Key Takeaways
- • Activist investor Jonathan Litt, through his hedge fund Land & Buildings Investment Holdings, has established a short position on Alexandria Real Estate Equities (ARE), the largest life sciences REIT in the country, asserting the sector faces significant headwinds similar to traditional office space.
- • Litt claims approximately 20% of new life sciences space is coming to market atop rising vacancies, and argues ARE's portfolio could decline by as much as 40% if valued using office REIT multiples rather than life sciences premiums.
- • Land & Buildings released a white paper Friday showing cell phone presence (a proxy for occupancy) in Alexandria's portfolio has declined approximately 50% compared to pre-pandemic levels, with New York City lab and office attendance down 60% from March 2022 to February 2023.
- • Alexandria Executive Chairman Joel Marcus rejected the comparison, emphasizing life sciences space operates fundamentally differently from generic office, supported by a $4T–$5T industry with sustained demand for new facilities and recent lease signings.
- • Alexandria has decelerated expansion activity in recent months and sold a five-building Boston-area campus this week, signaling operational adjustment amid market pressures.
Summary
Activist investor Jonathan Litt has launched a public campaign against Alexandria Real Estate Equities, arguing that the life sciences real estate sector is deteriorating and that valuations will compress accordingly. Speaking on CNBC Thursday, Litt, founder and Chief Investment Officer of Land & Buildings Investment Holdings, stated that "Alexandria has got a real problem," citing approximately 20% of new space entering the market combined with rising vacancy rates. His hedge fund maintains a confirmed short position on ARE, the country's largest life sciences REIT.
The crux of Litt's thesis is valuation arbitrage: he contends that if Alexandria's portfolio were assessed using traditional office REIT multiples, the company's value could decline by as much as 40%. In a white paper released Friday, Land & Buildings presented data showing cell phone presence in Alexandria's facilities—used as a proxy for occupancy and utilization—has fallen roughly 50% compared to pre-pandemic levels. The report also highlighted that attendance at Alexandria's New York City lab and office buildings declined 60% during the period from March 2022 to February 2023, suggesting meaningful underutilization.
Alexandria's recent operational decisions appear to support market headwinds: the company has slowed development momentum and sold a five-building campus in the Boston area this week. However, Alexandria Executive Chairman Joel Marcus firmly rejected Litt's characterization, issuing a statement Friday afternoon that distinguished life sciences real estate from generic office space. Marcus emphasized that the life sciences sector, underpinned by a $4T–$5T industry, maintains robust demand for specialized facilities and cited recent lease signings as evidence of ongoing market strength. He argued that life sciences space cannot be compared to traditional office, which faces secular decline, and that the asset class operates under fundamentally different occupancy and utilization dynamics.
The dispute underscores a critical valuation inflection point for life sciences REITs. Investors must assess whether current discounts reflect justified concern over sector-wide vacancy trends or represent an overreaction that fails to account for the structural differences between life sciences facilities and commodity office space.
The crux of Litt's thesis is valuation arbitrage: he contends that if Alexandria's portfolio were assessed using traditional office REIT multiples, the company's value could decline by as much as 40%. In a white paper released Friday, Land & Buildings presented data showing cell phone presence in Alexandria's facilities—used as a proxy for occupancy and utilization—has fallen roughly 50% compared to pre-pandemic levels. The report also highlighted that attendance at Alexandria's New York City lab and office buildings declined 60% during the period from March 2022 to February 2023, suggesting meaningful underutilization.
Alexandria's recent operational decisions appear to support market headwinds: the company has slowed development momentum and sold a five-building campus in the Boston area this week. However, Alexandria Executive Chairman Joel Marcus firmly rejected Litt's characterization, issuing a statement Friday afternoon that distinguished life sciences real estate from generic office space. Marcus emphasized that the life sciences sector, underpinned by a $4T–$5T industry, maintains robust demand for specialized facilities and cited recent lease signings as evidence of ongoing market strength. He argued that life sciences space cannot be compared to traditional office, which faces secular decline, and that the asset class operates under fundamentally different occupancy and utilization dynamics.
The dispute underscores a critical valuation inflection point for life sciences REITs. Investors must assess whether current discounts reflect justified concern over sector-wide vacancy trends or represent an overreaction that fails to account for the structural differences between life sciences facilities and commodity office space.
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