Bruce Steel has managed to stay more or less off the radar screen since the fall of 2010, when he was named as managing director of BioMed Ventures, an investment arm of BioMed Realty (NYSE: BMR), the San Diego-based real estate investment trust (REIT).
But as I’ve noted many times, San Diego is not exactly awash in local venture investors. So my curiosity was aroused when the San Diego Venture Group listed BioMed Ventures among San Diego’s investors during its recent summit. Steel also was elected to the venture group’s board at the end of last year, and he’s been turning up elsewhere too. BioMed Ventures was listed as a participating VC at the Rock Stars of Innovation Summit (organized in San Diego by Connect and Xconomy), and at the 2011 BIO Investor Forum in San Francisco.
When I caught up with Steel by phone, he told me he approached BioMed Realty CEO Alan Gold in 2010 with the idea of establishing an in-house venture arm at the company.
At the time, Steel was the chief business officer at San Diego-based Anaphore, which pays its rent to BioMed rival Alexandria Real Estate Equities. Before that, though, he served as a co-founder and CEO of San Diego’s Rincon Pharmaceuticals and as head of corporate development at Ambit Biosciences, where he says he got to know Gold and other members of BioMed’s team. Steel said his proposal “fit pretty well with some of the ideas they already were thinking of doing in terms of adding to the team.”
Life sciences companies are unique in the real estate world, Steel says, because of their critical dependence on laboratory facilities and instruments. A recent freezer malfunction at a Harvard-affiliated hospital, for example, ruined a third of the world’s largest collection of autism brain samples. As a result, Steel says the landlord-tenant relationship grows pretty tight.
“I thought it would be interesting to leverage the entire real estate platform to work more closely with tenants, prospective tenants, and other [life sciences companies], with a view to supporting those companies, and to make a minor investment where appropriate,” Steel said.
He emphasized that BioMed Ventures is making only minor investments, and it sounds as if the recipe underlying his approach is two parts business development, one part venture capital. It also gives Steel an entré to network more closely with venture capital firms. He would not say much about the fund itself, however, or his investments, or strategy. He explained he could not say anything that goes beyond information BioMed Realty has disclosed as a public company—and I found very few references to BioMed Ventures in the company’s regulatory filings over the past two years.
In its annual report for 2010, BioMed Realty notes that Steel arrived in September, 2010, as an experienced biotech industry executive. “In this newly created role,” the company says, Steel “is focused on developing relationships with early and mid-stage life science organizations, as well as the venture capital community, in order to identify high-quality prospective tenants and attractive investment opportunities located in our core markets.”
One deal that has been publicly disclosed is BioMed Ventures’ participation in a $20 million Series D round of funding for NanoString Technologies, the Seattle Bioinformatics company.
While corporate venture arms have become increasingly common—and active—at Qualcomm, Google, and other big public companies, it is unusual to see one operating within the rules that govern REITs. Because of their specialized tax designation, a REIT can reduce or eliminate its corporate tax by making certain types of investments in real estate. Because something like 95 percent of a REIT’s gross income must come from qualified sources, it seems likely that BioMed Ventures is making very minimal investments.
Still, it’s an interesting development.
Since its IPO in 2004, BioMed Realty has rapidly expanded as a commercial landlord that specializes in the life sciences industry. It owns and manages buildings in life sciences clusters throughout the country, including San Diego, San Francisco, Seattle, and Boston—and recently disclosed a 20-year deal with Shire, the Irish drug giant, to develop a major facility in San Diego. BioMed Realty says in its latest annual report that it was managing some 12.4 million square feet of lab and office space at the end of last year, and its 2011 revenue amounted to nearly $430 million.
“We are trying to work more closely with tenants where we can,” Steel says. “Sometimes that might involve making a very modest investment. Sometimes it might involve getting a little more creative in how we structure a lease, and so forth. Generally, we are just trying to establish tighter relationships, primarily with the earlier stage companies in our portfolio nationwide.”