development and Ottawa-based PSP Investments relied on the assistance of Newmark’s Capital Markets Group for representation in the joint venture transaction. While KKR and its new partners are not disclosing numbers, others in the industry have been willing to shed more light on the partners’ intentions. In a June 16, 2021, Facebook post, commercial real estate intelligence provider Green Street noted that WS Development and PSP Investments were “shopping a stake in a large block” of 400 Summer Street and that “the offered 606,000 square feet” comprises the bulk of the project.

KKR chose a life science development that is making a name for itself before its doors are even hung. Part of WS Development’s 33-acre Boston Seaport mixed-use destination, the project was one of the largest non-multifamily developments to turn dirt in the first half of 2020, as construction came to a crawl amid the onslaught of the pandemic.

Additionally, the property was nearly fully preleased when work got underway, since Foundation Medicine had already committed to 580,000 square feet at the 16-story tower in the largest office lease signed in Boston in five years and the largest life sciences lease in nearly a decade.

In addition to cutting-edge laboratory accommodations and office space, the Morris Adjmi Architects-designed development will feature 30,000 square feet of retail offerings. The purpose-built life science facility, which is designed to target LEED Gold certification, is set to be a model of sustainability and will place a focus on open space with such features as the Summer Steps, a series of tiered, public plazas that will line the length of the building’s exterior.

Suffolk Construction is serving as general contractor. The project is on schedule to deliver in early 2023.

Long live life sciences

The life science sector is performing extremely well in metropolitan Boston—still the niche’s leading U.S. hub—and as a result, the city’s office sector is performing better than that of most metros.

“The office rate of recovery in Boston is at the front of the pack compared with other U.S. gateway cities on the heels of lab occupants. Biotech/pharma companies have been returning to the office at rates that are more than double the national average,” according to a second quarter 2021 report by Avison Young.

Net effective rents for lab space in the Greater Boston area also exceed rents in the national office sector by a longshot at a whopping $93 per square foot, per the report. The pricing differential for office versus lab net effective rents in metro Boston is 82.5 percent.

KKR’s decision to take a stake in a top life sciences asset in Boston appears to be a wise move for the long term. “Lab pricing and demand are positioned to remain strong, even with the chockfull pipeline for under construction, conversion and proposed buildings,” according to the Avison Young report.

KKR made the investment in 400 Summer Street via its core plus real estate strategy. The transaction follows KKR’s $1 billion acquisition of The Exchange on 16th, a 750,000-square-foot life science and technology complex the global investment firm purchased through its core plus real estate strategy in the first quarter of 2021.