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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: It is Tuesday, but there's still a lot of mmah

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Speaker 2: to talk about Tuesday. Yeah, murder Tuesday. Although this one's

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Speaker 2: been like in the works for so long. Now Warner

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Speaker 2: Brothers Paramount Netflix looks like Warner Brothers is now open

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Speaker 2: to a paramount bid, a little bit more open than

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Speaker 2: it was before. It is reopening talks with Paramount as

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Speaker 2: Paramount signals a higher bid, but has not actually raised.

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Speaker 3: I'm glad you've been You reported it correctly because they

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Speaker 3: haven't raised their summit yet.

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Speaker 2: They said, you know, we could, so I guess that's

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Speaker 2: good enough for them to reopen discussion. Stephen Flynn is

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Speaker 2: our senior credit end list on this developing story. So Stephen,

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Speaker 2: how are you looking at this development?

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Speaker 4: Yeah?

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Speaker 5: So you think a couple of weeks ago, on February tenth,

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Speaker 5: Paramount actually came out. They reiterated a thirty dollars per

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Speaker 5: share cash offer for the entire Warner Brothers Discovery, but

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Speaker 5: they did add in a few other things. Number One,

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Speaker 5: they said that they would pay the two point eight

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Speaker 5: billion dollar termination fee that Warner Brothers would owe Netflix

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Speaker 5: for breaking that deal. They'd said that they would help

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Speaker 5: with the fifteen billion dollars of bridge loan that Warner

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Speaker 5: Brothers has outstanding from a bond tendor.

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Speaker 4: Deal that they did mid last year.

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Speaker 5: They'd also fully reimburse Warner Brother's Discovery for a potential

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Speaker 5: one point five billion dollar fee that Warner Brothers could

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Speaker 5: owe certain bond holders if they do not do a

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Speaker 5: debt exchange by the end of this year. So this

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Speaker 5: is a complicated story that keeps getting more and more

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Speaker 5: layers of complexity on top of it.

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Speaker 3: Remind us, Steve, if Paramount were to win this deal

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Speaker 3: for Warner brother this would be a very highly indebted company.

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Speaker 6: You guys don't like that.

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Speaker 5: Correct, Yes, So, Warner Brothers Discovery would have about eighty

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Speaker 5: five billion dollars of total debt pro form for this deal,

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Speaker 5: a combination of Paramount and Warner Brothers. Right, So, Warner

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Speaker 5: Brothers has about thirty one billion dollars a debt Paramount

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Speaker 5: has about fifteen. This deal would add about thirty nine,

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Speaker 5: so you're talking about eighty five billion. If you just

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Speaker 5: look at the combined EBITDAT for both Warner Brothers and

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Speaker 5: Paramount for twenty twenty six combined, they're about twelve billion dollars,

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Speaker 5: you know, just just space math, you're talking seven times levers.

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Speaker 4: That's obviously huge.

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Speaker 5: But Warner Brothers Paramount expect about six billion dollars of

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Speaker 5: cost synergies. So if you give them credit for that,

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Speaker 5: that turns it gives you about eighteen billion dollars.

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Speaker 4: VIPA DOT still get you credit well over four times

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Speaker 4: synergy credit.

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Speaker 6: You guys are pretty stinchy.

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Speaker 5: Well, yeah, we can give it, but we give you

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Speaker 5: a certain amount of time to actually show it.

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Speaker 4: Right.

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Speaker 5: So, and this is really important because what will the

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Speaker 5: rating agencies do and for the fifty four billion dollars

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Speaker 5: of debt financing that they have in place to support

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Speaker 5: this deal, to what extent will it be ahead of

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Speaker 5: the other debt through either guarantees and or security. So

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Speaker 5: if you could argue that it is ahead of all

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Speaker 5: the other debt and you give them pro former credit

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Speaker 5: for the synergies, you're talking about three times leverage through

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Speaker 5: that fifty four billion dollars, which could potentially get you

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Speaker 5: IG credit ratings. Right, So if we look at Charter

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Speaker 5: as a comparable, So Charter for many years had a

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Speaker 5: total net leverage target of four to four and a

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Speaker 5: half times, but they had.

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Speaker 4: A split capital structure.

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Speaker 5: The secure bond debt was IG, the unsecured debt was

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Speaker 5: high yield, and the secure debt they kept that a

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Speaker 5: little bit over three times. And so if you use

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Speaker 5: that as a comp and give them credit for the synergies,

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Speaker 5: you know, you could say that.

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Speaker 4: There's a lot of ifs there. Yes, there is, there's

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Speaker 4: a lot of ifs there.

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Speaker 6: That Starter's cash a little better and I like that.

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Speaker 5: Yeah, but you know, pro form powermount Warner Brothers should

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Speaker 5: generate a lot of free cash flow, and they, you know,

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Speaker 5: they should.

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Speaker 4: I assume they will commit to use all that to

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Speaker 4: reduce the debt.

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Speaker 5: And typically grating agencies will give the company a few

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Speaker 5: years to kind of hit their targets and show the delaveraging.

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Speaker 2: So Warner Brothers when it merged with Discovery also took

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Speaker 2: on a lot of debt. How does this potential Warner

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Speaker 2: Brothers and paramount debt profile look compared to what Warner

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Speaker 2: Brothers look like after emerging.

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Speaker 5: You know, it's total in thinking about the leverage, it's

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Speaker 5: not too different.

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Speaker 4: But let's hope that this works better, right, So, because

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Speaker 4: it didn't.

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Speaker 2: Work so well and Zoslov was kind of just preoccupied

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Speaker 2: with bringing down the debt for years.

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Speaker 5: Correct, correct, So when they emerged Discovery with Warner Brothers,

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Speaker 5: they purchased it from AT and T effectively and it

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Speaker 5: had a high leverage and they promised to d lever

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Speaker 5: and it did not deliver as quickly as anticipated. So

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Speaker 5: then that's when last summer you had the whole announcement

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Speaker 5: of the split and they decided to launch a tenor

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Speaker 5: off or where they got some new financing in place

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Speaker 5: and told the existing bond holders will buy the bonds

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Speaker 5: back from you. But you know, you're taking some pretty

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Speaker 5: big haircuts to the mount that you're owed, and they

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Speaker 5: still had very good participation.

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Speaker 4: Stay with us.

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Speaker 6: More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Coarclay, and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts or watch us live on YouTube.

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Speaker 3: Anthropics PPC talks about extending and contract with the Pentagon

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Speaker 3: are being held up over additional protections to the artificial

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Speaker 3: intelligence company wants to put on its clawed tool.

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Speaker 6: Absolutely no idea what that means.

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Speaker 3: Mandeep Seeing does mandep Seeing, Global Tech research head for

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Speaker 3: Bloomberg Intelligence, what's going on with our friends at Anthropic

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Speaker 3: because I know they do a lot of work with

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Speaker 3: the US government.

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Speaker 7: Yeah, and look, I think Palenteer is the company that

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Speaker 7: really made a name for themselves in the kind of

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Speaker 7: work that all these LLM companies are being tasked to

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Speaker 7: do for the Department of War. And look, it's going

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Speaker 7: beyond analytics now. So what Palenteer did was you could

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Speaker 7: look at unstructured data like the GPS coordinates tie intelligence

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Speaker 7: in terms of you know, finding about some source or

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Speaker 7: some entity, and that was heavily used in a variety

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Speaker 7: of use cases. Now, I think these llms are trained

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Speaker 7: on we know, fifteen trillion tokens and they can ingest

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Speaker 7: large amounts of data and do analytics at a level.

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Speaker 4: That you know, we have not seen.

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Speaker 7: So in this case, the company Inthropic has talked about

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Speaker 7: their AI constitution or in other words, putting guardrails around

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Speaker 7: the kind of surveillance activities they want the llms to do.

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Speaker 7: And obviously from a government perspective, they want to do

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Speaker 7: whatever it takes from a national security perspective. So I

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Speaker 7: think that's where there is a discussion going around the

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Speaker 7: kind of guardrails that they want to see and the

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Speaker 7: level of I guess work that the government wants them

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Speaker 7: to do.

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Speaker 2: Okay, So the Department of Defense or a Department of

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Speaker 2: War as it's now known, this relationship with Anthropic, it's

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Speaker 2: not limited to just using anthropics models, is it, Because

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Speaker 2: it wants to make sure that it's got kind of

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Speaker 2: a wide source of AI large language models to draw from.

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Speaker 2: So what is that relationship like with I don't know, chat,

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Speaker 2: GPT or Gemini or even Grock.

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Speaker 7: Yeah, all of these companies have a contract with the

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Speaker 7: Department of War and like for example XAI is Grock

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Speaker 7: has a two hundred million dollar contract. So you know,

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Speaker 7: the department is using all the possible tools that are available,

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Speaker 7: and from that perspective, Enthropic is one of them, but

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Speaker 7: no one else like chatchipt hasn't talked about you know,

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Speaker 7: guardrails in such a big way as Entthropic has, So

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Speaker 7: that's the big distinction. And obviously SpaceX is a defense

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Speaker 7: contractor for the Department, and now with Xai merger, I

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Speaker 7: think they can do more work around the drone side.

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Speaker 7: So at the end of the day, I think you

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Speaker 7: have to think of it from a geopolitical standpoint. What

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Speaker 7: China is doing, you know, with that infrastructure and similar concepts,

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Speaker 7: and what I think the US defense is looking to

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Speaker 7: do in terms of surveillance and national security interests. And

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Speaker 7: these llms will play a pivotal role because, as I said,

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Speaker 7: they can help you find that needle in the haystack

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Speaker 7: that the current technology wasn't able to do.

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Speaker 6: Who Isntropic? Who are these people?

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Speaker 7: Well, they just raised thirty billion dollars in their latest

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Speaker 7: funding round sound fundraiser, and they'll most likely go public

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Speaker 7: this year. There is a very high likelihood of both

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Speaker 7: and Tropic and open Ai going public. And that's why

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Speaker 7: you know they're out there in terms of establishing the

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Speaker 7: use cases and the utility is not just a coding agent.

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Speaker 7: They want to show you know that they are addressing

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Speaker 7: a lot more areas in terms of you know, where

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Speaker 7: these models are touching and the companies that they are

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Speaker 7: interfacing with, So there is a very high chance that

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Speaker 7: we'll see IPOs.

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Speaker 4: Stay with us.

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Speaker 6: More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 3: I' let's switch gears to the healthcare space, and to

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Speaker 3: do that on a Tuesday morning, we check in with

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Speaker 3: Sam Fazelli, director of Research for Global Industries and a

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Speaker 3: senior pharmaceuticals analyst for Bloomberg Intelligence.

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Speaker 6: He's based over there in London.

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Speaker 3: So Sam, I see that Moderna and Merk they're working

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Speaker 3: together on a melanoma drug.

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Speaker 6: Here, cancer drug. What's the status there?

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Speaker 8: Yeah, so Paul, thanks for having me back on. Look,

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Speaker 8: they have a trial coming up which is a very

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Speaker 8: innovative approach to trying to treat cancer. I e. I'm

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Speaker 8: going to take miss a drug that releases your immune

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Speaker 8: system and at the same time I'm going to give

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Speaker 8: it stuff from your tumors so that you can recognize

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Speaker 8: the tumors. So you got vaccine, that's what a vaccine is, right,

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Speaker 8: and the immunotherapy drug y true that everybody's used to.

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Speaker 8: And they've had some really strong Phase two data that's

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Speaker 8: come out. So what we've done here is that we've

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Speaker 8: gone and have a look. That's one of the key

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Speaker 8: catalysts for twenty twenty six and everyone's waiting for this

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Speaker 8: trial to read that as to what are the chances

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Speaker 8: of what are the issues that this trial might face?

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Speaker 8: You know, that's our job, right We look for problems,

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Speaker 8: look for trying to measure up if there's any risk here,

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Speaker 8: and we've identified three. One is that the phase two

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Speaker 8: data wasn't as easy to interpret because the control army

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Speaker 8: in it. That initial data that looked great didn't behave

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Speaker 8: as we thought it should have done. The second issue

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Speaker 8: is that in the Phase three they're unrolling some healthier patients.

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Speaker 8: What is that going to? Can you therefore use the

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Speaker 8: phase two to bridge your thoughts to the phase three?

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Speaker 8: And on top of that, here's an interesting part. Who

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Speaker 8: makes COVID shots well, Fizer, BioNTech, and Moderna. Another study

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Speaker 8: showed that if you use COVID shots within one hundred days,

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Speaker 8: of one of these immadiotherapy drives in cancer patients, they

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Speaker 8: survive longer, they have better survival rates. What if that

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Speaker 8: happened in the MODERNA trial the control arm has COVID

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Speaker 8: shots in it, and that lifts up the survival if

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Speaker 8: that data was correct. So all these things makes us

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Speaker 8: a little bit worried about this data coming. And of

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Speaker 8: course WADERNA has other issues to deal with, which I'm

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Speaker 8: sure you're going to come up to, which is that

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Speaker 8: i FDA rejection to accepting their file for the flu vaccine,

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Speaker 8: which is blew my mind.

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Speaker 3: I have to.

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Speaker 2: Say, well, this administration doesn't like vaccines period. So and

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Speaker 2: it's been a brutal flu season, right Sam, I mean

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Speaker 2: it's nothing kind. I mean I think something like twenty

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Speaker 2: two million Americans have fallen ill to the flu.

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Speaker 8: Yeah, they have, and to be just called it. The

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Speaker 8: issue is now they're deciding what flu vaccine to give

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Speaker 8: us in the US and Europe in a couple of

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Speaker 8: months of bicht in nine months time, as nonsense. This

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Speaker 8: is the flu. These are viruses. They change all the time.

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Speaker 2: We've learned that.

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Speaker 8: Right, here's a technology that could have potentially enabled you

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Speaker 8: M R and A vaccines to react much quicker, nearer

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Speaker 8: the time, when you know what training need to target.

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Speaker 8: This could have been the approval that the world needs.

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Speaker 8: I mean, in this world we need to be able

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Speaker 8: to deal with these infectious is that we've learned our lessons,

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Speaker 8: haven't we. Unfortunately, the person at the head of the

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Speaker 8: division of the of the FDA called Sieber, made a

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Speaker 8: decision unilaterally by the look of it, based on what

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Speaker 8: people have reported, that he doesn't want to review this

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Speaker 8: file having they Mona had all the right things in place,

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Speaker 8: they had discussed with the FDA, they had the allowance

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Speaker 8: to go ahead, They did the trial that's in line

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Speaker 8: with other people's trials. It just doesn't make any sense.

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Speaker 8: And I tell you what that really worries me about

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Speaker 8: any company interacting with the FDA. How can you know

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Speaker 8: that you're not going to get a next week or

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Speaker 8: six months, or ten months or twelve months down the road,

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Speaker 8: a random rejection despite the discussions you've had.

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Speaker 3: So how are these big healthcare companies, pharmaceutical companies, biotech companies,

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Speaker 3: how are they dealing with the FDA? Because it seems

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Speaker 3: to be a very difficult relationship at the moment.

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Speaker 8: Paul only a week before we were talking about the

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Speaker 8: FDA showing its teeth when he came out and said,

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Speaker 8: HYMN says to stop selling copycat drugs, which it had

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Speaker 8: no right to sell. And now we have this this

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Speaker 8: uncertainty is a problem, and they're all trying to manage it.

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Speaker 8: The larger companies can manage it because they have teams

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Speaker 8: of people, et cetera. But it's the biotechs that suffer

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Speaker 8: because they have limited amounts of cash on a relative basis,

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Speaker 8: and we've had several of these things that have hit

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Speaker 8: the block with regards to irregulatory pushback, which you didn't

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Speaker 8: expect to have. So it is a problem for the

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Speaker 8: biotech sector're more than the pharmacy.

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Speaker 4: Stay with us.

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Speaker 6: More from Bloomberg Intelligence coming up.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business app. Listen on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 3: Let's switch gears here talk about the real estate business

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Speaker 3: here in the United States. We can do that with

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Speaker 3: Jeff Langboun. He's to read analyst for the US Is

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Speaker 3: it all just data.

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Speaker 6: Centers today, Jeff?

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Speaker 3: Is that all people want to talk to you about

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Speaker 3: because it seems like that's the AI play in real estate.

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Speaker 9: Well, that's that's one way to play AI from a

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Speaker 9: positive perspective, okay, But right now what people are thinking

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Speaker 9: about is what the impact is going to be on

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Speaker 9: office space If AI makes all of these industries that

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Speaker 9: lease office space irrelevant, Okay, what does that mean for

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Speaker 9: demand for space? And you know, we saw last week

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Speaker 9: that you know, that started with software and then it

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Speaker 9: went to you know, industry after industry and ended up

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Speaker 9: with the real estate brokers and eventually the office roads

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Speaker 9: getting hit hard.

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Speaker 2: So so far, this is just kind of fear that's

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Speaker 2: wafting across the market. Have we actually seen any evidence

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Speaker 2: of this happening.

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Speaker 9: Not yet, And in fact, we've seen some of the opposite.

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Speaker 9: Leasing velocity has been at the highest level since before

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Speaker 9: the pandemic in markets like New York and San Francisco.

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Speaker 9: The reats that we follow, names like sl Green Bornado,

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Speaker 9: Boston properties are now BXP. These guys are reporting very

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Speaker 9: strong leasing volumes. We're starting to see occupancies tick up

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Speaker 9: off the bottom in their portfolios, and you know, one

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Speaker 9: of the one of the dynamics at play is that

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Speaker 9: AI firms are leasing space as they grow, and to

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Speaker 9: the extent that companies being impacted by AI start to

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Speaker 9: receive a little bit, there's an offset there.

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Speaker 3: So your office rate stocks last week sold off on

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Speaker 3: this fear.

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Speaker 9: Yeah, and it's not a new fear. I mean, it's

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Speaker 9: it's been at play for some time now. You know,

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Speaker 9: work from home kind of worked its way through and

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Speaker 9: everyone kind of got comfortable with where hybrid kind of

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Speaker 9: settled in, and then you know, what was the next

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Speaker 9: thing to hit office? And it was this And it's

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Speaker 9: been you know, it's been out there for probably a

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Speaker 9: couple of quarters. Now, what is the impact going to be?

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Speaker 9: But last week when when software rolled over, it's just compounded.

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Speaker 2: Is this something where because of the evidence that companies

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Speaker 2: are still leased in quite a bit of space, that

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Speaker 2: we're going to see a just as sharp recovery.

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Speaker 9: Well, that's possible, but you know, there's also the risk

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Speaker 9: that you know, the equity markets are turbulent and forecasting right,

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Speaker 9: and so there is the possibility that there will be

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Speaker 9: negative leasing news to come. It's certainly not showing up

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Speaker 9: in the numbers now. And we do think and this

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Speaker 9: is backed up by some survey work that we just

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Speaker 9: did last week of office workers in both New York

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Speaker 9: and San Francisco. We actually think that they're there's still

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Speaker 9: a period of time to come where firms are actually

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Speaker 9: leasing more space, they're expanding their headcount to try and

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Speaker 9: figure out how to take advantage of AI and to

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Speaker 9: grow their business. And that could actually, you know, I

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Speaker 9: don't know about a sharp snapback, but it could you know,

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Speaker 9: prolong the positive vibes for some time.

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Speaker 6: What's the sector of the remarket that you like the

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Speaker 6: most right now?

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Speaker 9: Senior housing is I mean, you know, it's it's the

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Speaker 9: one aspect where you cannot refute the demand story at all.

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Speaker 9: And at the same time, where real estate guys typically

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Speaker 9: love to build what to take advantage of those demand stories.

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Speaker 9: There's not a there's not much senior housing coming out

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Speaker 9: of the ground, so there's a huge supply demand imbalance.

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Speaker 2: Okay, but is senior housing more attractive in certain markets

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Speaker 2: over other markets? How do you pick between winners and

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Speaker 2: losers when it comes to senior housing.

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Speaker 9: It's really more about the local operator than it is

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Speaker 9: about the specific market. I mean, obviously if you're in

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Speaker 9: a place where you know, the economics aren't as strong

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Speaker 9: and you don't have this affluent a potential resident base,

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Speaker 9: and that's going to you know, potentially impact but.

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Speaker 4: Local strong, local operators.

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Speaker 9: When there's not a lot of supply coming out of

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Speaker 9: the ground, and you know you basically just have an

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Speaker 9: aging American population that is going to need housing solutions.

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Speaker 9: It's really a play across the board thirty seconds. Why

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Speaker 9: isn't there the supply cost of capital is still a

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Speaker 9: little bit elevated, and it's tough to get It's tough

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Speaker 9: for developers to get capital and and underwrite new deals

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Speaker 9: to make sense. Really, man, you want to you want

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Speaker 9: to start putting capital to work. Yeah, I'm sure there

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Speaker 9: are developers who would who would take your money.

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