SPEAKER_02 0:00

People could die if we get it wrong. But equally, with what we do, people could people could live. I love solving problems. I'm always the least intelligent person in the room.

SPEAKER_00 0:08

Why isn't the rest of the industry one and more people in your sector doing it this way?

SPEAKER_02 0:13

In the UK, failure is seen as as an embarrassment, whereas in the US it's seen as experience. Fail fast. That is rarely a bad idea.

SPEAKER_00 0:25

Hi Dan and welcome to the Build to Perform podcast. Hi James, thanks for having me. No worries. Uh great to have you on and thank you for your time. So I'd like to just really dive straight in as I always do. If you could tell us who you are and why you do what you do.

SPEAKER_02 0:39

Yeah, okay. Uh Dan Pajella, um, Senior Director for Asset Management at ARC Advanced Research Clusters. Um, we are a specialist science and innovation real estate company. Um, but we try not to talk about the real estate because really what goes on in the buildings is is the special bit. Uh, and I guess that's why I do what I do. Um, I love solving problems. Um, and we get a lot of problems to solve with our with our wonderful uh members who are tackling some of the biggest challenges facing the globe at the moment. It's um I'm always the least intelligent person in the room, which is something that I really um welcome, keeps keeps every day interesting.

SPEAKER_00 1:19

Uh I I'm very much always living that that role, I'm afraid. Um so um what is your what is your current role at ARC?

SPEAKER_02 1:28

So um I have the privilege of leading the asset management team. So uh we effectively kind of own the business plan for each asset. Um so we work with all of our colleagues in leasing construction to figure out how we can create the right environment for the members that we put in those buildings. And they range from anything from an incubator lab where we've got a single scientist working at a bench all the way up to um sort of the most sort of relatable recent development would be Moderna's Innovation Technology Center, uh, which we built for them in Harwell, which was built as a pandemic response to be able to react if we, God forbid, do have another pandemic like COVID to be able to produce 250 million vaccines a year, um, which is pretty phenomenal. So we figure out how to wrap around all the practicalities around that, working with the leasing team that that will work with those guys up front, figure out what they need all the way through the development team that will deal with the construction.

SPEAKER_00 2:28

Yeah, and so obviously very diverse um partners is is that the right terminology, which you guys would call them?

SPEAKER_02 2:35

Or yeah, we we I mean we we talk about ourselves um as a partner, we try and avoid the old school terminology of landlord and tenant, um, because it has all the wrong connotations. Um, we tend to refer to our customers as members, you know, the members of the family and the members of the ecosystems and the clusters that we that we run.

SPEAKER_00 2:56

Um so how does it that typically differ then in terms of you know the landlord developer role then for yourselves as ARC?

SPEAKER_02 3:07

Um I think the real value of referring to ourselves as a partner is that it makes it really clear that we see our we see what we add to the process. Um I started my career working for um Slough Estates, as it was back then, still run by um by the Mobbs family. Sir Nigel Mobbs was the chairman, and it was a very successful, very professional business, but very much, you know, in the world of landlord and tenant. It's transformed since, and I was lucky enough to be there when Ian Cole um came on board as chief executive from Sainsbury's from a retail environment, looking at it as sort of customers. And I was really difficult to adjust to that. But the the really, the really good thing about moving from landlord and tenant and adversarial kind of relationships to having a customer-partner relationship is it also builds trust in that you're really looking to understand what they need from the ultimately the building they're going to be in, but what they need the building to do for them. Um, and then when you get under the skin of that and you then start to explain, well, these are the things that we need to achieve to be able to deliver that for you, they can see that you're all kind of, you know, pushing in the same direction. Um and the reality is, you know, buildings are expensive to build. And if um if you've got a an occupier that needs something that's really complicated, um, but they're not prepared to work with someone like us to figure out how we can make it investable, it's just gonna be really expensive. So we're really aligned. You know, if we can make something that's really investable for our investors and our future investors, um, future owners of the the real estate, um, it's gonna be cheaper for them in occupation as well. So it's kind of, I think um, it's a long-winded answer, but being a partner, I think, rather than a landlord tenant um relationship, just really helps things get onto a really constructive footing really quickly.

SPEAKER_00 5:01

Yeah. And with with that, obviously that that's really positive. Leases though haven't really caught up with that, and the the triggers, the you know, dilapidations, all that sort of part of the lease structure in the UK still hasn't caught up with that, I guess. So, how how do you navigate that whilst also trying to have that partner member relationship?

SPEAKER_02 5:31

That's really that. I mean, that that's that's really difficult. I think the reality is if you're a big multinational um like Moderna, um you you just have to accept that things are going to be expensive because they're highly technical, they're at scale, no one else is gonna be able to make use of the uh of the facilities that you need because they're bespoke to you. Um but I guess flipping it to the smallest customers that we have in our incubator laboratories, you know, what we provide them with is just a single bench and up um for anything from a month and up on a very, very flexible short-term um license. The reality is that is not as investable by a long way as something like Moderna's facility would be. But what you're creating then is you're creating an ecosystem um with goodwill. And that goodwill uh has value that that is is uh in some ways less tangible. Um, but it you know, it's a bit like this is where the real estate industry needs to get to, and whether it will or not um is is you know your guess as good as mine. But no one investing in a hotel says, you know, who's gonna be in room 103 on Tuesday, um, how much are they paying, how good's their covenant. You know, they're just looking at the income. Um and I think we we have to, you know, when you when you've got a business at the scale of ARC, we have to look at it in that, in that, through that lens. We have some fantastic blue chip companies in our portfolio that pay fantastic rents and are highly investable. But to to to to attract that, you have to have the the earlier stage companies like both want access to each other. So if you can get the blend, you make something that as a platform is really attractive.

SPEAKER_00 7:13

Yeah.

SPEAKER_02 7:14

And how do you get valuers to get on board with that? Very, it's very tricky. The reality is with valuers, um, and you know, I I know that you've you've been speaking as well um to flex operators and and and people like that. The reality is a similar challenge, right? Yeah, the reality is very, very similar. Um, and I follow, yeah, we have we we do operate some co-working space within the portfolio. It's a necessary um sort of component. Um, and I follow the flex industry very closely in the way that valuers look at it. And I totally understand that it's it's totally out of their comfort zone because they're moving from a real estate investment model to valuing a company. Um, but that's that's kind of how how you have to look at it. Uh for for our assets, the you know, the incubator, it's it they're they're tiny spaces, um, that they're expensive to run, but you know, they're sort of 1,500 feet would would hold 25 scientists. So you just have to accept that that's a small element of the wider, the wider scheme. Um and and that overall the proposition, you know, the the the sum of the parts is going to be so much more.

SPEAKER_00 8:20

Yeah. Um I guess also when you you're dealing with that and the way in which ARC is set up as well, is you've got these incubators, which are you know small companies, they might they might fail, they might grow and become big, uh very successful companies, right? Um you're building that relationship, that goodwill piece which you're talking about, with the thought process that they will grow with you. Absolutely. Um have you got some great examples of you know, companies which started at that kind of a incubator stage and have grown to take in much bigger spaces along with you?

SPEAKER_02 8:54

Yeah, they're there loads. Um and that's that's the that's the whole game for us. Um the the you know the reality is I think what I love about um what I what I'm able to contribute um day to day and what we as a business are able to achieve for our customers is sort of problem solving. And we're able to help them go from that single bench all the way through to their global HQ, all within one portfolio, uh, and very often, very often normally within one asset. Um, I think a really good example would probably be um now Agilent Technologies, but it was Cobalt Light Systems originally, and it span out of the central laser facility in in Harwell. Um and next time you go through the the airport, you might you might spot the um spot their device. It's effectively it's a it's a it's a grey box. Um and if you don't follow the guidelines on your uh liquids in your luggage and um you get pulled over and they take it out, they've got to bin it, but they need to know what's in it first, so they put it in there. Um and using um the the the research that they did at the central laser facility, uh using spectroscopy, they can tell you what's in that um before they bin it. Um and that spano at the central laser facility grew into a um very substantial concern and got bought by Adilent Technologies. Um and you know, there's just one of hundreds of success stories that have come out of those sorts of facilities and and run through the portfolio over the years.

SPEAKER_00 10:29

That's really cool. Um so ARK's obviously quite different to typical real estate business in the way in which you're set up with creating these clusters. Um how else would you define yourself as being different to other people in the industry?

SPEAKER_02 10:48

How else would I define ARK as being different to other companies in the industry? Um I guess it depends on which companies you're comparing us to. You know, we've got a relatively small peer group in science and innovation. I think the thing that really sets us apart, um taking a sort of a bigger, bigger view, is the operational um intensity that we have compared to our peers. I think a lot of a lot of office providers now have got their heads around the idea of having to run um, you know, the the retail side of things and potentially run flexpaces, all that kind of stuff. Um, we do all of that, but then we have to go down to running really complicated operational environments that really matter. Um I really enjoyed um a colleague from another from a competitor of ours, um, Katie Nielsen, at uh at a conference a few years ago, she was on stage, and at that stage, a lot of people there trying to sort of figure out, you know, what's particularly life sciences is about. And she commented that, you know, what we do is, you know, people could die if we get it wrong. Um and she was obviously trying to kind of to capture uh everyone's attention. And she's right, but equally, you know, with what we do, people could, people could live. Um and it the the changes that can come from the innovations in our invo in our environments are amazing. But those environments have to be really well run. Um, because if you have a major failure of power, um, if you have a gas line fail, um liquid nitrogen runs out, um, all of these different things that can that can can happen in a laboratory environment that can write off months of research and cost tens of thousands of pounds. Um so I guess you know, where where we where we genuinely are very different to most real estate companies is we're totally strapped in for the ride. Um, you know, um and it's you know it's going back to that partner partner thing. Um, you know, that's that's what being a partner means. It's really understanding what these guys need, what's actually really mission critical to their business and making it mission critical for us as well.

SPEAKER_00 13:00

Yeah, and looking at your portfolio, it's it's such a diverse portfolio across your clusters, right? And operationally, that must bring along huge amounts of challenges because you know, you you've only got to look down to individual buildings where you have a mix of lab and office, and their requirements are so wildly different, keeping everything running in the right way for each of your occupiers, and in that sense, it must be operationally very challenging. Yeah, but that's the fun stuff.

SPEAKER_02 13:28

I mean, I think that's that's where I said, you know, I really like problem solving. Unfortunately, I work with um some amazing colleagues who love problem solving as well. Um, and you know, you can see you can see it with everybody, you know, there's there's lots of stuff that's just day-to-day um that's that's real sort of bread and butter stuff. And we we're we're great at getting that done. But when there's a problem, when there's uh an issue to resolve, a niggle, some someone wants something that's a little bit unusual, you can see the spark in everyone's eye. Um, and yeah, I mean it it it's um it is, you know, it does go from where you've got things like clean rooms with um huge number of air changes an hour right next to an office, um, which is a fraction of that. Um, the technical solutions that come behind um making all that work uh are pretty complex. And most of our customers at the early stage, you know, they've got no idea and they shouldn't, you know, that's not for them to worry about. That's for us to take on and and for us to work with our consultants to figure out.

SPEAKER_00 14:27

So where does um, you know, in the traditional landlord and tenant relationship, where is the friction created?

SPEAKER_02 14:35

I think it's I think the friction, the friction is created as soon as you get into the legal process. Um the sales side of things is normally a really positive experience, you know. It's everyone can relate to walking around um the sort of facilities that we build or the plots of land that where we could where we can kind of create people's dreams. Um and everyone's everyone's on board and happy and positive then. But as soon as you get into the lease, that's when it gets difficult because um, you know, the the way that landlord and tenant law in the UK is set up, the way that um the investment world is set up, you know, there are some some tricky red lines on both sides that have to be worked through. Um and I think that's where I think that's where things tend to be kind of more enjoyable for us, because when you've got a bigger challenge to face, you you're you're working really closely together, figuring out that challenge, the lease just becomes another one of the sort of the challenges to work through. And you've got the trust there. Where it's hardest, I think, is probably where you've got more of an arm's length um relationship. And um, you know, the friction of getting into a space. I mean, our our our mother labs, um their service laboratories, so they start at 800 square feet and up. Um, so sort of typically look after sort of five to six scientists. We've designed them to be as frictionless as possible. Um, and to do that, we've had to take a reasonable punt on what they're gonna need. So 50-50 lab and office, that will never be, that will never be right. Um, but you can make it work. Um and it's already fitted with all of the um the core equipment needed in in um in the lab in terms of air changes, gas lines, and all that kind of stuff, benches, small power, and then all of the things you need in the office. But the thing that makes it frictionless is the fact that there's a full-time lab manager on hand with shared services that's there to be able to just explain how it all works, how to get everything going, get them up and running. But it's a nine-page plain, plain English lease that anyone can understand. You should always use a lawyer. Um, but if you're um, you know, reasonably literate in contract law, it's very easy to understand. You could sign it there and then. The building's floodwide with broadband, you could be up and running the next day. The alternative would be, you know, typically a 40-page lease that would take a couple of months to negotiate. Then you've got to order your broadband. That's 120 days and a and a way leave for 6,000 pounds, you know, uh, probably less than 6,000 pounds. But um, you know, it's just all but by by doing that, we have to invest in all that. We've had to, we've had to put a lot of time and thought into that, into that short form of lease. We've had to invest in putting that fibre into the building, um, which not a lot of landlords kind of can do um or well want to do. Yeah.

SPEAKER_00 17:37

And yeah, it's it's moving into almost like the service office world of labs. Yeah, absolutely.

SPEAKER_02 17:44

It's as close as we can get to to that to that model. Um, I think the nice thing, the nice thing for us from an investment perspective, um, keeping the the the money side of things happy, is that you you're not gonna be taking a lab for a month. You know, it takes a lot to get set up. Typically, our customers, you know, the quickest we've had is is in and set up within a week. Um, but typically it's gonna take two, three months to get that lab up and running. So, you know, actually they want to get in quick, but they that they don't need to leave quickly as well. You know, they've got a good couple of years of research minimum ahead of them.

SPEAKER_00 18:20

And what happens when a relationship isn't working? And who who do you think feels that first?

SPEAKER_02 18:27

Well, I would hope um that when a relationship isn't working, um everyone feels that at the same time. Um because you know, we we we know all of our customers really well personally, um, very often because they're doing something that really kind of chimes. Like everyone can relate to so many of the things that our the the guys in our buildings are doing. Um and I'd hope that yeah, if there's a problem, um, that they pick up the phone, they drop us an email, and we just get around the table and sort it. Um again, you know, because of the way that our relations, t relationships typically start off, you know, our customers, I would hope, see us as problem solvers. So if they've got a problem, they should, they should know that they can come to us and and we'll work with them to solve it. And equally, we're very honest about, you know, if you do this, it's gonna make it more complicated space. It's a bit harder for investors to to invest in. You know, you try and kind of explain what isn't particularly complicated, but normally alien concepts to to our customers because they don't need to know about it. But you know, that's gonna make it less valuable to investors. So you're gonna have to pay a bit more rent. Um, you know, we can we can explain how they can sort of make their own decisions to influence the the pricing and all that kind of stuff. So yeah, if things are going wrong, I'd hope they just come to us and we find a solution and they can see, they can see the kind of realities of what we're we're having to work with.

SPEAKER_00 19:52

Yep. And this this model obviously works. So I I guess my question is, why aren't more people, why isn't the rest of the industry, why aren't more people in your sector doing it your this way?

SPEAKER_02 20:05

Yeah, I think I think because it's not it's not easy. Um so mother labs I mentioned before, that when we opened that, that was the first um facility of its kind in London that wasn't run by an institution. So the existing ones at the time were um you know places like Scalespace, Fantastic Development in White City being run by Blenham Chalcott and Imperial College, um, London Um Bioscience Innovation Centre being run by the Royal Veterinary College. Um we were the first ones to do it commercially. And I think we were the first ones to do it commercially because um we're a company that is of scale. It's what we do, it's what we're focused on. We have the expertise in-house to be able to do it. Um, but we have a conviction investor behind us as well. Um, the reality is those kind of service laboratory models, you know, they are, they are, they're not quite lost leaders. Um, but that's you know, you do that to be able to develop the entire ecosystem and get access to those really fast growing, exciting businesses that are gonna be the next the next unicorns. You know, that's that's that's what you do it. Um and you're not gonna do that in a single building. If you're a built if you're a developer or a pension fund that's just got a single building and a single location, it just doesn't stack. You've got to have scale.

SPEAKER_00 21:25

You you mentioned uh the investment backer. Uh so that's Brookfield. With Brookfield. Um so how does how does that relationship work for Arc and Brookfield?

SPEAKER_02 21:36

Well, but Brookfield's um it's a Canadian North American private equity um firm. It's huge, it's got over a trillion dollars of assets under management. It invests in um renewables, infrastructure, and real estate. We're tiny um for Brookfield um as a portfolio company, but we're wholly owned by them within one of their. Real estate funds. They are they're great people to work with. They're really nice people. They're very intelligent people. And they're very driven people. So they look at things thematically. And they they get what we need to do to achieve to create the clusters that we have. And they've created a really a really fantastic platform that, you know, we hope in time, and the economy's not gone with us in the last 18 months, but will grow to be, you know, a world platform. Okay, exciting.

SPEAKER_00 22:55

So obviously, how how many sites have well clusters have you you got at the moment? Is it four?

SPEAKER_02 23:01

So yeah, we've got four clusters at the moment. Um we've got just over two million square feet across those clusters. Um they range from Arc West London in in Hammersmith out to Oxford and Harwell. So it's you know it's kind of west of London focused at the moment. Um we'd love to be in Cambridge, um, we'd love to be further north. I think the reality is that that you know we need to be able to see the the sort of the need and the value dynamics there for it to be um attractive if uh from an investment perspective. And then once once we we can offer that value to our investors, we know we can offer that value to our members as well.

SPEAKER_00 23:34

Yeah. And obviously, you you've been in your your background. Did you did you start at Segro? Was that one of your early companies you're at?

SPEAKER_02 23:47

Yeah, I had quite a conventional route into real estate, but I um I actually started out working for Lambert Southampton. Um, I I wrote 50 handwritten letters. Um back in the day. Email was it was was was pretty pretty newfangled. Um, and one person responded to my to my letters and and offered me a job um before I went to university, and that was fantastic grounding. Um, I went to uni, did a real estate degree, knowing exactly what I wanted to do. I wanted to get into development um and asset management. And um, I was on a four-year degree, actually, master's degree, um, but Seagrow came in. They were slow states at the time, and they spoke about what they did, and they just sounded really exciting. Um, so I I applied for a job with them. Um, they were the only company I applied to, which raised some eyebrows in my interview. Um, but they offered me a job. I didn't do the master's, and I went straight to work for them. And it was a fantastic place to work. Um, as I said earlier, it was it was still chaired by Sir Nigel Mobbs. Um, the business, Slough Estates, was founded sort of post-World War II. Um, and it was uh it was it was an old sort of um dump basically for military vehicles, and they bought the the land to try and make some money from the military vehicles and very quickly, quickly realized they could make money from the the warehousing. Um and it still had that very kind of family, real family feel when I joined. But I was there in a real period of transition into Seagrow FTSE 100 company um with a really sort of forward-looking chief executive at the time and and and finance director as he was, now chief executive David Sleet. Um fantastic rounding in real estate, but very different to what I do now.

SPEAKER_00 25:35

Yeah, very different, but also yeah, I I think some similarities in in the sense of they for a logistics and industrial piece, they they do create community as as well, don't they? In that in that sense. It's it's not your typical industrial approach, right?

SPEAKER_02 25:56

Yeah, and I think I think one of the things that's been wonderful to see, um, particularly since I left, um, is is yeah, how forward thinking Cro is as a as a developer and investor. And I think probably the investor is the key bit when you're investing in things, you know, going back to that um the goodwill of an individual asset, um, you're looking at the goodwill of your portfolio and how you make your customers sticky. Yeah. Um, and and Seagrow are very good at that.

SPEAKER_00 26:27

Yeah. And in terms of from starting off there, how's your mindset kind of shifted between the start of your career and where you are are now with ARC?

SPEAKER_02 26:38

Yeah, I I I think I think I'd say my my mindset has probably doubled down on Ian Cole's outlook um in life. He was pretty forward-thinking um back then, um, sadly no longer with us. But his view of of real estate being about providing a service and having customers was was really considered to be like really radical. Um But actually that's that's been a really great way to look at things. And I I discovered pretty early on in my career that I liked finding solutions and routes through and problem solving, and that doing that with a with a customer mindset um was was really um helpful, you know, on both sides. And so Seagrow, it was very straightforward development. It was, as you say, it was logistics um focused, spent a lot of time in Heathrow dealing with airport logistics, um, which was very fast moving, lots of deals, and I loved it. But I started to get a desire to get a little bit more technical, a little bit more detailed, and and I looked at Goodman at at the time, um, who were another logistics business, but had a very large business parks business in the UK, um, their UK business parks team had 18 business parks from from uh the South Coast up to Aberdeen, uh ranging from about three acres up to 800 acres in size, building really complicated buildings and developing communities, which at that stage Seagro wasn't doing. And I wouldn't and I I thought, well, that that looks like it's it's kind of moving up the kind of problem-solving, um problem-solving scale. Um, so I you know, I moved into that. But I think my my kind of ethos and approach has always kind of stayed similar to to Ian Cole's original way of looking at things. And that's one of the great things about ARK, you know, it's the way that that ARC, the way that ARC rolls is very much the way that I see things as well. Um, and I think that's you know, it's something everyone at ARC can get behind. Like we really believe in in being a partner um in that way. It's just it's just an evolution of his thinking about that.

SPEAKER_00 28:39

Yeah, I think it's um it's interesting, isn't it? Because when when you're in in commercial real estate, we we're looking at property, we're looking at them as assets, aren't we? But the real the reality is it's all about relationships.

SPEAKER_02 28:52

It's all about relationships, uh, and it's all about what the buildings can do to foster those relationships. Um, yeah, the buildings that we create are ultimately there to help our businesses to achieve whatever they need to achieve. And yet the technical side of it, um that's that's the bit that I like to geek out with, but actually that's not really what adds the value. Um, what what our customers need, they they know what they're doing with the science, or at least they they've got a plan for the science. They need money and they need people. And so that's what we focus on is helping them get the money by giving them very, very well-run, um, confidence-inspiring environments for investors to be to be courted. Um, and particularly early stage companies, you know, that their investors are investing in them and their facilities, which they can feel confident are going to be able to support them properly. And then people, like they need to be able to attract the best people and working environment. You know, we spend 80% of our working day, uh, uh most of us, um, in in that working environment, particularly if you're in a lab, you know, you can't do that from home. Um, so creating a really great environment to bring people together is really valuable. Um, you know, we're we're a cluster developer, and I think a lot of people um spend a lot of time getting really kind of detailed and trying to kind of come up with a formula for for what it what a cluster is. But I think George Freeman, uh former science minister, put it really, really nicely. You know, they're low-risk uh environments to move your family um and and friend uh to move family and friends to to to undertake high-risk activities. Um and you know that that that means you need to give people the the best chance to do what they need to achieve.

SPEAKER_00 30:44

And so obviously to to get there, it requires innovation. Um but how what innovation have you kind of implemented at at Arc in order to foster that?

SPEAKER_02 31:01

Um, I mean uh it's you know high level in terms of the the end product. Um, you know, things like Mother Labs is is is sort of pretty innovative from a a company like ours, an investor like ours. But I think we you know we're trying to innovate every day with everything that we do. So our buildings are always, you know, every component is looked at to make sure that the buildings are built in the most sustainable way possible. They can operate in the most sustainable way possible. Um, but you know, we're always looking at that, that sort of that journey that everybody will have, you know, the individual people working in those spaces will have every day and how we can make that as as good as possible. Um, and yeah, that that flows up to all the things like looking at how you can make leases really straightforward. But actually, how do you make it easy to get in the building, to navigate through the building, um, to get a great cup of coffee, um, and to make sure that everything works because ultimately, you know, people just want to know that they've got to have the right temperature, they're gonna have enough fresh air, um, the the you know, the the facilities are really nicely run, um, are really clean. Um, and you know, they they can get um a great cup of coffee, um, all those really simple things. So it's we get really tempted by the latest innovation um and how we could improve, um, improve things. But very often you then have to just take a step back and go, right, well, actually, is this going to make that journey easier, simpler? Because our customers don't really sort of care about the detail um that we're thinking about, and they shouldn't, um they shouldn't notice it. And the moment that you're kind of trying to introduce innovation that um they notice, I think you probably, unless it's really cool, um, you've probably got it wrong. You just need to make everything feel like totally natural, seamless, and a great experience.

SPEAKER_00 33:00

Yeah, I I can't remember what the what the phrase was, which we we we spoke about previously on this. It's um it was about how you're the most innovative things, some of the most exciting things for improving the customer's experience in some aspects, they should never know about or never really realize is happening.

SPEAKER_02 33:21

Yeah, absolutely. You know, they they they they shouldn't notice at all. Um, you know, we've got, I think, you know, subject close close to uh to your heart, you know, climate control. There's nothing more miserable than having two people sat in a space, one feeling absolutely uh baking and the other one freezing. Um, and you know, the the our our building managers, you know, they would they would be spending so much of their lives trying to figure that out if we didn't have the technology that you guys have have thankfully helped us um to install to be able to really figure out what's going on at a building level and just make that just as you say, just something they don't know about. Um they don't they you know the CFO cares what the energy bill is and the energy efficiency we can get out of it, which is great. But the the the their their sort of their colleagues working day to day, they just want to feel comfortable. And it's surprisingly difficult. So, you know, if an innovative if we can have innovation that just makes those kind of things not a thing, that's when we're winning. Yeah.

SPEAKER_00 34:25

And how do you decide which innovations are worth adopting across a portfolio as well? Because it feels when we're talking that you you are a bit of an early adopter of some stuff. Um with that comes a risk, I guess. Um that you know you not the guinea pigs, but sometimes it's not always going to go right, is it? So it's it's how do you choose that and how do you how do you weigh that risk?

SPEAKER_02 34:50

Uh yeah, I think um I think we we've got we've got quite a receptive bunch. You know, all the people that that we work with, yeah, they're naturally innovators, so they're open to innovation. They're typically first adopters um of things. So I think I think we've got the ability to try stuff, but equally you have to be sensible about what's really going to make people's day better. We've looked at um at how we can um monitor air quality, for example. One of your previous guests, we worked with Francesca and we put um sensors into a lot of our buildings to monitor air quality, um, to see see you know what people thought of that and how and how that worked for them. Um we've put in um parking uh parking management um solutions that run um really complicated algorithms to try and make it as seamless as possible. Um but but ultimately you know when something's not working, when people are just saying, how does this work? Um why why why are we doing it? You know, the instant as soon as you get that, like that's just not that's just not something that you you you should be focusing on. You just anything that makes things easier, as soon as you get people going, oh, this is great, so much simpler, that's when you know it's worth doing.

SPEAKER_00 36:02

Yeah. And I think also as you know with kind of what we do with IBOS, something which I'm quite passionate about is sometimes a technology is is is great, but it's not in the skill set, it's not in the time frame, the the ability of the people who are running that building. And so just dumping a technology onto a site team and expecting them to have all this magical extra time to spend on that technology or this increased understanding of Sony mechanical engineering isn't useful either. So it's also making sure that when you're putting in a technology, it's having, if if it needs to have it, uh, that wraparound service to make sure that it's actually delivering on what it promises, right?

SPEAKER_02 36:44

Yeah, I mean, I I think you know, you and I get excited about that sort of level of geekery, don't we? Um, because we we we can, yeah, maybe we just have a sad, sad affliction. But the reality is you tell a CFO that you're gonna be able to cut their energy bill by 25%, they can relate to that. Um, and and we can deal with the rest. And I think that's that's how we try and approach all of the sort of potential innovations that we can we can bring in. You know, can we boil it down into a relatable benefit that someone's gonna get on board with and then trust us to do the rest?

SPEAKER_00 37:17

And how important is invisible performance for you, uh ARC? Um where a building simply works better and but the occupier never sees it. How how important is that and how and how do you get that across your your tenants, your uh your members as well? Because you kind of you want them to understand that you're you're delivering that as well, even though it is this invisible performance.

SPEAKER_02 37:43

It's it's really important, um, but it is tricky, right? Because you want to feel appreciated. Um I I think um I think we get it, we get some absolutely fantastic, really hot, warming feedback around a lot of the community management that we do. Um, even to the point that some of the events that we run, you know, we we do we do on our campuses, we do everything from um 150 events a year um on average across the campuses. I do everything from yoga classes through to um working with with partners like we do in in Harwell with Roslyn Franklin Institute, for example. They're doing a talk uh in a few weeks' time on dandelions and batteries. Got no idea how those two relate, and it will be uh fascinating and really technical and a very niche audience, I'm sure. But it's like uh having that breadth of activities is is great for for our customers. But you know, some of them it it makes such a huge difference to their day. Um, and the the the feedback that we get in terms of you know the the the impact that that activity and that approach had on you know my mental health. We've had some people saying, you know, that the the walking club, um, the book club, that kind of stuff is is fantastic. But um most of the time, yeah, people people don't notice until they look elsewhere and they see uh oh yeah, go can't get that there, and they can't get that there. Um but I think you just have to accept that you know that that's that's the sort of mark of success. You know, you want to hear about the problems before anyone else so you can fix them, but if you're not hearing about problems, then you've got it right.

SPEAKER_00 39:26

Yeah. And also going back to kind of that community stuff which you talk about. Um I previously had Mark uh Gregson on the podcast as well, and he's set up a company called Jinatos, which is service and um flex office space company. And I think what you're talking about there aligns very closely with what he's been talking about with this community piece that to create good community, you can't just have here's what we think is um good events. These events have to be diverse, they've got to be wide-ranging, they've got to cater not everyone's gonna want to do yoga, but some one person might want to do yoga, the other person might want to do walking, the other person might want to go to this round and talk about batteries and dandelions, for example, and actually having that diversity of events and and experiences helps build a community, and you don't need everyone buying into the same event, it's about giving that diverse range, right?

SPEAKER_02 40:26

Yeah, absolutely. And some of the most well-attended events we run have gotten sort of nothing to do with um science or sort of health and well-being. Um, just just last week we had our um our annual um farm, um, mobile phone farm come to um our our site in Uxbridge. That's one of the most well-attended events, time really well for Easter holidays. So, you know, people are bringing their kids into work and and all that kind of stuff. It's fantastic. Um, but yeah, you have to you have to look at everything at an individual community level and know your customers really well. Like we know in Hammersmith, for example, they love pizza and wine. That brings people together. Um, innovation is is is a contact sport, as one of our joint venture colleagues, Barbara Gennelli, always says. Um we we have to work really hard to figure out how we're gonna bring people together. Um, particularly, you know, uh I think um a lot of scientists can be quite deep thinking, um, sort of naturally introverted people. Um, and but they they they're just as sociable as everybody else. They just kind of need um that sort of that that event to help them um do what it doesn't doesn't come naturally to everyone. Um, and you know, alcohol always helps. Um yeah, but it's every every asset, every uh customer has, you know, different profiles. And so each each program for each campus is very different, very much tailored to to the the characters that are there.

SPEAKER_00 42:01

Yeah, and who who's responsible for the placemaking approach that community building?

SPEAKER_02 42:07

Well, I guess placemaking is sort of twofold, isn't it? It's the physical environment and then yeah, the the event management side of things. Um I'd say everyone in the business is is involved in in both. Um, but we've got a really strong community team, um, which is is run by my colleague Dan Metcalf. Um and and Bex, who runs like the event and community um team itself on the ground. So she runs that from Harwell, and then each asset, each cluster has at least one community manager that runs those events and they're there full-time day in, day out. They know, they know everybody really well. They know what what um interests them, what gets them going, what's going to pull them out of their lab or their office at lunchtime or after work. You know, again, a lot of our activities in Hammersmith, for example, are after work because um, you know, people people there really respond well to that. Whereas, you know, on other campuses during the working day works a lot better.

SPEAKER_00 43:07

Yeah, I guess that's probably down to travel means and things like that as well, isn't it?

SPEAKER_01 43:13

Yeah, I mean not everybody drinks, but um if you do want to have a glass of wine, yeah, hopping on the tube's a lot easier um than uh than getting getting uh getting in the car.

SPEAKER_00 43:22

And I I guess that's quite an interesting uniqueness about say maybe not so much the Oxford one, but the harbour one is you've you as a an individual person who who's working there is quite remote, I guess. You've you've moved into that location for really that work. It's it's very it's it's a very much a pull to that area.

SPEAKER_02 43:49

Yeah, I mean Hartwell's yeah, it's very well um connected, but it is physically remote. Um it's its history was an airfield that was then. The birthplace of the UK's atomic energy program. So it was deliberately remote and didn't appear on maps and OS maps until the 80s. But the reason people come to Harwell is because of that concentration of capability, which comes both from the big science facilities we've got there. We've um got three and a half billion pounds worth of national laboratory infrastructure that does some pretty uh amazing things you can't do anywhere else in the world. And then a working population of 7,000 people that are using it and tackling kind of some of the biggest challenges that that we face. Um, so there's a real pull for people that that come to Harbell. You know, that they as scientists they are really driven by um their passions, um and and you know, they they they can't do what they do in Harwell anywhere else.

SPEAKER_00 44:59

And then um just you mentioned something about obviously the gas supplies, uh, which and for your say mother loves it, etc. Yeah. How how does that work in terms of say the monetary side of side of things and in current climates? Um if gas price increases, is that something which ARK are having to deal with? How does that how's that handled and how how do you look after that?

SPEAKER_02 45:26

Um yeah, I mean it's I mean that that side of things, we we we operate with a really transparent model. So um where we've running a managed service like Mother Labs, you pay a flat uh rent, which includes rates, service charge, all the costs of running share facilities and all that kind of stuff. And then gases, um, you know, gases the cost of a the the bulk of the cost of gas is actually the cylinder that cut that gas comes in. So actually really straightforward. If you need gas, you can tap into it and you just pay for your share of the cylinder, um, which keeps it really cheap. So, you know, things like gas is really a problem. I think the biggest challenge is the fluctuation in utilities and um and also you know the impact of some of the changes in rates um that's come through, which is very boring and very dry, but is a real headache um for the CFOs uh to have to navigate.

SPEAKER_00 46:23

What would be the biggest change that you'd like to see in the next five to ten years in commercial real estate?

SPEAKER_02 46:31

I think I guess there's what I'd like to see and what I think um we could see. Um I would love to find a way to um to see more value uh allocated towards the capability of a real estate asset from an operational perspective, um, as anyone in the flex industry would. Um, you know, just to see investors feeling a lot more comfortable in investing in the capability of operators to sustain an income stream uh and invest in that. Um how do we best achieve that? You know, if I knew the answer to that, um, you know, it's it's it's it's something that certainly the the flexed side of the market has been banging on about for a very long time. I I kind of hope that the um one of the benefits of the pandemic and and you know the the the the event of hybrid working was that it would really kind of force it would force that, um, but it hasn't, um, which is why you know it's it's a really stubborn issue um that you know we're gonna have to solve eventually, surely. Yeah but um yeah, I think I mean that's that's one of that's one of the key things. And then I suppose the other thing, I think looking at the UK as a as a competitive country globally is you know, we need to sort out that people come to the UK and invest for for all sorts of reasons, but not least because of the regulatory environment here. Um it's a really predictable, safe place to to invest your money. But that also makes it really difficult. Um so you know, everyone, everyone complains about planning. Um, you know, i it i even if you've got a householder application to to do an extension, it is a nightmare. You know, you scale that up to to to big inward investors looking to invest in the UK, trying to navigate our regulatory framework is is a nightmare. Um as long as I've been in real estate, there's been a discussion around making that, you know, really, really easy and build, build, build, and it still hasn't happened. Um every government seems committed to it. I just pray we can we can nail that because the potent the potential of this country is unbelievable when it comes to the brain power. You know, the the you really can't um underestimate the value of the universities we've got here and the potential that we have from an innovation perspective. I think the big difference between us and and our global competitors is the ability to latch onto that potential, to unlock um everything that's needed um to make it happen. Um and you know, it isn't just as simple as one thing. Um it's not it's not just m money, it's not just housing, it's not just planning. It kind of all needs to work. And and it needs to be more of a team sport as well, uh as a nation. So um that would be a big ask. But you know, if we could if we could just roll the carpet out for innovation more uh in a more joined up way, that that would be that would be something.

SPEAKER_00 49:38

That would involve change though, wouldn't it? It would. Which uh the industry isn't famously good at, is it? Um so I think that that's the trouble, isn't it? Is how how do you get it to move? How do we get this industry to move in a faster way? I think it is starting to move faster, generally speaking.

SPEAKER_02 49:59

Yeah, I think I think it's I think I think the pace of the industry is definitely being driven um by the expectations of of the capital markets. Um and you know, as capital is more international and is less patient, um, that drives pay that drives the pace uh of change, doesn't it? Um I think the tricky thing is for real estate is you know it's it's it's a contradiction, isn't it? But you have to think long term in real estate to be able to build any kind of community, um, whether that's um the sort of communities that we build in in clusters or or you know big housing developments or whatever. Um, and that doesn't necessarily fit that well with the patient capital um that that you need. And so you kind of need you need the capital side of things to to come together where you've got that fast-paced innovation capital that's able to participate in long-term more patient uh capital requirements.

SPEAKER_00 50:59

Yeah. And then I guess one question I've got for you is if if one building in in your portfolio stopped performing tomorrow, how quickly would you know and what what would happen next? Stop performing in what way? There's a few different ways. Um let's say we won't say operationally for now, uh because obviously I think we've covered that sort of stuff. I think stop performing and delivering what your your members are expecting of it in terms of their day-to-day.

SPEAKER_02 51:40

Um I think I mean we we know how well suited every every asset is to our customers. So, you know, if we've got one building which is currently occupied by one customer that has a particular need, and you know, if if if anything happens to them, you know, if if it doesn't work out, um the business comes to an end, or they relocate, or um, you know, they get bought, as is sadly often the case with early stage businesses by a US uh company in GetMove stateside, um, then we'll already have a pretty good idea of what we're gonna need to do to it. Um but yeah, every building that we've got has been certainly we've got a relatively young portfolio. We've engaged in a lot of development over the last um five years. Um and every building we've got is designed to be super flexible. Um, you know, we've got in in Harwo, we've got um buildings which you know we describe as you know, sis Swiss army knives, they're designed to just be capable of taking whatever you need to put in them. So if one if one use is in there that's really specific uh that comes to an end, that's fine. You know, we just take it out and then we'll put in the next use, you know, that they're designed to be a blank canvas. Um, so that side of things doesn't really worry me.

SPEAKER_00 53:05

You mentioned there about um you know an early stage company getting brought out typically by an America, American company. Do you think that's part of the problem which we have that it's a cultural piece as well here that actually we don't back um innovation, we don't back success in the same way that say like the Americans Americans do culturally.

SPEAKER_02 53:34

It's definitely a cultural thing. Um and there are far more learned commentators that could give you a far better answer to this um than I can, but I think put it simply, you know, we we have um much more conservative capital in in the UK um and a much more conservative culture in the UK. Um American investors, deep pockets um typically, and they look at an opportunity and they're like, this sounds amazing, what can I make from it? Whereas UK investors, this sounds amazing, what's the risk? And that really small change does seem to run through everything. Um but also I think you know, in the UK, failure is seen as an embarrassment, whereas in the US it's seen as experience. Yeah um and I think I think we're doing we we are as a as a as a country, like we're we're we're moving so far um in the right direction. We've got you know got plenty plenty still to to achieve. But years ago, you know, MIT Um and Harvard were real sort of pioneers at tech transfer and developing a culture where you know if you weren't really um a notable professor unless you got at least one startup under your belt, successful startup under your belt. And and you know, the the culture would be that you know professors would be looking at how they could spin out their research and establish successful commercial businesses because that's how you make science have impact. If someone's not able to pay, pay for that research and invest in it, it's it's not then going to become um ch the change you're trying to achieve. Um whereas for for a long time in the UK, it was almost the reverse. You know, you had to keep um academia pure, uh uh, you know, kind of unsullied by commercial, uh the commercial side of things. Whereas now you've got um, particularly in Oxford, you know, where our our our home home home ground, you've got amazing success stories like um Oxford Science Enterprises um that's really supercharging the ability to fund and nurture innovation out of out of universities. And you're starting to get that same culture that we've we've seen stateside for so long and has led to the success of areas like Boston.

SPEAKER_00 56:00

Yeah. And I think that translates into commercial real estate, and maybe one of the reasons we don't move so fast as we should do is we we do see failure as we in a in a very negative light and hold it close and we don't share our learnings, I guess. And is that something which would be the whole industry would benefit from is that more open, more transparent approach across industries to talk about our failures, to talk about our learnings together and sharing that knowledge to then improve?

SPEAKER_02 56:32

I think absolutely, but I mean it it's such a as you say, you know, such a big change from from the status quo at the moment, isn't it? Yeah. How do we change that culture? Well, you know, I think I think everybody's getting generally a bit more open in life, aren't they? Um I'm certainly an oversharer. Um and I think it's it's certainly the younger generation um certainly has a much healthier approach to um physical and mental health, uh, success, failure. Uh yeah, the the change is the change is is coming. I think um I think probably a realistic aspiration for for our generation is just to not quash that aspect of the younger generation, you know, see it, see it as a positive, uh, embrace mistakes. Um it's you know the the the the Silicon Valley cliche of fail fast, um, you know, that's it that that that is rarely a bad idea.

SPEAKER_00 57:33

Yeah, you know, it's really a bad idea. Yeah. And we just need to be more agile to learn fast and move on and take take it take it forward, don't we? Yeah, absolutely. Um so thank you very much for coming on today. Pleasure. Um it's hugely valuable, I think. Um great to understand more about ARC and what you guys do, but also um for the listeners to understand a bit more about the life sciences and how that sits in the commercial real estate world and some of the challenges which you're facing. Thanks for having me. Thank you very much.