It’s hard to overstate how much our economy relies on fossil fuel production. Beyond the energy these fuels produce, so much of our stuff—plastics, resins, adhesives, wrappers, fillers, and containers are all made using petrochemicals. This doesn’t even consider the role fossil fuels play in food production. But as our economy shifts away from carbon-producing resources like fossil fuels, we must find new ways of making the things we need. To do that, scientists have turned to making stuff with biology, but meaningful hurdles toward large-scale adoption remain.
Since the early 2010s, synthetic biology companies working on alternative proteins (the building blocks of lots of stuff, not just food) have received nearly $15 billion in venture funding, including over $5 billion raised in 2021 alone. Yet little capital has been going into much-needed biomanufacturing infrastructure, and this lack of support creates a massive immediate opportunity for industrial real estate investors.
The potential contribution of biomanufacturing to the economy is massive. Industry analysis suggests that bioengineering could account for more than 60 percent of the global output of manufacturing industries over the next few decades—almost $30 trillion in terms of value.
As I write this, teams of scientists around the world are discovering new ways to use sugars and microbes instead of animal agriculture and petrochemicals to make everything from sustainable aviation fuel to silk, denim, fleece, and even oysters! Our understanding of biology has advanced to a point where a large portion of traditional food, materials, and energy products can be replaced by functionally superior and more economically attractive biomanufactured alternatives.
This is hopeful news for our planet because biology-based production is far less harmful to the environment and human health than traditional manufacturing. Supporting a shift to biomanufacturing could be among the most impactful actions we can take to build a sustainable future, with profound implications for public health, the environment, and geopolitical security.
In the way that it is hard to conceive of today’s digital world without the very physical development of data centers to support cloud infrastructure, it will be impossible to achieve the extraordinary promise of synthetic biology without building a large network of commercial-scale biomanufacturing facilities.
Since 2010, nearly $15bn of venture funding went to synthetic biology companies working on alternative proteins—$ 5bn in 2021.
I am convinced that infrastructure for biomanufacturing is poised to become a pillar of our 21st-century industrial asset classes. My conviction stems from conversations with many of the companies working to bring biologically-derived products to markets and from years of investment in the synthetic biology industry. This thinking is driven by the changing environmental, social, and economic conditions that necessitate sustainable, ethical, and healthy manufacturing delivered at a lower cost than prevailing alternatives.
This future hinges on a critical dependency: biomanufacturing must rapidly scale if it is to make more of the world’s stuff. Today, there is a burgeoning ecosystem of companies building our biological future. These companies are developing strains and bioprocesses for a range of products. Each of these companies faces a similar and seemingly intractable problem; their biomanufacturing alternatives will only reach market acceptance if they reach cost parity with prevailing products. The cost of these products is a direct function of scale, and scale is only possible with large facilities that don’t yet exist to meet future demand. Financing for these facilities, in turn, has been nearly impossible because biomanufactured products don’t yet have a market foothold due to their high cost.
My new company, Synonym, is solving this negative feedback loop. Access and financing go hand in hand: the industry’s core goal is to lower production costs, and that can only be done by derisking the investment and unlocking access to this new asset class for large capital allocators. Decoupling ownership from usage, as it has been done in other real estate asset classes, will allow those in need of capacity to access it in the time horizons they need. (After all, these facilities can take years to build.) At the same time, investors seeking carbon-negative, yielding facilities will be able to deploy capital into a truly new asset class.
Other technology adoption cycles have led to similar investment opportunities. The development of the Internet and cloud computing continues to drive revenue for data center operators. As of the end of Q1 2022, Equinix (NASDAQ: EQIX) has shown 78 consecutive quarters of revenue growth, the longest streak of any S&P 500 company. The ubiquity of e-commerce turned industrial warehouses into one of the best-performing real estate assets, vacancy rates across the US remain extremely tight at 3.4 percent in August 2022. Supply is chasing demand and more than 100 million square feet of warehouse space was delivered in the first half of 2022. What is common across these asset types is the level of standardization in the way they are designed, built, and managed.
The green aspect is just as critical as institutional capital is searching for opportunities that help global decarbonization efforts. Controlled Environment Agriculture (CEA) and solar farms are good examples of green real-asset classes. Real asset investors are already raising funds dedicated to indoor farming, and investment in renewable energy is on a path towards 1000x growth from the early 2000s. Almost all institutional investors have ESG mandates, but returns for established assets have also stabilized or begun to decline. In today’s macro environment, few opportunities satisfy the increasingly stringent ESG criteria and generate the attractive returns promised by biomanufacturing infrastructure.
Animal agriculture alone contributes more than 30 percent of the world’s greenhouse gas emissions; 80 percent of arable land and freshwater are used to feed the animals we eat. Factory farming’s reliance on hormones and antibiotics makes us and our children sicker, leading to epidemics and skyrocketing healthcare costs. These are essential drivers of coming change.
I also expect the biomanufacturing revolution to be a boon for rural communities. Many of these facilities need access to agriculturally-derived feedstock such as refined corn syrup, creating significant opportunities in corn-producing states like Iowa or Nebraska. Other facilities may be close to transportation hubs, either rail or waterways, creating opportunities for coastal communities.
Predicting new asset classes is never easy, but to harness one of the most impactful new technologies of our lifetime, we will need to see an entirely new type of building. In biomanufacturing, I see the convergence of economic, national security, and environmental imperatives to create an inspiring revolution for our 21st-century industrial economy.
