San Diego-based IQHQ, a life sciences developer that made bold investments during the recent biotech boom, has encountered further obstacles in its attempt to lease two megaprojects coming online during a historic oversupply of lab space.
Multifamily REIT Aimco has downgraded its investment in IQHQ, according to an Aug. 7 filing with the U.S. Securities and Exchange Commission (SEC). The REIT invested $50 million in the private life sciences company in 2020 and said in a second-quarter filing that it recorded a $47 million impairment charge on that investment.
The filing said the company “concluded that our investment in IQHQ was impaired after considering various factors, including adverse capital markets conditions, increased real estate development costs and the financial condition of IQHQ.”
The research and development district will be built in downtown San Diego in 2023.
Aimco declined to comment for this story, but it is not the only company noticing IQHQ’s problems. Two massive construction projects – the completed 8-acre waterfront research and development district in San Diego and the soon-to-open Spur in South San Francisco – had no life sciences tenants signed as of May and have not publicly disclosed signed leases.
A 12-member panel of real estate and industry experts convened by the San Diego Union-Tribune unanimously agreed that IQHQ should change course and seek more traditional office tenants for the RaDD space.
San Diego’s life sciences real estate market has a vacancy rate of 17.7%, according to CBRE data. The downtown submarket, where RaDD is located, has seen no recent leases and nearly 2.4 million square feet are under construction. Leasing volume reached just 204,000 square feet in the second quarter.
“We are pleased with the momentum in leasing in our districts and will be making some announcements shortly,” an IQHQ spokesperson said in a written response to questions about leasing from RaDD and Spur.
No further details were provided by the IQHQ.
Bisnow asked the Ontario Teachers’ Pension Plan, which made two investments totaling $1.2 billion in IQHQ through its real estate subsidiary Cadillac Fairview, whether it had taken an impairment charge or conducted a similar assessment of IQHQ’s finances as Aimco. The plan declined to respond.
Bloomberg reported at the end of July that IQHQ had hired financial advisory firm PJT, which, according to an IQHQ spokesperson, would advise the project developer on raising capital.
“Financial advisors typically help companies raise equity or debt capital, sell assets or engage in potential mergers,” Bloomberg reported.
PJT did not respond to attempts to learn more about its work on behalf of IQHQ.
IQHQ was founded in 2019 under the name Creative Science Properties with a team that included BioMed Realty Trust founder Alan Gold. By 2021, the company had raised $2.6 billion to develop life sciences properties nationwide, with a strong focus on three core markets: San Diego, Boston and the Bay Area.
IQHQ received a vote of confidence from Bank OZK, a construction financier for the RaDD project. Bank OZK provided a $915 million loan to the RaDD project in 2022, which was originally scheduled to mature in August 2026. News of RaDD’s difficulties prompted Citigroup to downgrade Bank OZK on May 29, causing the bank’s share price to fall 14% the same day.
In its July 17 earnings report, Bank OZK said IQHQ maintained payments on its floating rate loan and contributed an additional $87 million to finance the RaDD project.
Bank OZK’s earnings report states: “The sponsor and capital partners have continued to demonstrate their commitment to the project,” and IQHQ has “signed several retail leases and stated that it is actively engaged in lease negotiations and discussions with prospective life sciences and office clients, as well as additional retail.”
Due to the “expectation of a longer than originally expected leasing cycle”, Bank OZK has negotiated an additional two-year extension option for the loan and is “convinced of the project as it has an excellent location, high-quality construction, experienced sponsors and strong capital partners.”
