Chicago Developer Sterling Bay Lands In Philly With 13-Story Lab Development

Philadelphia just officially gained two more entrants into its life sciences market, continuing its ascent to the top tier of U.S. cities in the sector.

A joint venture of Sterling Bay, Harrison Street Real Estate Capital and Botanic Properties closed on the acquisition of a full-block site at the corner of 38th and Chestnut streets in University City, the companies announced Tuesday. The lot at 3801 Chestnut St., just to the south of the Market Street corridor that has drawn the lion's share of new construction to this point, is now slated for a 13-story, 310K SF lab building.

The acquisition is Chicago-based Sterling Bay and New York-based Botanic’s first in the Philadelphia market, though it had been on their radar for quite some time, Sterling Bay Director of Life Sciences Suzet McKinney told Bisnow in an interview on Monday.

“We’re very excited to finally have a project in the area,” McKinney said. “Philadelphia is, as far as we’re concerned, one of the primary life sciences markets in the U.S. for growth.”

The transaction closed on Friday, and the sale price was not disclosed. The JV also did not disclose the identity of the seller, but property records show the lot's owner as Ted Pagano, who publicly acknowledged that he had been approached by several parties about a possible sale in 2020. At the time of the sale, a longstanding cheesesteak restaurant called Abner's and an Indian restaurant were operating out of the one-story building at 3801 Chestnut, along with a distribution warehouse for locally born, SoftBank-backed delivery app GoPuff.

McKinney declined to comment on the immediate future of the building or its occupants, instead reiterating the JV's plan to build a new-construction lab building while leaving open the possibility of some sort of arrangement.

“One of the hallmarks of any Sterling Bay development is activation of the ground floor with high-quality amenities: restaurants, retail and the like,” McKinney said.

While Botanic is a life sciences developer by trade, Sterling Bay has only been operating in the asset class for a couple of years, most notably buying up a swath of property in the San Diego market. And though Sterling Bay and Botanic are debutantes in Philly, Harrison Street already has a life sciences-adjacent portfolio: Its holdings are the result of its joint venture with Joel Freedman to buy Hahnemann University Hospital.

As it was with Freedman before he closed Hahnemann in a bankruptcy case that caused outrage across the city, Harrison Street's function in its JV with Botanic and Sterling Bay is as an equity partner; the latter two will partner in the development process. Parties from the two companies met in the last week of January to kick off the design process for the building, and the process of securing entitlements for the property will soon get underway, McKinney said.

Construction is projected to begin in 2023 and complete before the end of 2025, the announcement stated. By the time it could be up and running, University City will be much more dense with life sciences developments. Just to the west, 3.0 University Place will be operational long before then, as will One uCity Square on the other side of Market Street.

To the east, Brandywine Realty Trust will likely have completed the first ground-up building at its Schuylkill Yards project, and by 2025, Spark Therapeutics may even have completed its planned $575M biomanufacturing facility at 30th and Chestnut streets.

In fact, while Philly gene and cell therapy companies may currently be hurting for manufacturing space, there could be millions of square feet either active or in development across the city by the time the building at 3801 Chestnut St. is operational, from the Philadelphia Navy Yard and the Lower Schuylkill Innovation District to Budd Bioworks. But multiple players in the sector believe Philly's national head start in gene and cell therapy will be enough to sustain a pipeline more robust than could have been imagined just a few years ago.

“Philly's research institutions [are] a magnet for the best and brightest talent in the life sciences industry globally,” McKinney said. “This is a rare opportunity in a market that essentially everyone wants to be in.”