David O’Reilly: Yes. So look, I would tell you that what we’ve seen throughout 2022, and we don’t see it slowing down, has been a meaningful flight to quality. As employers are trying to incentivize employees to get back to the office, they’re focused on really bringing their employees back to amenity-rich great locations that make it easier to get back to the office. And we’ve seen occupancy and kind of body heat within our office higher than what most national reports have been. And I think that’s largely because we have great amenitized buildings. We have very short commutes for those that live and work in The Woodlands. In general, for the full year, we did 253,000 square feet of new office leases in The Woodlands, over 150,000 in Colombia and over 100,000 in Summerlin.
And I think that is indicative of what we’re seeing, employers’ flight to quality to amenity-rich, great located buildings as well as meaningful out-of-state relocations into our Master Planned Communities. Of the 90,000 to 100,000 square feet of leases that we’ve done right here in our headquarters building, at 9950 Woodloch Forest, we’ve done California cosmetic company corporate relocations, we’ve done gas and fiber relocations, we’ve done a Northeast-based crypto company come into our building. It has been different than the traditional oil and gas users that we’ve seen in the Houston market. And I think our comfortability and our optimism with our office portfolio is driven by the quality of buildings we have that are in some of the best communities in America that continue to attract both residents and employers that are leaving those higher-tax, less business-friendly states looking for a new home.
John Kim: You don’t have much expirations this year. It seems pretty modest. Do you expect occupancy to trough in ’23?
David O’Reilly: I think that we’re going to see a combination of hopefully positive new leasing. But there are always those things that go bump in the middle of the night, whether those are tenant bankruptcies or downsizes or things that you don’t necessarily anticipate. Look, I think that for the year, we should see positive increase in occupancy throughout our office portfolio. I don’t know that, that positive increase in occupancy and net absorption that we’re projecting and that we’re working on real-time will necessarily translate to increased NOI in ’23 given the build-out times and free rent periods associated with those new leases. But long term, I think those leases create incredible value because there are net effective rents that are significantly higher than the yields given the cost basis of these assets.
John Kim: Okay. My final question is on Seaport and the Tin Building. You mentioned Tin Building is now on a 7-day operating week. But can you discuss the pressures of labor costs and if that extends out when you think both the Tin Building would be profitable?
David O’Reilly: So look, clearly, it’s very difficult to drive free cash flow and profitability of a building that you can’t open 7 days a week. And it wasn’t until December that we were actually able to get there. And consistent with how we’ve opened other restaurants with Jean-Georges George and great restauranteurs, we want to make sure for those first several months that we’re open and running, that we’re delivering incredible service, incredible quality of food and incredible experiences. And as a result, we intentionally overstaff to make sure that we get it right. And then once we hit that point, which were I believe we’re achieving now, and I think the team has done an incredible job, we’re going to be able to pare back that overhead, that labor cost, get it back into line with what we expected going in and hopefully minimize the losses for the next few quarters and then hopefully get towards profitability in the back half of this year.
