THE OPPORTUNITY

A Compelling Adaptive Reuse Thesis at the Peak of Life Science Demand: A Former Car Dealership on the San Francisco Peninsula, Three Miles from the South San Francisco Life Science Cluster

In mid-2022, life science real estate was among the most sought-after asset classes in the country. Lab space vacancy in San Francisco had sat at 2.6 percent in 2021, while national lab vacancy was just 5 percent compared to 17 percent for traditional office space. Venture capital flowing to life science companies doubled from 2019 to 2021, reaching $32 billion. Supply was constrained, demand was accelerating, and the physical requirements of wet lab tenants meant that existing office inventory could not simply be reallocated to fill the gap. A purpose-built or converted lab was required, and converted labs, in particular, were in short supply.

Against that backdrop, a privately held real estate investment platform with three existing life science conversions already underway in the Bay Area identified a vacant former automobile dealership on the San Francisco Peninsula as a compelling opportunity. The property sat approximately three miles south of San Francisco's life science cluster, anchored by a dense concentration of major biotech and pharmaceutical employers including Genentech, AstraZeneca, Amgen, Merck, and Verily. The sponsor planned to convert the building into Class A wet lab space and lease it into what was, at the time of origination, a market with essentially no vacancy. RRA Capital provided the financing to make that plan possible.

THE PROPERTY

A Former Toyota Dealership Converted to Four Biology Lab Suites with Full Wet Lab Infrastructure Across 18,705 Rentable Square Feet

750 El Camino Real was originally constructed in 1980 as a Toyota automobile dealership, a use that left the building with structural characteristics well suited for lab conversion: a high-flow sprinkler system, exposed trusses, and ceiling heights capable of accommodating the utility runs, overhead infrastructure, and mechanical systems that wet lab tenants require. The building was vacant at the time of acquisition and sat on a site of approximately 19,000 square feet with 31 surface parking spaces, located on El Camino Real just south of the Interstate 380 interchange and minutes from US-101, providing direct access to the South San Francisco life science corridor.

Over the course of 2023 and 2024, the sponsor undertook a comprehensive conversion using a best-in-class architect and contractor, transforming the building into four biology lab suites totaling approximately 8,500 square feet. Each lab was built out with two fume hoods, tissue culture suites, extensive casework, and the full utility infrastructure required for active wet lab operations. The completed building offers approximately 14,124 square feet of lab and office space on the main level, a partial second floor with 2,532 square feet of additional office space, and 2,049 square feet of basement storage. Construction was completed in February 2025, delivering the building in good to above-average condition. Total project cost at completion was approximately $13.7 million.

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THE RRA SOLUTION

$10,800,000 Non-Recourse Bridge Loan Structured to Fund Acquisition, a Follow-On Facility for Capital Expenditures, and Leasing Costs Through Stabilization

RRA provided a $10,800,000 non-recourse, first-position bridge loan closing June 2022, structured to fund the full business plan: acquisition of the property, renovation capital expenditures, and anticipated tenant improvements and leasing costs. The initial disbursement covered the $8,000,000 acquisition price and closing costs. The remaining commitment was structured as a follow-on facility, available to draw against as construction milestones were met and leasing costs were incurred, giving the sponsor the flexibility to deploy capital in line with the actual construction and leasing timeline. The 36-month initial loan term was sized to provide sufficient runway for the renovation and an initial lease-up period. The non-recourse structure reflected confidence in both the physical asset and the borrower's track record executing similar conversions in the same submarket.

The transaction was underwritten on a well-supported market thesis. Life science demand across the San Francisco Bay Area was robust at origination, the physical characteristics of the building were genuinely suited to lab conversion, and the sponsor had demonstrated experience executing comparable projects in the same market. Total proceeds represented 59 percent of total estimated project costs. Upon stabilization, the anticipated exit was either a sale or a long-term permanent refinance at stabilized occupancy.

THE CHALLENGE

A Market Reversal No One Anticipated: Life Science Vacancy in San Francisco Climbed from 2.6% to Over 30% During the Three-Year Construction Window

The life science real estate market deteriorated significantly during the construction period. Beginning in late 2022 and accelerating through 2023 and 2024, rising interest rates, a contraction in biotech venture funding, and a wave of newly delivered lab supply nationally and locally combined to produce a correction that few had anticipated at origination. The same San Francisco submarket that had seen 2.6 percent vacancy in 2021 was sitting at approximately 32 percent by mid-2025. Asking rents had fallen well below the levels that supported the original underwriting, and absorption had slowed considerably across the market as tenants that might have been active users in a prior cycle retrenched, downsized, or deferred expansion plans.

Construction at 750 El Camino Real was completed in February 2025, and the building was placed on the market at $4.25 per square foot per month on a net basis. Despite the quality of the build-out and the strength of the location relative to the South San Francisco hub, the property could not attract a tenant. The market was overwhelmed with available supply and prospective tenants had significant leverage. With lease-up prospects delayed and the property generating no income, the sponsor's equity was exhausted. An as-is appraisal of the property conducted by CBRE in August 2025 determined a value of $7,900,000 against a total project cost of approximately $13.7 million, reflecting how significantly the market had turned from the conditions that supported the original business plan.

ASSET MANAGEMENT RESPONSE

Proactive Workout: Interest Deferral, Forbearance, and a Cooperative Process Focused on Preserving Options

Rather than pursuing an adversarial path, RRA engaged constructively with the sponsor from the moment it became clear that the business plan would not execute on its original timeline. The property was in good condition, the sponsor was acting in good faith, and the best outcome for all parties depended on preserving options rather than accelerating into a forced resolution. RRA modified the loan to defer current interest obligations, providing the sponsor with operational relief while both parties assessed the path forward and continued marketing the property.

As it became clear that market recovery would not arrive quickly enough to stabilize the property within the loan term, RRA and the sponsor agreed to pursue a deed in lieu of foreclosure as the most efficient path to resolution. RRA entered a formal forbearance period while the sponsor managed the transfer process. Throughout, the sponsor remained fully engaged. Rather than walking away from a property where their equity had been entirely consumed by the market correction, they continued to participate in the workout actively and continued to market the building for sale even as the deed-in-lieu process moved forward.

THE EXIT

Full Recovery: Principal, Accrued Interest, Exit Fee, and Default Interest Paid in Full — December 2025

Approximately one month before the scheduled deed-in-lieu transfer, the sponsor sourced a buyer willing to acquire the property at a price sufficient to retire RRA's outstanding balance in full. The loan paid off in full on December 19, 2025, approximately 42 months after origination. RRA collected full principal, all unpaid and accrued interest, the contractual exit fee, and default interest. The outcome represented a complete recovery for RRA despite one of the most significant single-asset-class corrections in recent commercial real estate history.

The sponsor received no proceeds from the sale. Their equity was completely wiped out by the market correction. Despite that outcome, they remained in the deal, worked cooperatively with RRA throughout the forbearance period, and ultimately identified the buyer that made full recovery possible.

The result reflects two things simultaneously: the discipline of the original underwriting, which structured the loan conservatively enough to survive a severe market correction, and the importance of sponsor quality in determining outcomes when market conditions deteriorate.