The ‘Godfather’ Of Life Sciences Real Estate Faces The Sector’s Sharpest Downturn Yet

Joel Marcus walked into the Downtown Los Angeles office of investment giant AEW on Sept. 9, 1996, unsure how much longer his business would survive.

The co-founders of Alexandria Real Estate Equities were running out of money, and they were trying to pitch an idea that had no proof of success: building a company focused on owning lab properties and leasing them to firms in the emerging biotech industry.

Despite the potential upside of Marcus’ pitch — biotech was just beginning to address the thousands of known diseases with no cure — he was rejected by the first 29 investors.

Entering his 30th meeting, Marcus could tell co-founder Jerry Sudarsky was growing weary. But the Air Force veteran remembers feeling confident as he ran through his talking points. 

Courtesy of Alexandria Real Estate Equities

Joel Marcus, co-founder of Alexandria Real Estate Equities, led the first company devoted to owning and operating life sciences real estate. Its niche industry has arguably never faced more uncertainty.

The pitch worked: AEW agreed to invest $27.5M in Alexandria’s Series B round. After shaking hands and walking out of AEW’s conference room, Marcus knew the firm would make it to the next stage of his grand plan: going public. 

“That Series B was really the key,” he told Bisnow in a recent interview. “If that didn’t happen, the company would have dissolved, sold off its assets or been like a little family company.”

Today, Alexandria is traded on the New York Stock Exchange with a market capitalization of $16.6B, and it is the dominant landlord for the biotech industry that has boomed beyond Marcus’ early predictions. 

His pitch that Alexandria could ride this wave by getting in early has proven true. It remains the largest player, with a 400-property empire valued at $37B, in a life sciences real estate sector that now has several younger competitors.

“They really proved a case point about your ability to develop and bring to market a completely different asset class that didn’t really exist before the 21st century,” said Travis McCready, who leads JLL’s national life sciences team. “It’s crazy when you think of it that way. The entire asset class of commercial leasable lab space is a novelty in commercial real estate. And Joel and ARE, he’s the godfather of this asset class.”

Now 76 years old, Marcus has remained atop the industry’s largest organization for more than a quarter-century. But over the last year, he has faced a series of battles that have tested his business and the industry he helped shape. 

After a decade-long bull market capped by supercharged growth early in the pandemic, the life sciences sector has suffered a sharp downturn over the last year. ARE’s stock has plunged to less than half of its early 2022 peak.

An index of biotech stocks is also below half of its peak, and it has lost more value over the last two years than it did during the Great Recession. 

Alexandria nevertheless reported $324M in profits through the first nine months of the year, and its executives, board members and analysts say they are confident in its long-term prospects. But its stock has been hammered by the market souring on the struggling sector — more than 200 biotech companies have enacted layoffs over the last two years, and many have shut down completely. 

“2023 is more of a worry year for everybody. People are worried about where the biotech industry is going,” Marcus said.

Alexandria this year faced a campaign from a well-known short seller who argued the life sciences sector will go the way of the office market and see values collapse. Despite Marcus’ arguments to the contrary, its stock has kept falling. 

“They have helped ease those concerns,” RBC Capital Markets Managing Director Michael Carroll, an analyst who covers Alexandria, said of the REIT’s response to the short seller. “But I do think that given the current fundamental environment today, there is just that uncertainty, and I think it’s just hard to completely counter some of those concerns when you see moderating demand and accelerating supply.”

During this downturn, the company has lost two of its top executives: co-CEO Stephen Richardson resigned in July 2022, and in August its president and chief financial officer, Dean Shigenaga, also resigned. Marcus attributed the turnover to family health issues. 

Courtesy of NYSE Group

Alexandria executives ring the New York Stock Exchange bell in May 2022 to celebrate the 25th anniversary of the company’s IPO.

Since going from CEO to executive chairman in 2018, Marcus spends his days focused on the company’s personnel, its external communications — he often responds directly to media requests sent to Alexandria’s investor relations line, sometimes in all caps — and on its strategic financial decisions. 

This year, those decisions have centered around responding to the downturn by selling more than $1.5B of properties and hitting pause on some planned developments.  

Marcus still leads the company’s quarterly earnings calls, continuing his longstanding role of convincing investors about the strength of the life sciences market and Alexandria’s position in it.

“Joel and ARE have been under the microscope perhaps more so than any other life sciences landlord investor operating in the ecosystem today,” McCready said. “That has put Joel in the position of having to answer questions about this downturn and do it in a way that reflects some pretty ugly realities.”   

‘I Took A Chance’ 

After growing up in Denver as the son of a homebuilder, Marcus joined the U.S. Air Force as a medic in 1965 and served for six years — two of them active duty and four in the Air Force Reserves while studying at UCLA. 

He still looks back on his time in the military as influencing his temperament during high-pressure situations as an executive, such as during the 2008 financial crisis. 

“It’s like going into battle. You’re well-prepared for a whole lot of different situations, and you batten down the hatches and you engage the enemy, which is all the bad stuff that’s happening,” he said. “My military training was what kept me pretty stable and sane. That’s just who I am.”

Marcus received his law degree from UCLA in 1972 and worked as an attorney for the biopharmaceutical industry, becoming a partner at Brobeck, Phleger & Harrison LLP. He also worked as a certified public accountant for Arthur Young & Co.

In 1984, he helped structure a groundbreaking joint venture between biotech pioneer Amgen and Japan’s Kirin Brewery Co. that created Epogen, a medicine used to treat anemia by creating more red blood cells. Amgen’s CEO in 2017 looked back on the venture as playing “a pivotal role in the growth of Amgen from a small, venture-backed start-up to one of the world’s largest biotechnology companies.” 

But for Marcus, its impact was more personal. 

“It became a multibillion-dollar drug, one of the largest ever, which actually happened to save my brother’s life,” he said.  

Asked to expand on his brother’s story, Marcus declined to provide more information, citing medical privacy laws.

In 1993, after he worked on an attempted initial public offering for Palo Alto-based Medclone, two of the firm’s board members, Joe Jacobs and Jerry Sudarsky, the heads of Jacobs Engineering, approached Marcus with an idea. 

The duo had been working on architecture, design and engineering for biotech companies like Eli Lilly and Genentech, and they saw a gap in the industry. Marcus credits Jacobs — who died in 2004, five years before Sudarsky — with coming up with the original idea of creating a real estate firm focused on owning biotech facilities. 

The duo asked Marcus to work as their lawyer and help them put together a business plan for such a company, which he said he was happy to do. But when they were preparing to launch, the two septuagenarians asked the younger Marcus if he would run the company, and he remembers saying, “Thanks very much, but I have no interest in doing that.”

After they asked Marcus twice more and a mutual friend who worked as a venture capitalist tried to persuade him, he decided to take the leap. 

“I didn’t have any particular confidence we would make it,” Marcus said. “I took a chance. I had three small kids, and I was working hard for the family and doing what I did as a lawyer.”

But he saw the upside potential in being the first real estate firm to cater to an industry on the verge of exploding, and he saw a realistic avenue for its growth: going public through the then-emerging real estate investment trust structure. 

While he didn’t come up with the initial idea for the company, Marcus said his main contribution to Alexandria’s inception was courting early investors and insisting that the company should aim to go public as a REIT, a course that would ultimately turn it into a real estate giant listed on the S&P 500. 

“In the mid-’90s when Alexandria comes out of the gates, it was really the first to arrive at that conclusion that there was enough growth in biotech to warrant a specialty lab landlord, and obviously they were right, and as a prime mover, they’ve been in a great position,” said Matt Gardner, who leads CBRE’s life sciences practice. 

Courtesy of Alexandria Real Estate Equities

Jerry Sudarsky and Joel Marcus, co-founders of Alexandria Real Estate Equities, photographed in 2005.

In the early days of Alexandria, the company owned just a handful of properties and had a small team working out of the basement in Jacobs Engineering’s office building. Marcus remembers working on a makeshift desk formed from a piece of plywood mounted on cinder blocks. 

“It was pretty raw,” he said. 

The company had started with $19M in Series A funding before securing the investment from AEW, and it was still relatively small when Marcus decided to take it public less than a year later. The company owned 15 properties totaling 1.5M SF when it filed its preliminary IPO prospectus on May 5, 1997. 

The company’s name is a nod to the scientific capital of the ancient world, Alexandria, Egypt.

In a 2014 interview with The New York Times, Marcus credited his son Steven with that idea: “My oldest son, who was at Wharton, came up with the name.”

But Steven’s involvement in the company has since become the subject of a lengthy legal battle. 

In 2019, Joel Marcus and Alexandria sued Steven and his startup, Runlabs, for trademark infringement, claiming he improperly used Alexandria’s name and logo in a fundraising pitch and incorrectly claimed that his startup evolved from Alexandria. The lawsuit claimed Steven never worked for Alexandria or had any business relationship with it.

Steven appealed the suit, and the legal battle continued for four years, with lawsuits launched from either side in seven separate courts. 

It ultimately ended last month, Bisnow can first report: On the eve of a scheduled Oct. 3 jury trial in Los Angeles, the father and son reached a settlement agreement to dismiss the case. Marcus declined to comment on the settlement, and Steven Marcus didn’t respond to requests for comment. 

Alexandria was also involved in a legal dispute shortly after going public with one of its co-founders, Alan Gold. Gold served as president and a board director when the company went public, and he held the second-most shares in Alexandria at the time.

In July 1998, Gold gave Alexandria written notice that he intended to terminate his employment agreement, and he left the company the following month, according to filings with the Securities and Exchange Commission from that year. The company disputed his claim that he had “good reason” to terminate the agreement and submitted the dispute to binding arbitration. Gold responded with claims against the company, and the arbitrator in April 1999 found in favor of Alexandria, the company said in an SEC filing.   

Gold went on to co-found BioMed Realty Trust in 2004, and he later led IQHQ, both direct competitors of Alexandria. Marcus declined to comment when asked about Gold, and Gold didn’t respond to multiple requests for comment.

‘Joel Is The Engine Behind This’

The leap Marcus took not only led to the creation of a multibillion-dollar company, but over the last three decades, his company has influenced the growth of the life sciences industry and shaped the development of cities across the country. 

Dr. Maria Freire, an Alexandria board member who has spent her career working on the funding and commercialization of medical research, said Marcus has been “enormously influential” in the life sciences sector by providing facilities for companies and bringing them together to share ideas. 

She remembers a meeting with Marcus in 2011, one year before she joined Alexandria’s board, that showed his passion for science. Prominent medical philanthropist Deeda Blair invited Freire, Marcus and life sciences consultant Lynne Zydowsky to Blair’s apartment on Manhattan’s Upper East Side. 

Marcus pitched the three life sciences experts on an idea: convening a summit featuring high-level meetings with the top minds across various fields of science. Freire said Marcus detailed the vision for what would become the Alexandria Summit, an annual event that she said has greatly increased the real estate firm’s influence in the sector. 

Courtesy of Alexandria Real Estate Equities

Joel Marcus speaks at an Alexandria Summit in 2011.

“This is Joel. Joel is the engine behind this,” Freire said. “He is well-respected by people in the sector. He is a contributor, he can talk to these people, he knows them personally. It’s his understanding that this was a part of what was needed, an ecosystem, that made it so successful.” 

She also pointed to the REIT’s venture investment arm and Alexandria LaunchLabs, its startup incubator, as key ways the company has helped the industry grow. 

These efforts have also helped maintain Alexandria’s…