IPG Services Provided

  • Real Estate Review
  • Lease Buyout Analysis
  • Sublease Analysis

Overview

Amgen Pharmaceuticals is a global company leading the way in several key areas of medicine: oncology, cardiovascular disease, nephrology, inflammatory disorders, bone health, and neuroscience.

AMGEN hired IPG to lead a nine-month detailed real estate review in partnership with Lend Lease for AMGEN in three major life science markets: South San Francisco, Seattle, WA, and Cambridge, MA. Each market had unique challenges and independent business case.

Assignment & Process

  • Amgen instructed the team to look at their real estate portfolio from a broad range of perspectives. We were to identify strengths, weaknesses, opportunities, risks, and put programs into action to drive operational efficiency. Our project goals for the various properties were as follows:
  • Cambridge: Maximize Capacity – We needed to understand the viable options for maximizing capacity in the most efficient and profitable way possible. Amgen needed both short and long-term facility solutions for their Class A 600,000-square-foot research facility in Kendall Square.
  • San Francisco: Minimize Exposure – Explore lease efficiency strategies on a 1,200,000-square-foot building via the minimization of current, onerous lease-related economic exposures.
  • Seattle: Divest/Abandon – Determine the most expedient, sound, and profitable strategies to abandon a 900,000-square-
    foot asset.

All project market goals were intended to fuel Amgen’s innovation with greater speed-to- market. Amgen needed to run lean on real estate, and invest that capital into their core business pursuits of life-saving medical innovation.

In San Francisco, Amgen ideally wanted to lower their lease exposure via a single or multitenant sublease. They also wanted to explore the viability of landlord lease-buyouts versus paying the remaining term on some of their under-utilized buildings, many of which they inherited during their acquisition of Onyx Pharmaceuticals.

It was clear to us that the only positive thing Amgen had going for them in this market was South San Francisco vacancy rates, market demand, and market base.

The Challenges

1

Above market lease commitments

2

Too much square footage

3

Size of buildings versus average tenant size in SF

In the effort to lower their economic exposure, Amgen faced some challenges, including:

  • Above market lease commitments
  • Too much square footage
  • The company was not being interested in multi-tenant sublease strategies
  • Size of buildings versus average tenant size in SF

We concluded that:

  1. Amgen’s single-tenant lease strategy was unlikely to reduce lease liability in the near- term, due to small space requirements.
  2. Large single-tenant uses will likely want more term certainty than what was available considering the balance of Amgen leases.
  3. Amgen’s undrawn TI for AOP 3 could provide leverage with landlords to negotiate a lease buyout.
  4. As the lease term shortened to less than ten years, the outcomes for Amgen and the landlord would be better aligned.
  5. A multi-tenant sub-lease strategy would appeal to both Amgen and the landlord.

The Success

1

Amgen consolidated their west coast operations in South San Francisco.

2

Amgen had the chance to leverage its unused TI allowance.

3

Success in developing Amgen’s real estate review.

In the end, IPG advised that Amgen’s low-utilization leases were at higher-than-market rents. This put them in an unfavorable negotiating position with their landlords when it came time to negotiate their buyouts.

Large single-tenant leases were moving to Mission Bay in downtown San Francisco and away from South San Francisco. However, Amgen could leverage its unused TI allowance with its landlord(s) and the shortening term of its leases.

As a result of the team’s work developing Amgen’s real estate review, they decided to shut down their Seattle location and consolidate their west coast operations in South San Francisco, and their Corporate Headquarters campus in Thousand Oaks, California.

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