Local biotechs face
major growth pains
With Hawaii Biotech Inc. landing on the cover of a national science journal, it's clear that biotechnology has emerged as one of the state's most promising new industries, but it needs space and funding to grow.
As the nation looks to Hawaii for cutting-edge research on the dengue virus, it appears the state finally could be on track to carve out its piece of the biotech industry's $320 million pie. Experts say the University of Hawaii's new medical school and research center under construction in Kakaako could serve as the hub of a thriving biotech park if the school can attract top researchers and developers who will build sufficient lab and office space for companies interested in commercializing UH projects.
Millions of dollars in venture capital financing have been funneled into medical and life-science research firms in recent years. Among them are Hoana Medical Inc., which is developing biosensory monitoring pads for use on hospital beds, and Hawaii Biotech, which is researching a variety of vaccines and anecdotes. And new companies such as Tissue Genesis have selected Hawaii as the place to grow their business as the state's biotech industry goes beyond the medical advances and expands in the agriculture, environmental and marine sectors.
"There is a tremendous focus worldwide on biotechnology and its new products, and Hawaii can fill many important niches," said Ted Liu, director of the Department of Business, Economic Development & Tourism.
Than again, others say, maybe not.
While the demand for specialized high-tech or wet-lab space, a generic term that includes any lab that works with liquid and gases, isn't high in Honolulu now, a current shortage has gained attention from local economic development officials, who see the availability of commercial lab space as a key to attracting tech companies and nurturing local start-ups. Some companies may be turned off by a lack of suitable commercial real estate in Honolulu. Others also may find that the construction industry shortage has driven new construction prices through the roof, said Andres Albano, partner and vice president for CB Richard Ellis Hawaii Inc.
"There are tremendous hurdles, such as cost and availability, in the commercial real estate industry right now for ordinary-use projects," Albano said. "If you are talking about finding a location for a specialized use like biotech, the task becomes even more difficult."
Obtaining suitable commercial real estate for technology-based companies is often more a matter of garnering the support of venture capitalists rather than real estate developers, said Mike Hamasu, research analyst with Colliers Monroe Friedlander.
Construction costs to build office space for emerging technology companies range from $300 to $400 a square foot, where typical office space can be developed for about $25 to $60 a square foot, Hamasu said.
"This is less about real estate and more about business enterprise," Albano said, adding that public money may be needed to fuel this market as private developers have historically been unwilling to build speculative lab space.
"We don't have the critical mass that's necessary to entice developers to come in," Albano said. "Developing commercial real estate for this market is still a high-risk venture and investment returns will be a long time coming."
However, if the Kakaako project and other ventures create a critical mass of biotech and other emerging technology companies, the commercial real estate industry likely would get more interested in developing the market, Hamasu said.
In the meantime, Hawaii's emerging tech companies are taking a wait-and-see approach. Hoku Scientific Inc., a technology company that conducts research and development for commercialization of fuel cell technology, couldn't find a suitable facility when it moved out of the state's Manoa InnovationCenter in 2002. The company used venture capital to refit its 6,500-square-foot lab in Kalihi.
"It was very expensive to build out this facility to meet our research needs, said Scott Paul, vice president of business development and general counsel for Hoku. "We didn't just knock out walls; we had to put in a ventilation system and sinks."
Now the company, which plans to build a pilot production facility, has again found Honolulu's commercial real estate marking lacking, Paul said.
"In Silicon Valley, there are hundreds of available square feet, but it's a challenge here," he said. "Almost any space we find will require an expensive build-out."
Also, access to venture capital is a primary impediment to technology-based companies that want to expand, said David G. Watumull, president and chief executive officer of Hawaii Biotech. The Aiea-based company is looking to double its 20,000 square feet, he said.
But the real estate product that these companies use is scare in Hawaii because the industry is in its infancy and there's a shortage of investors willing to make venture capital investments, said Patrick Sullivan, president and CEO of Hoana Medical.
Hoana's lab space, next to Pipeline Cafe and surrounded by auto shops and hostess bars, doesn't exactly inspire investor confidence, Sullivan said.
"My heart is in Hawaii, but it's hard to convince investors that we can succeed without the infrastructure in place," Sullivan said.
The plight has caught the eye of Liu, who said he's heard that additional wet-lab space would fill quickly if Honolulu had more to offer.
"There's a real lack of facilities," he said. "Hawaii Biotech is bursting at the seams and the medical school is full."
Hawaii's science and business leaders are steadying solutions to the specialized real-estate crunch. Some are hoping the state will intervene. A proposal geared to making more venture capital available to emerging technology companies in Hawaii will be presented during a high-level briefing at the state Capitol Thursday. Developed by business and economic development leaders, the State Private Investment Fund would make more investment capital available to local venture capital firms by using agreements to purchase tax credits in the future as collateral for loan funds.