Smaller biotech rentals give options to startups;

Seattle will soon have a new type of biotech space in the South Lake Union area.

Local developer Tom Erlandson and BioMed Realty Trust Inc. plan to offer space -- in units potentially as small as 1,200 square feet -- designed specifically for tiny startups.

The partners also have landed NanoString Technologies Inc. as an anchor tenant for the Fairview Research Center, their building just off Mercer Street at Fairview Avenue North. BioMed, of San Diego, is one of the largest firms providing office-laboratory space to biotechnology companies in Puget Sound.

BioMed and Erlandson are setting aside the first floor of the five-story Fairview building for startups. The 13,000-square-foot floor will be carved up into small units for young companies that are just getting off the ground, with a handful of employees and limited cash.

"My phone rings every other week with someone calling wanting to know where they can get 1,000 square feet of bench space or 1,000 square feet of lab and office," Erlandson said. "My best advice has been to call a friend at another (biotech) company who'll let you slide in on a bench or two" at their office.

Erlandson and BioMed's building is the latest effort to target fledgling biotechs -- and it offers a new space option. Increasingly, real estate firms see value in establishing early relationships with startups and growing with them as they need additional space.

Young biotechs are typically faced with either subleasing a corner of some other company's office or being forced to rent more space than they need.

BioMed's main local rival, Alexandria Real Estate Equities Inc., of Pasadena, Calif., offers space through Accelerator Corp., a biotech incubator in South Lake Union. Accelerator provides space -- plus funding, management and back office support -- to its own portfolio companies.

The Erlandson project, in contrast, is just for space.

"I think this will be the first true third-party, arm's-length incubator space not tied to funding" in the Puget Sound area, said Staubach broker Hans Kemp.

Kemp and colleague Sean Barnes represented NanoString in lease negotiations with BioMed and Erlandson.

The Fairview building has been a bold play by BioMed and Erlandson. They began planning the 92,700-square-foot building in 2005 on a speculative basis, without any tenants in hand. That's a rarity, given the high cost of developing specialized laboratory space.

But the risk appears to be paying off. NanoString will lease the second floor of the building, about 16,000 square feet of space when it opens next summer.

NanoString already was a BioMed tenant, renting 5,500 square feet at 201 Elliott Avenue W. in Seattle. BioMed is renovating that property with an eye toward luring a larger tenant, in the 100,000-square-foot range. Erlandson said local and national companies are looking for such large space.

NanoString, a spinout from Seattle's Institute of Systems Biology, which is backed by OVP Venture Partners, of Kirkland, and venture capital firm Draper Fisher Jurvetson, of Menlo Park, Calif., is developing a digital bar code reader for molecules. The company is testing its device with potential customers and plans a full commercial launch in early 2008. The company has added key executives and plans to grow its current staff of 30 to 50 by the end of next year, said Chief Financial Officer Wayne Burns.

While he hasn't laid it out yet, Erlandson said the 13,000 square feet available on the Fairview Research Center's first floor likely will be divvied into 2,000-square-foot spaces that can easily be reconfigured. Some could be as small as 1,200 square feet, or as large as 6,000.

"There's unequivocally a niche for a small-space solution if it's laid out right in the right neighborhood," Erlandson said.

He described the Puget Sound area life sciences market as "shallow," consisting of only a few hundred companies, of which fewer than 10 percent typically are looking for space at any given time. It pays for a landlord to be able to say "yes" to any prospective tenant, Erlandson said.

When the building opens, BioMed will have about a quarter million square feet of life-sciences space available, with the ability to help tenants fund improvements, Erlandson said.

BioMed's startup space is not an incubator in the mold of Accelerator. Accelerator provides not only the office-lab space but also venture capital from a syndicate of investors, management, and scientific expertise from the Institute for Systems Biology.

Accelerator has had a string of successes. Last month, one of its startups, Allozyne Inc., raised $30 million in funding and became the third company to "graduate" from the incubator.

Chad Waite, a managing director at OVP Venture Partners in Kirkland, one of the venture capital firms that fund Accelerator, said what makes Accelerator stand out from other incubators is the strong management guidance.

"Instead of being a playground for scientists, it's really driven by commercial milestones and goals," Waite said. But he didn't dismiss BioMed's foray into startup space.

"In my mind, anything in Seattle that drives and helps startups is a good thing," he said. "I'm all in favor of anyone who wants to support entrepreneurs."

Randy Schatzman, CEO of Alder Biopharmaceuticals Inc., said his company spent a year renting "a couple of lab benches" at a larger biotech, Ceptyr Inc., before moving into its own space in Bothell. He welcomed BioMed's experiment with startup real estate.

"If this is tailored to the size requirements and the cost requirements of getting started, it would be a huge benefit to the area," he said.