Biotechnology Center Amendments

Prepared For:City Council Approval

Date: December 12, 2006

Prepared By:Myron Borys

Vice President, Economic Development

www.edmonton.comDecember 12, 2006

BBDC Amendment Page 2

The Opportunity – a recap

• A known gap in regional facilities exists creating a barrier to growth for emerging biotech companies.

• The biotech industry is a knowledge based growth industry

– Edmonton has 60 biotech companies employing 2,000 people – up from 17 companies ten years ago

– Global industry is $60 B, growing at 25% annually

• Demand exists in the Edmonton area– 2003 Market Feasibility Study showed demand for 68,000 sf– Six local companies have pre-leased 31,000 square feet of space in the BBDC

• Private sector developers see the Biotech sector as too risky without lease guarantee

U of A•ARC•Capital Health•Fed/Prov Gov’t

•Isotechnika•BioMS•Biomira•Virexx•Maxima

Multi-TenantWet LabFacilities

A window of opportunity exists to solve a critical industry need.A window of opportunity exists to solve a critical industry need.

RESEARCH COMMERCIALGAP

www.edmonton.comDecember 12, 2006

BBDC Amendment Page 3

Regional Positioning

As companies evolve their space needs change – the Edmonton region has a distinct gap after the incubator stage – a multi-tenant wet lab.

As companies evolve their space needs change – the Edmonton region has a distinct gap after the incubator stage – a multi-tenant wet lab.

www.edmonton.comDecember 12, 2006

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Recommendations

1. That the $1,017,000 allocated towards land be re-allocated towards building upgrades.• This is a condition of Provincial funding• Funds have been reserved since 2004 in Land Enterprise

and there is no budget implication

2. That Council accept the new budget profile for project 05-99-3002.• Project is in approved 2007 capital budget• Lower borrowing requirements for the City of Edmonton

will be reflected

www.edmonton.comDecember 12, 2006

BBDC Amendment Page 5

The Proposal

• Lease an existing building in the Edmonton Research Park from the Government of Alberta for 25 years– Nominal Rent ($1/year) for the first 5 years– 50/50 share of profits in the remaining 20 years– EEDC responsible for all capital upgrades– EEDC responsible for all operations and sub-leases– EEDC to negotiate sub-lease with potential tenants

• Total space available is comparable to original proposal– Proposed Building:

• 67,722 square feet overall• 50,769 square feet leasable (50/50 lab and office)

– Most recent design was for 67,000 square foot structure consisting of 12,000 square feet of shared lab and 55,000 square feet of multi-tenant space

www.edmonton.comDecember 12, 2006

BBDC Amendment Page 6

Since December 2004

• All conditions of the December 14, 2004 City Council approval have been met:

– Secured $2.5M in funding from Western Diversification

– Secured $2.5M in funding from Alberta Innovation and Science

– Pre-leased over 50% of the multi-tenant space

– City of Edmonton has allocated $1,017,000 towards land and secured up to $13,000,000 in loans towards the project

Tenants Committed – Dec. 2006

(square feet)

Potential Lead Tenant 28,000Helix BioPharma5,000Novokin6,000Sci-Med 5,000Scanimetrics 8,000KMT Hepatech 3,000Keystone Labs 2,000CanBiocin 2,000

TOTAL 59,000

Note: demand exceeds available space, but some tenants may drop off.

Tenants Committed – Dec. 2006

(square feet)

Potential Lead Tenant 28,000Helix BioPharma5,000Novokin6,000Sci-Med 5,000Scanimetrics 8,000KMT Hepatech 3,000Keystone Labs 2,000CanBiocin 2,000

TOTAL 59,000

Note: demand exceeds available space, but some tenants may drop off.

www.edmonton.comDecember 12, 2006

BBDC Amendment Page 7

Proposed Funding Breakdown

Funding Source Description ValueProvince of Alberta – Alberta Innovation and Science

Funding to be applied towards leasehold improvements

$2,500,000

Government of Canada - Western Economic Diversification

Funding towards building renovations

$2,500,000

City of Edmonton Funding towards leasehold improvements and building renovations

$1,017,000

Self-liquidating debentures and loan to EEDC

Funding towards all project costs. Includes $1,000,000 of contingency.

$6,483,000

TOTAL $12,500,000

www.edmonton.comDecember 12, 2006

BBDC Amendment Page 8

Expected Cash FlowsCash Flow Item Description First Full Year Values

Total Revenues (based on $10/sf plus operating and utilities)

Includes rent, management fee, common area expense, and utilities

$1,459,298

Operating costs Includes operating and maintenance, utilities, insurance, etc.

$996,637

Vacancy Allowances Rent and occupancy cost based on 5% vacancy

$71,661

Debt repayment Interest and principal on outstanding loan of $5,500,000 (excluding $1,000,000 contingency)

$391,000

Net Cash Flow $0 (Breakeven)

Capital Reserve Allocation over the course of 10 years to create a $2,000,000 reserve fund for expected capital upgrades.

$2,000,000

• In first full year of operation, Biotech Center expected to operate on a breakeven basis

www.edmonton.comDecember 12, 2006

BBDC Amendment Page 9

Justifications

• Demand exists– Pre-lease commitments exceed available space

• Economic Impact– Biotech Center will grow and retain companies in a key

sector– Commercialization of U of A research

• Fills Infrastructure Gap– Enterprise Center downtown cannot accommodate

certain tenants– Need for graduation facilities for incubators

• Too Risky for Private Sector– Without lease guarantees, private sector developers will

not build this type of facility

www.edmonton.comDecember 12, 2006

BBDC Amendment Page 10

Next Steps

• Revise funding agreements– City of Edmonton, Western Economic

Diversification, Alberta Innovation and Science

• Sign binding offers to lease with tenants

• Negotiate 25 year lease with Province

• Begin design and construction planning– Some urgency to spend WD funds