Friday, October 27, 2006 - Page updated at 12:00 AM

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Children's Hospital buys 2 downtown buildings

Seattle Times business reporter

Top centers

South Lake Union/downtown's top biomedical research centers:

Fred Hutchinson Cancer Research Center: 1.3 million square feet. 2,660 employees.

University of Washington: 105,000 square feet, with goal of 750,000 square feet. More than 200 employees.

Children's Hospital Research Institute: 467,000 square feet. 200 employees, with plans for 1,500 in 10 years.

ZymoGenetics: 263,000 square feet. 500 employees.

Rosetta Inpharmatics: 134,000 square feet. 350 employees.

Seattle Biomedical Research Institute: 112,000 square feet. 217 employees.

Source: Seattle Times research

Children's Hospital & Regional Medical Center, in its ambitious quest to become one of the Northwest's main players in biomedical research, is acquiring two large buildings in downtown Seattle for as much as $145 million.

The deals give Children's enough room for labs and offices to expand its research staff from about 200 people to 1,500 over the coming decade. That could buoy a life-sciences sector that has taken two hits in the last two weeks: the purchase of leading local biotech company Icos, with significant layoffs expected among its 500 local employees; and the cuts of 70 researchers at GlaxoSmithKline's labs in Bothell.

The deals give Children's half the real estate toward its long-term goal of creating a 1-million-square-foot downtown research campus, in the same league as the region's research anchors, the University of Washington and the Fred Hutchinson Cancer Research Center. The hospital is paying for the buildings, in upfront cash, by tapping reserves and some of the $250 million it has raised over the last five years from private donors led by Melinda French Gates.

Researchers in the new buildings will study basic mechanics of the immune system to enhance vaccines; the role of genetics in human development; and childhood cancers, among other topics.

The nearly half-million square feet of new facilities should help Children's successfully recruit star researchers, said Children's chief executive, Dr. Thomas Hansen.

Children's will retain its hospital in Laurelhurst, and run a continuous 20-minute shuttle so researchers can continue to see patients there.

The crown jewel in the transaction is the 9th and Stewart Life Sciences building, a state-of-the-art, colorful work space with 215,000 square feet for labs and offices. The building, which has sweeping lake and city views, opened two years ago as home to Corixa, a biotech highflier that shut down a year later in a corporate takeover. Children's is paying $109 million, or $504 per square foot, to acquire the empty building from its developer, Touchstone.

Children's also has signed a contract to lease, with an option to buy, another property on the same block, the former Qwest building at 1915 Terry Ave. Children's officials say they intend to exercise their option to buy the building in September 2007, for a total cost of almost $36 million. Children's then plans to gut it, do seismic retrofits and remodel it in about five years when room to grow is needed.

Hansen said he's looking forward to the time when Children's researchers will be able to hop on the city's streetcar to meet with peers working in the neighborhood.

Hansen, 59, who came to Children's a year ago from the chief executive job at Columbus Children's Hospital in Ohio, said he isn't satisfied with the Seattle hospital being known mainly for patient care. It is ranked No. 11 in federal research funding compared with other children's hospitals nationally, with a $20 million-a-year research budget. Hansen said he wants to crack the nation's top five among children's hospitals in basic research within the next decade.

"We know the best doctors, the best nurses, the best professionals want to work in the best research institutions," Hansen said. "They want to be on the cutting edge of medicine, not the trailing edge. They want to be the first to use a new drug, not the last. The first person to use a new drug is typically the person who does the research."

Children's could have constructed its own building from scratch or gutted an older building, but by moving into an existing state-of-the-art building, Hansen said, it will get a three-year head start on its research.

The deal still has a couple elements left to iron out. Hansen said Children's anticipates the price of the 9th and Stewart building will be reduced by about $30 million, to $79.5 million, once GlaxoSmithKline pays to get out of the Corixa lease that runs for the next 13 years.

If those numbers materialize, the 9th and Stewart building will cost Children's the bargain price of $368 per square foot. For comparison, Hansen said that when he was in Columbus five years ago, he built a new research center there for $400 a square foot.

Hansen said he's confident that Children's will be able to finance the rapid growth plan and remain stable because of its ability to compete for federal grants, secure donations from foundations, and tap its reserves if it must. Children's currently gets about two-thirds of its research funding from the National Institutes of Health, and the rest from foundations and corporate sponsorship.

Douglas Howe, president of Touchstone, said the building might have fetched more from a buyer who saw it simply as an investment. He said he agreed to sell the building, which cost about $58 million to construct, to Children's because he believes its research will catalyze more biotech development in the region. His firm has a similar biotech building on the drawing board for North Lake Union, and another one twice as big slated for the Denny Triangle.

It's a bold move in a volatile business like biotech. Besides the shutdown of Corixa, major layoffs of scientific staff now loom at Icos and the former ID Biomedical in Bothell.

Steve Gillis, a pioneer in the region's biotech industry and former chief executive of Corixa, said he's pleased to see Children's moving ahead. He rejects the notion that corporate takeovers of the region's successful companies have hurt the region, because small up-and-comers will fill the void, he said.

On whether Children's can achieve its goals, and make discoveries that will advance medicine, Gillis said, "I wouldn't bet against them."

Luke Timmerman: 206-515-5644 or Seattle Times business reporter Amy Martinez contributed to this story.

Copyright © 2006 The Seattle Times Company


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