SBA 504 Life Science Lab Feasibility Study

Research firms buying lab buildings

SBA's 504 record holds 48 life science lab loans approved over FY2017 to FY2026, $72.3 million of gross dollars. The class is defined by the research business rather than the building, and its code also takes in research firms outside the life sciences, so these are loans to companies that do research, some of which bought or built space to do it in. The median is what marks the cell out. At $1.0 million, the median 504 lab loan sits far above the two-program median for research firms, a level that small 7(a) research loans set, and it also differs, on our test, from what 504 lends across all of its classes. Half of the 504 lab loans run from $498,750 to $2.2 million.

A California-centered book with many cancellations

California accounts for 21 of the 48 loans; Florida and Massachusetts have 4 each, and Colorado, Georgia, Michigan, Nevada and Ohio 2 apiece. The Mortgage Capital Development Corporation holds 12 lab loans worth $26.3 million and California Statewide Certified Development Corporation 6 worth $13.6 million. Cancellation is the warning in this record. Lab approvals of FY2017 through FY2024 cancelled at a floor of 20.0%, and at 25.0% once every lab approval not yet disbursed is treated as lost. We withhold the charge-off rate, because fewer than 30 research firm loans sit in the funded cohort, so the page offers no loss figure at all. The franchise share is 0.00%. FY2022 brought 10 loans and $17.1 million; FY2026 brought none.

Underwriting a lab under 504

A 504 lab project asks a lender to believe in two things at once: the research company's revenue, and a specialized building's value. A feasibility study has to test both. On the business side, it should look at grant and contract revenue, how long the current funding runs, customer concentration, and whether revenue depends on a single study, client or principal investigator. On the property side, cost has to cover laboratory fit-out, ventilation and fume handling, power, vibration control and any clean room, since lab space costs far more to build than office space. Coverage on the bank loan and the CDC debenture should hold if a contract ends early. The appraisal is the difficult part: a lab building has a small buyer pool outside the strongest research markets, so the study should state what the building is worth to another research tenant and what it would be worth converted to ordinary office or flex use.