Scott Brinker: I mean it depends on really two major things. One is just timing. So a 24 to 30-month development is obviously a lot more risky than a 12-to-15-month development. So you compare what we do in medical office, which is a much shorter time line between when you make the decision and when you actually have to invest the capital. that makes an impact or has an impact. And then the other thing is just spread to acquisition cap rates. And today, that spread is lower than it would have been in the past. Our current pipeline is going to yield about a 7.5% return on cost. If we were to start construction today on new projects, it’d probably be a bit less than that realistically. And it’s unclear exactly where acquisition cap rates have settled.
So in general, I think the spread of development relative to acquisition cap rates, it’s somewhere in the 50 to 200 basis point range. If you have a fully leased MOB that’s delivering in 12 months that needs a lower risk premium than a 24-to-30-month spec development in life science. So that hopefully gives you just a general view of how we approach it.
Austin Wurschmidt: That makes sense. Thanks for the time.
Operator: The next question is from Juan Sanabria with BMO Capital Markets.
Juan Sanabria: Hi, good morning. Just hoping to go into the guidance a bit. And for the MOBs, what — if anything is assumed in ad rent for ’23 and if you could just remind us what was the contribution in ’22 in the long-term impact that typically has on what we think of historically is kind of the 2% to 3% type growth?
Thomas Klaritch: Sure. Juan, this is Tom Klaritch. Typically, we’ve seen the ad rent at Medical City grow kind of in the 5% to 8% range. We did have a significant growth in ’22. Part of that was some onetime items. Part of it was just great results at the hospital recovering from the pandemic. So we saw close to 10%, we think that will moderate given the big — the large growth in ’22 that we’re kind of assuming right now that’s kind of a 3 plus, little bit higher than that ad rent growth for ’23. So that’s why the number is down a bit in our guidance for MOBs for this year. We typically — the bulk of our growth comes from mark-to-market and in-place escalators, which are quite strong at an average of 3.1%. And on the escalators and mark-to-market kind of in the 2% to 3% range. And then obviously, you have some offset from net expenses.
Juan Sanabria: Thank you for that comment. And then just on development contributions for guidance for ’23, you guys give fantastic details so kudos to you, but just curious on how much development NOI should we expect to contribute in ’23 and any sort of insights into at least currently, what would be incremental in ’24, not to get ahead of our skis, but just curious of whatever details you can provide on development NOIs.
Peter Scott: Yes. Juan, it’s Pete here. One thing I will point out is starting in our investor deck in November last year, we did start giving development yield by project, and we’ve included that in the supplemental. So that should we hope, assist with modeling going forward. That said, let me just talk about the ’23 development earn-in contribution. I did say in my prepared remarks that we have $65 million of NOI growth when you look at ’23 relative to ’22. A big chunk of that is development earn-in. We had three projects that delivered during the course of 2022, that’s the shot Boardwalk. And then at the very end of the year, 101 Cambridge Park Drive, which is coming in phases. There’s still a very small piece that’s coming in earlier this year.
