Creative real estate deal nets Array BioPharma $32 million

BOULDER – Array BioPharma Inc. (Nasdaq:AARY) spent more than a year lining up the pieces for its recent real estate deal. And the company’s patience paid off – it netted $32 million off two local properties it never owned.

The Boulder-based biopharmaceutical firm on June 22 announced that it had completed a series of agreements with its existing landlords in Boulder and Longmont to sell the buildings that Array leases to San Diego-based BioMed Realty Trust Inc. The deal is expected to close sometime during the third quarter.

Circle Capital Partners owns Array’s 78,000-square-foot space at 2600 Trade Centre Ave. in Longmont. And in Boulder, Array’s 150,000-square-foot headquarters at 3200 Walnut St. is owned by California-based Bancroft Capital along with partner New York-based Investcorp.

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The buildings will sell to BioMed for about $65 million – $33 million will go to the buildings’ owners, and $32 million will go to Array. Array gets almost half of the profits because of some nifty deal making.

In July 2005, Array reached a deal to extend its lease in Longmont to 2013. Part of the deal involved Circle Capital giving Array an option to buy the space for a certain price. At the same time, Array turned to its Boulder landlords, Bancroft and Investcorp, looking for a similar deal – a new lease and an option to buy.

But the parties couldn’t come to agreement on financial terms. Array decided that it needed a better hand in this real estate poker game.

So under the advisement of its brokers at Denver-based CRESA Partners, Array secured the option to lease an additional 80,000 square feet of laboratory space from Circle Capital in Longmont. Array then hinted that it could leave the Boulder space when its lease expired in 2008 and consolidate to Longmont.

“Array was in the unique position to pull out of the (3200 Walnut St.) building, which gave them the leverage for the deal,” CRESA Senior Adviser Chuck McKenney said. He along with CRESA Partner Alex Hammerstein represented Array. Todd Wheeler of Denver-based Cushman & Wakefield represented Bancroft and Investcorp.

The possibility of Array moving to Longmont soon got the attention of Boulder city officials, which didn’t want to lose a national headquarters to any of its neighbors.

Boulder Business Liaison Liz Hanson said she and City Manager Frank Bruno met with Array on three different occasions. While the city has no financial incentives to offer, Hanson said they told Array that the city is working to propose an economic incentives program to city council.

Hanson declined to say whether or not the city talked to Bancroft to help the deal go through and keep Array in town. Bancroft owns several pieces of property in the area and recently received city approval to build its new $142 million mixed-use Peloton project in the same neighborhood. Bancroft also declined to comment on the Array deal.

Terms of the deal were not disclosed. But in its press release Array said it got what it wanted – “improved terms and an option to purchase the building.”

With the rights secured to purchase both of its buildings in Boulder and Longmont, Array then turned to BioMed. The San Diego-based REIT specializes in owning biotechnology and biopharmaceutical real estate and was looking to make a deal.

Array agreed to sell its option to buy the buildings to BioMed for $32 million. With that option in hand, BioMed can now purchase the buildings from Circle Capital, Bancroft and Investcorp for $33 million, presumingly the secured price obtained by Array in its earlier deals.

The deal for BioMed isn’t as uneven as it sounds. Array has agreed to extend its lease with BioMed on the buildings to 2016. In addition, Array will pay about $1.5 million extra a year in rent, Chief Executive Officer Bob Conway said. Through the course of the 10-year lease, that’s $15 million extra back to BioMed.

Conway said it’s a good deal for Array. He figures the company can invest the $32 million and get a higher rate of return than compared to the rent increase. Array plans to hire 35 new employees during the next year, which will increase its total employment in the area to more than 300 people. The new physicians and clinical regulatory professionals will be working to advance five drugs in clinical development, Conway said.
One more side note – the sale of 78,000 square feet in Longmont is the first for Circle Capital since it purchased property as part of a 2 million-square-foot deal from Pratt Properties in April 2005.

Contact David Clucas at 303-440-4950 or e-mail dclucas@bcbr.com.