BEAR – As construction costs have risen among supply chain issues and product inflation, state officials have agreed to increase the size of maximum grants available under the relatively new Delaware Graduated Lab Space Fund grant program.
Recognizing that Delaware has incubated a growing number of biopharma, medical technology and chemical engineering firms in recent years, the state’s economic development agency, Delaware Prosperity Partnership, lobbied in 2020 to create a new grant program that could help support the build-out of middle-tier-sized lab space necessary for their continued growth.
That program, initially funded by $10 million in the state’s Fiscal Year 2021 budget and bolstered with another $10 million this fiscal year, was launched in 2021. It has already supported the planned expansion of Prelude Therapeutics, ThruPore Technologies, Advanced Materials Technology, Sepax Technologies, and Analytical Biological Services.
The eligibility factors for lab space grants are more stringent than other state programs, with DPP having hired a consultant to review proposed plans and determine whether a company has all the necessary licenses and intellectual property protections to manufacture into the future. Applicants’ prior funding track record and future plans will also be considered as well.
Companies that receive grants agree to remain in the space for five years while a landlord agrees to keep the lab space intact for at least six months should the applicant leave within that period.
The grants were limited to a third of a lab fit-out cost, capped at $50 per square foot and limited to fit-outs up to 20,000 square feet though. DPP officials now say that construction costs for lab space are routinely running higher than the $150 a square foot that they originally targeted.
“The goal is to create lab space and keep these companies growing in Delaware, and right now that logjam is building up from market conditions,” Kurt Foreman, president and CEO of DPP, told the state’s investment board, the Council on Development Finance, at its April 25 meeting.
Noah Olson, director of innovation at DPP who has been leading the lab space applicants, said that “market conditions have changed a lot over the past two years,” and that costs have “escalated significantly.”
“The grant level right now is not having the same effect as what we had hoped for,” he added.
All of the companies that have gone through the grant program so far were seeing costs well in excess of $150 per square foot. DPP is also currently seeing cost estimates well above $240 from some of the prospects it’s talking to and from projects that its consultant Facility Logix is working with, officials said.
Patricia Larrabee, president of Maryland-based Facility Logix, said that prices nationwide in laboratory construction have risen about 20%, when a typical planning factor for those kinds of escalations would be 4%. She also noted that some equipment, such as emergency generators, air handlers, electrical distribution units and more are also difficult to find right now. At least one project estimated that its costs had increased 50% since it first drafted its plans, Larrabee said.
Without those issues in mind, the DPP requested that the CDF sign off on an increase in the maximum grant level to $80 per square foot. The increase would be temporary, lasting through the end of June 2023, when the next state fiscal year ends. Olson said the grant program would be reassessed next spring to determine whether to retain the higher level or drop to a lower one.
After some discussion by the CDF, Rep. Ed Osienski bristled a bit at signing off on a 60% increase when the nationwide average project cost increase was reportedly 20%. He proposed a smaller 40% increase to $70 per square foot, which his colleagues unanimously backed.
Foreman said that he expects to bring three of those companies back to the CDF at its May meeting to request additional funds to support their higher project costs.
