Sanofi Greater Cambridge Laboratory and Administrative Consolidation
Project Type: Master Real Estate Portfolio Strategy and Implementation
Space Use: Pharmaceutical Chemistry and Biology Laboratories, Vivarium, and Office Location: Cambridge, Massachusetts
Size: 900,000 SF
Services Provided: Real Estate Strategy, Site Selection, Internal Consensus Building, Transaction Implementation, Disposition, Liability Mitigation
Sanofi, a multi-national pharmaceutical Fortune Global 500 company, engaged JM Zell to devise and implement a strategy to increase efficiency and collaboration while reducing OPEX for its Commercial Operations (“Comm Ops”) and Research & Development (“R&D”) user groups. Sanofi’s Comm Ops and R&D user groups had previously been housed in 8 different facilities spread across 25 miles from Cambridge, MA west to Framingham, MA making collaboration difficult and creating underutilized redundancy in personnel and laboratory equipment. Further, the laboratories and offices at these legacy facilities varied from new urban installations to outlying suburban facilities approaching functional obsolescence, creating inequities among employees.
JM Zell’s efforts working with Sanofi’s internal real estate team culminated in the delivery of two neighboring “state-of-the-art” buildings in Cambridge, MA. This consolidation provided employees across the organization a level playing field by creating an “urban campus” environment supporting collaboration among user groups while increasing Sanofi’s presence in North America’s preeminent life sciences, innovation, and technology community. The first building, 450 Water Street, Cambridge, MA, is a 500,000 SF purpose-built laboratory facility incorporating chemistry, biology, and vivarium spaces. The second building, 350 Water Street, Cambridge, MA, is a 400,000 SF office facility with modern work environments, conference spaces, boardrooms, collaboration areas, an auditorium and a full-service cafeteria. The consolidated “urban campus” enables sharing of high-cost laboratory equipment reducing the amount needed while simultaneously reducing facility and scientific administrative costs.
The assignment presented several significant challenges: i) obtaining favorable economics and operating flexibility for a large block of new space to efficiently meet Sanofi’s operational requirement in an urban market with low vacancy and high and rising rental rates, ii) assisting Sanofi Real Estate with multiple presentations to gain internal consensus and approvals from stakeholders and the executive committee, and iii) maximizing the sales proceeds of 2 suburban chemistry laboratory buildings, 2 aging / functionally obsolete suburban biology laboratory buildings, and mitigating liability for 270,000 SF of high-cost urban office space.
Zell successfully structured a below-market lease agreement at Cambridge Crossing, a new development situated just three to four blocks from Kendall Square. Zell persuaded the developer that Sanofi’s anchor tenancy would establish the site’s viability, effectively extending Kendall Square’s premium rental market to include Cambridge Crossing, leading to significant future value for the developer as it leased the remainder of its site. Zell’s strategic approach and implementation led to Sanofi obtaining extremely favorable rental terms and above-market concessions while maximizing operational flexibility. The transaction resulted in 35% savings or more compared to market laboratory and office costs, delivering over $500 Million in savings for Sanofi.
With the new Cambridge Crossing leases finalized, Zell advanced its strategy to maximize the sales proceeds of the four surplus lab properties and minimizing the exposure from Sanofi’s recently leased Kendall Square office facility. Leveraging a strong understanding of value, Zell successfully sold two functionally obsolete properties with significant capital needs and two low-demand chemistry laboratory properties – each at well above book value. Furthermore, Zell orchestrated a bidding war between three publicly traded companies for Sanofi’s relatively new Kendall Square office property, ultimately structuring a transaction which delivered a 50% rent premium for Sanofi while monetizing the value of its interior improvements and recovering its CAPEX investment.
Through JM Zell’s master planning, internal consensus building, implementation, and disposition services, the Client was able to create an efficient, collaborative “urban campus” at well below market costs. Similarly, on behalf of the Client, JM Zell monetized surplus owned facilities and subleased Sanofi’s major Cambridge office facility at a substantial profit. The new transaction was one of the largest leases ever signed in the greater Boston Area with a total value of over $2 billion.
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