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THE OPPORTUNITY

A Compelling Adaptive Reuse Play at the Peak of Life Science Demand

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% in 2021, while national lab vacancy was just 5% compared to 17% for traditional office. Venture capital flowing to life science companies doubled from 2019 to 2021, reaching $32 billion. Supply was constrained and demand was accelerating. 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 Genentech and a dense concentration of biotech and pharmaceutical companies including 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, a market with essentially no vacancy.

The sponsor acquired the property in June 2022 and engaged RRA Capital to finance both the acquisition and the planned buildout. The conversion thesis was well-supported at origination: lab supply was constrained, tenant demand was strong, and the sponsor had direct experience executing similar conversions in the same market.

THE PROPERTY

A Former Car Dealership Converted to Class-A Laboratory Space

750 El Camino Real was originally constructed as a Toyota automobile dealership and sat vacant at the time of acquisition. The building's bones made it well-suited for lab conversion: high-flow sprinkler systems, exposed trusses, and ceiling heights that could accommodate the utility runs and overhead infrastructure wet lab tenants require. 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 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, and 2,049 square feet of basement storage. Thirty-one surface parking spaces serve the site. Construction was completed in February 2025, delivering the building in good to above-average condition, with a total project cost of approximately $13.7 million.

The property's San Bruno location, just south of the I-380 interchange and minutes from US-101, offers direct access to the South San Francisco life science corridor. The cluster of major employers nearby, including Genentech, AstraZeneca, Amgen, and Merck, formed the demand base the business plan was written against.

THE RRA SOLUTION

$10.8MM Non-Recourse, Structured to Fund the Full Business Plan

RRA provided a $10,800,000 non-recourse bridge loan to fund the acquisition, renovation, and anticipated tenant improvements and leasing costs. The loan was structured with a follow-on facility to cover capital expenditures and leasing costs as they were incurred, giving the sponsor the flexibility to draw funds in line with the construction and leasing timeline.

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 attributes of the property were genuinely suited to lab conversion, and the sponsor had the experience and financial capacity to execute the business plan. The non-recourse structure reflected confidence in both the asset and the borrower.

THE CHALLENGE

A Market Reversal During a 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% vacancy in 2021 was sitting at approximately 32% by mid-2025. Asking rents had fallen well below the levels that supported the original underwriting.

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 buildout and the strength of the location relative to the South San Francisco hub, the property could not secure a tenant. The market was overwhelmed with available supply and absorption had slowed considerably.

With lease-up prospects delayed and the property generating no income, the sponsor's equity was exhausted. The as-is appraised value of the property, as determined by CBRE in August 2025, was $7,900,000 against a total project cost of approximately $13.7 million, reflecting how significantly the market had turned.

ASSET MANAGEMENT RESPONSE

Proactive Workout: Deferral, Forbearance, and a Cooperative Process

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 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 operational relief while both parties assessed the path forward. 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. 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, they continued to participate in the workout actively and continued to market the building.

THE EXIT

Full Recovery: Principal, Interest, Exit Fee, and Default Interest

Approximately one month before the scheduled deed-in-lieu transfer, the sponsor sourced a buyer willing to acquire the property. The sale price was sufficient to retire RRA's outstanding balance in full. The loan paid off in full on December 19, 2025, approximately 42 months after origination.

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

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