WEBVTT - This Is What It Takes to Get a Data Center Financed 0:00:02.720 --> 0:00:15.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.600 --> 0:00:21.640 Hello and welcome to another episode of the Odd Lots podcast. 0:00:21.720 --> 0:00:23.919 I'm Jill Wisenthal and I'm Tracy Alloway. 0:00:24.200 --> 0:00:26.360 Tracy, you know, we've obviously been doing a lot about 0:00:26.480 --> 0:00:28.960 data centers, but one thing that's sort of becoming interesting 0:00:29.000 --> 0:00:31.000 is they just seem so complicated. There are so many 0:00:31.000 --> 0:00:34.120 different moving parts. And I don't mean like technically complicated, 0:00:34.159 --> 0:00:36.400 although that's part of it, but they really are this 0:00:36.520 --> 0:00:39.080 sort of weird thing where they're a high tech thing. 0:00:39.280 --> 0:00:41.320 They have the most advanced chips, or at least some 0:00:41.360 --> 0:00:42.680 of them have the most advanced. 0:00:42.360 --> 0:00:43.080 Chips in the world. 0:00:43.560 --> 0:00:46.720 They're real estate plays and we talk about securitization and 0:00:46.760 --> 0:00:48.919 so forth, and then they have to figure out all 0:00:48.920 --> 0:00:50.720 this stuff of how they're going to connect to the 0:00:50.720 --> 0:00:52.840 grid and maybe they're going to build their own power 0:00:52.880 --> 0:00:56.000 plant inside the data center, et cetera. There's a lot 0:00:56.040 --> 0:00:56.760 of moving parts. 0:00:57.040 --> 0:00:59.319 Yeah, there's a couple of things here. So number one, 0:00:59.360 --> 0:01:01.880 it does seem to be a complex space. And whenever 0:01:01.920 --> 0:01:04.800 I think about how some of these things are being financed, 0:01:04.840 --> 0:01:07.400 I get that, what's the meme with the guy standing 0:01:07.440 --> 0:01:09.520 in front of the board with like all the papers 0:01:09.600 --> 0:01:13.640 and directions. It all feels a little circular sometimes that 0:01:13.680 --> 0:01:16.800 whole ecosystem. But the other thing is just the sheer 0:01:16.959 --> 0:01:21.039 scale of the like financing requirement for doing this. So 0:01:21.080 --> 0:01:22.959 I was reading a Morgan Stanley report. I think it 0:01:23.000 --> 0:01:26.119 came out over the summer. They were forecasting two point 0:01:26.280 --> 0:01:31.479 nine trillion of global data centers spend through twenty twenty eight. 0:01:31.640 --> 0:01:35.360 And just for context, total CAPEC spending by all companies 0:01:35.400 --> 0:01:37.560 in the S and P five hundred in twenty twenty 0:01:37.600 --> 0:01:39.080 four was nine hundred and fifty billion. 0:01:39.160 --> 0:01:42.000 It's crazy, yeah, And by the words, are the numbers bug? 0:01:42.280 --> 0:01:44.280 Well? The other big question is if you actually stack 0:01:44.360 --> 0:01:48.600 that up against existing revenue from generative AI, existing revenues 0:01:48.640 --> 0:01:51.520 like sixteen billion, right, So there's a bit of a 0:01:51.560 --> 0:01:53.720 gap there that needs to be filled. 0:01:53.480 --> 0:01:55.840 Right, completely correct. The other thing that strikes me is 0:01:55.920 --> 0:01:59.200 very interesting and tricky is you have these projects and 0:01:59.680 --> 0:02:02.960 put there's big capital outlay, capital commitments, et cetera. And 0:02:03.000 --> 0:02:05.520 then the timelines like oh, when do you get connected 0:02:05.560 --> 0:02:08.760 to the grid, When does that turbine for your insight 0:02:08.880 --> 0:02:12.560 gas generator get actually get delivered? Maybe twenty thirty et cetera. 0:02:12.600 --> 0:02:15.079 So it feels like, I get the pressure. You're dealing 0:02:15.160 --> 0:02:18.480 with very uncertain timelines, and so how you establish that 0:02:18.520 --> 0:02:21.000 in the language so everyone feels protected, Like, what if 0:02:21.040 --> 0:02:23.560 you could ever get connected, what if anything could happen? 0:02:23.639 --> 0:02:23.760 Right? 0:02:23.760 --> 0:02:26.200 What are the expectations for when this actually starts to 0:02:26.240 --> 0:02:26.800 pay off. 0:02:26.639 --> 0:02:29.280 When does it payoff, what are the obligations of the tenant, 0:02:29.440 --> 0:02:32.400 et cetera. We don't really know anyway, I'm sure it's 0:02:32.400 --> 0:02:35.440 different number one, So many more questions for just scratching 0:02:35.480 --> 0:02:35.880 the surface. 0:02:36.080 --> 0:02:38.639 Yeah, absolutely, And you know, there have been some interesting 0:02:38.639 --> 0:02:41.160 things happening. So a lot of the activity has been 0:02:41.200 --> 0:02:45.040 done in the private market. But obviously AI players and 0:02:45.120 --> 0:02:47.760 companies have a lot of different options. So they could 0:02:47.760 --> 0:02:50.480 go to securitized markets, and I think we've been seeing 0:02:50.520 --> 0:02:53.919 some CMBs and ABS deals there, private credit I mentioned 0:02:53.919 --> 0:02:56.960 private equity bank lending, or they can go the public 0:02:57.080 --> 0:03:00.359 route into corporate bonds, and so I'm really curious how 0:03:00.480 --> 0:03:03.160 a lot of these players are choosing between those options. 0:03:03.320 --> 0:03:05.760 Well, I'm really excited to say we have the perfect guest, 0:03:05.880 --> 0:03:08.720 someone who is really at the intersection of sort of 0:03:08.800 --> 0:03:12.000 every one of the things that these data centers are 0:03:12.040 --> 0:03:14.040 also at the intersection We're going to be speaking to 0:03:14.080 --> 0:03:16.880 Travis Wafford. He's a partner at the law firm Baker Bods. 0:03:16.919 --> 0:03:20.280 He is the chair of the corporate department based in Houston. 0:03:20.440 --> 0:03:22.440 He works on all of these things. He can tell 0:03:22.520 --> 0:03:24.920 us what's in the details of all these agreements. So, Travis, 0:03:24.960 --> 0:03:27.240 thank you so much for coming on. Odd Love's great 0:03:27.280 --> 0:03:28.120 to have you here in studio. 0:03:28.160 --> 0:03:28.880 Thanks for having me. 0:03:29.040 --> 0:03:31.480 What do you give us just a quick overview? What's 0:03:31.480 --> 0:03:33.880 your role at Baker Boss? What do you focus on? 0:03:33.919 --> 0:03:35.800 What do you call it a practice area? Is that 0:03:35.880 --> 0:03:38.200 a legal for a legal term? 0:03:38.320 --> 0:03:42.440 Yeah, So I'm a deal lawyer. I help people build, buy, finance, 0:03:42.520 --> 0:03:46.520 and sell projects and companies. And so we take multi 0:03:46.560 --> 0:03:49.320 disciplinary teams and put them together in order to actually 0:03:49.720 --> 0:03:51.880 make people's dreams. The reality is the way I like 0:03:51.960 --> 0:03:55.360 to explain it. The idea is somebody comes to us 0:03:55.400 --> 0:03:58.840 with a very complex project and they need an integrated solution, 0:03:59.120 --> 0:04:02.360 legal solution to that problem. So you want to build 0:04:02.360 --> 0:04:04.720 the data center, you've got power, you need people that 0:04:04.760 --> 0:04:09.720 actually understand the air, the water, the interconnection with the fiber, 0:04:10.160 --> 0:04:13.760 the interconnection with power, the land, everything else. And then 0:04:13.800 --> 0:04:16.320 the finance layer on top of that we provide a 0:04:16.320 --> 0:04:17.960 one stop shop for that. 0:04:18.400 --> 0:04:21.479 Okay, so my question is how busy are you right now? 0:04:21.520 --> 0:04:25.039 Are you just getting you know, requests flying at you constantly? 0:04:25.360 --> 0:04:28.440 Yes, we are very busy, which is a good thing. 0:04:28.480 --> 0:04:31.200 And it's a bad thing, right because your capacity constrain, 0:04:31.320 --> 0:04:32.320 just like your clients are. 0:04:32.400 --> 0:04:34.640 Well, my husband is a former lawyer, so I know 0:04:34.720 --> 0:04:35.719 how bad it can be. 0:04:36.040 --> 0:04:39.000 Yes, But the good thing is they're interesting deals. It's 0:04:39.080 --> 0:04:41.279 interesting stuff to work on. It's in the news on 0:04:41.600 --> 0:04:44.120 Bloomberg as well, and that makes it fun. 0:04:44.400 --> 0:04:46.920 It seems like a baker Bod's with like the long 0:04:47.120 --> 0:04:50.440 history based in Houston, all the energy stuff. I mean, 0:04:50.720 --> 0:04:53.840 this is all sort of novel to everyone, right, especially 0:04:54.040 --> 0:04:57.120 the generative AI data center Like that aspect is just 0:04:57.160 --> 0:04:59.599 a couple of years old. Can you talk about when 0:04:59.640 --> 0:05:02.200 there is a new thing that everyone gets excited about 0:05:02.240 --> 0:05:04.320 that maybe even a couple of years ago no one 0:05:04.360 --> 0:05:07.880 was talking about now, granted, I know data centers a 0:05:07.880 --> 0:05:09.400 lot longer than a couple of years old, but the 0:05:09.480 --> 0:05:12.479 explosion of interest, how do you build that sort of 0:05:12.520 --> 0:05:15.800 team that understands all of the dimensions so that you 0:05:15.839 --> 0:05:17.880 could provide that one stop shop service. 0:05:18.000 --> 0:05:20.719 Yeah, so it's a really good question. And you know, 0:05:20.800 --> 0:05:22.720 I always go back to the expression there's nothing new 0:05:22.800 --> 0:05:25.479 under the sun. When you actually think about what we're doing. 0:05:25.880 --> 0:05:29.160 You're building a power project, you're building out a data center, 0:05:29.279 --> 0:05:31.400 the powered shell or the powered land or the like. 0:05:31.839 --> 0:05:33.400 People have been doing that before. 0:05:33.520 --> 0:05:35.600 When you're financing these we're actually using a lot of 0:05:35.640 --> 0:05:38.960 the same financing structures. It may not be exactly the same, 0:05:39.000 --> 0:05:42.400 but it rhymes. So ten twenty years ago we were 0:05:42.400 --> 0:05:46.520 doing whole business securitizations of cell towers, that same securitization 0:05:46.680 --> 0:05:50.880 technology you moved forward to residential solar, and now you're 0:05:50.920 --> 0:05:55.000 moving that same thing forward to CNBS and ABS of 0:05:55.040 --> 0:05:57.960 the data centers. So they're very similar. The rating agencies 0:05:57.960 --> 0:06:00.839 are very familiar with these things. You have to look 0:06:00.880 --> 0:06:03.800 at a few different variables and understand them slightly differently, 0:06:03.839 --> 0:06:09.160 but particularly energy infrastructure and telecom infrastructure. Those are two 0:06:09.200 --> 0:06:11.159 things that we've been doing for decades. 0:06:11.520 --> 0:06:14.760 Oh, walk us through the differences then between say, you 0:06:14.760 --> 0:06:17.359 know a cell tower ABS or I don't know, a 0:06:17.400 --> 0:06:21.040 solar power ABS versus a data center ABS or CMBs. 0:06:21.279 --> 0:06:24.080 Sure, so a cell tower ABS. Really when you're looking 0:06:24.080 --> 0:06:27.080 at that, you just have the tower. It's on land. 0:06:27.120 --> 0:06:29.320 You may have somebody that's coming along in order to 0:06:29.320 --> 0:06:32.640 mow the lawn around it, but they don't have much 0:06:32.760 --> 0:06:35.320 in terms of the actual equipment that's on top of 0:06:35.360 --> 0:06:38.920 the cell tower. When you have a residential solar securitization, 0:06:39.400 --> 0:06:42.279 you put the solar panel on top of somebody's roof. 0:06:42.640 --> 0:06:45.719 You're contracting the cash flows off of that. Again, on 0:06:45.800 --> 0:06:49.400 the cell tower, you're contracting the cash flows off of that. 0:06:49.520 --> 0:06:51.800 You pull those together and then you put a bond 0:06:51.880 --> 0:06:55.280 on top of it. With a data center securitization, what 0:06:55.320 --> 0:06:58.200 you're doing there is you have the cash flow from 0:06:58.720 --> 0:07:01.200 the data center lease. You have the cash flow from 0:07:01.520 --> 0:07:03.480 other aspects of the business that may be going along 0:07:03.520 --> 0:07:05.320 with that, like related to the power and some of 0:07:05.320 --> 0:07:06.760 the additional services. 0:07:07.240 --> 0:07:09.840 You pool those. You have long term contracted. 0:07:09.360 --> 0:07:11.880 Cash flows, and then a rating agency can rate those 0:07:11.920 --> 0:07:14.120 as well. But at the end of the day, you're 0:07:14.160 --> 0:07:16.720 trying to make sure that you have a special purpose 0:07:16.800 --> 0:07:19.680 vehicle that has all the assets that it needs within it. 0:07:20.160 --> 0:07:23.240 You have an separate entity that's handling the billing and 0:07:23.280 --> 0:07:26.880 the collection, an entity that's handling the operation and maintenance 0:07:27.320 --> 0:07:30.520 of the asset, and that's supposed to be a standalone 0:07:30.680 --> 0:07:33.920 product that can move at least the five to seven 0:07:34.080 --> 0:07:37.440 years until you get to the anticipated payment date, and 0:07:37.920 --> 0:07:41.520 often it's about a thirty year rated final maturity. 0:07:42.160 --> 0:07:44.360 So I have a question, and it's come up a 0:07:44.360 --> 0:07:47.400 couple times on previous podcasts, but you mentioned, you know, 0:07:47.480 --> 0:07:50.640 having a special purpose vehicle for this. Sure, Why does 0:07:50.680 --> 0:07:54.480 it seem that so many big tech companies who are 0:07:54.480 --> 0:07:57.280 in the AI space, who are presumably very, very cash 0:07:57.400 --> 0:08:00.960 rich and profitable, why are so many of them financing 0:08:01.280 --> 0:08:02.239 off balance sheet? 0:08:02.840 --> 0:08:05.160 They have better things to do with their money, so 0:08:05.440 --> 0:08:09.280 the return on their invested capital is much better on 0:08:09.320 --> 0:08:12.480 the tech side than it is on the infrastructure side. 0:08:12.720 --> 0:08:17.280 Infrastructure is usually low margins, but the benefit with that 0:08:17.480 --> 0:08:23.559 is it's long term, reliable, understood assets, such as again, 0:08:23.600 --> 0:08:26.560 if you're doing a large energy project, or even the 0:08:26.600 --> 0:08:30.360 poweredshell itself. It's land, it's a building, it's got the 0:08:30.360 --> 0:08:33.720 fiber connection, it's got the power connection, and that's something 0:08:33.720 --> 0:08:36.680 that can continue over a long period of time, Whereas 0:08:36.720 --> 0:08:39.280 on the tech side, they make a lot more money 0:08:39.280 --> 0:08:41.000 and have much greater margins, as we all. 0:08:40.920 --> 0:08:44.000 Know, right, So this aspect of the business, which could 0:08:44.000 --> 0:08:48.480 be very profitable, but it's stable, it's very predictable. It's like, 0:08:48.559 --> 0:08:52.440 let's outsource this, Let's have some other entity house that risk. 0:08:52.679 --> 0:08:55.360 What are the risks in data center finance when you 0:08:55.360 --> 0:08:57.200 think about the other side and not the tech companies, 0:08:57.240 --> 0:08:59.720 but the lenders to the SPV and we'll talk about 0:08:59.720 --> 0:09:02.959 thefferent structures that the credit form can take. What are 0:09:03.040 --> 0:09:05.480 the risks? You know, it's a fairly stable, long term thing, 0:09:05.559 --> 0:09:06.960 but how can things go wrong? 0:09:07.440 --> 0:09:10.000 So it depends on what exactly you're financing, right, So, 0:09:10.040 --> 0:09:13.560 in a securitization and ABS, what you're doing is you 0:09:13.600 --> 0:09:17.520 are financing the business of this PowerShell or turnkey solution. 0:09:18.160 --> 0:09:21.840 The tenant quality is very important. Do I have somebody 0:09:21.880 --> 0:09:26.079 that has the investment grade tenant quality or diversified pool 0:09:26.120 --> 0:09:29.240 of high credit quality tenants who can actually be clear? 0:09:29.320 --> 0:09:33.240 You're securitizing the cash flows from the data center leases, right, yeah? 0:09:33.280 --> 0:09:34.000 So exactly. 0:09:34.080 --> 0:09:38.240 So on an ABS, it's a focus on the business 0:09:38.480 --> 0:09:42.800 of this data center. The actual lease is in the securitization, 0:09:43.240 --> 0:09:45.600 and then that the hard assets are in there as well, 0:09:45.920 --> 0:09:49.240 and a CMBs you have the lease as well, but 0:09:49.280 --> 0:09:51.760 it's more focused on the mortgage. And then we have 0:09:51.800 --> 0:09:52.600 credit tenant. 0:09:52.440 --> 0:09:55.240 Leases as well, which are kind of directly to the tenant. 0:09:55.280 --> 0:09:56.200 That's useful, thank you. 0:09:56.720 --> 0:10:00.960 So risk associated with securitization are usually focus on the 0:10:01.040 --> 0:10:04.199 tenant quality. They're focus on the term of the lease. 0:10:04.559 --> 0:10:06.320 How long is the lease if you have a ten 0:10:06.440 --> 0:10:09.240 or fifteen year lease. If you have a shorter term lease, 0:10:09.520 --> 0:10:11.800 you're going to look a little bit more at well, 0:10:12.480 --> 0:10:14.480 is this something that's going to need to be released 0:10:14.760 --> 0:10:18.040 in that timeframe? What is the rate on the lease? 0:10:18.160 --> 0:10:20.600 If it's a below market lease, it's much less likely 0:10:20.640 --> 0:10:22.520 that somebody is going to want to get a new 0:10:22.600 --> 0:10:26.760 lease and leave you. And then the facility itself. Is 0:10:26.760 --> 0:10:30.120 the facility going to be able to withstand kind of 0:10:30.160 --> 0:10:32.320 technology risk over a long period of time? 0:10:32.600 --> 0:10:35.280 So how are people structuring the deals at the moment 0:10:35.520 --> 0:10:38.959 to compensate for that risk? So you have the time mismatch, 0:10:39.040 --> 0:10:43.160 you have maybe tenancy rollover risk as well. Are people 0:10:43.200 --> 0:10:46.800 like adding extra credit protection or how are they making 0:10:46.840 --> 0:10:48.400 these palatable to investors? 0:10:48.880 --> 0:10:50.079 So one is. 0:10:50.080 --> 0:10:54.040 The loan to value your advance rate. So typically if 0:10:54.040 --> 0:10:57.240 you're looking for something that's an investment grade securitization, you're 0:10:57.280 --> 0:11:01.040 going to have it around forty to fifty percent. The 0:11:01.160 --> 0:11:04.959 structure of the bond itself will have a rated final 0:11:05.000 --> 0:11:08.000 maturity that's much further out than the lease, maybe twenty 0:11:08.000 --> 0:11:12.520 five thirty years, but you're anticipating that the full principal 0:11:12.520 --> 0:11:14.400 amount of the bond would be able to be repaid 0:11:14.600 --> 0:11:18.120 within five to seven years. But the lease itself is 0:11:18.160 --> 0:11:21.000 a ten year lease or a fifteen year lease, and 0:11:21.040 --> 0:11:23.960 then that can get reapt for another ten years on 0:11:24.000 --> 0:11:27.720 top of that. So when you're looking at your cash flows, 0:11:28.040 --> 0:11:32.680 the cash flows are going to support your ard prior 0:11:32.760 --> 0:11:36.640 to even worrying wait aird the anticipated repayment date of 0:11:36.679 --> 0:11:39.600 the bond, prior to even worrying about your release. 0:11:40.000 --> 0:11:42.640 So one of the things that sort of like people 0:11:42.679 --> 0:11:46.160 tweet about and people even write about, including us, that 0:11:46.280 --> 0:11:49.720 we've talked about even this whole thing about GPU life 0:11:49.760 --> 0:11:52.839 and some of these questions regarding the long term value 0:11:52.880 --> 0:11:56.240 of the assets, and people like you know, like to claim, oh, 0:11:56.320 --> 0:11:58.280 they're not as going to be as valuable long term 0:11:58.320 --> 0:12:00.920 as people think. Does this come up in your work 0:12:01.000 --> 0:12:02.600 and what's really going on? 0:12:03.160 --> 0:12:06.320 Sure, So it depends on what the financing structure is 0:12:06.400 --> 0:12:10.120 that you're using. So the GPU life itself is more 0:12:10.240 --> 0:12:14.440 question on a private credit story or an equity. On 0:12:14.480 --> 0:12:17.959 the securitization side, they're more focused on the turnkey data 0:12:17.960 --> 0:12:21.480 center itself. The useful life comes up a lot when 0:12:21.520 --> 0:12:23.960 you're doing the accounting, and that rolls through to the 0:12:24.000 --> 0:12:26.280 earnings per share of these public companies. 0:12:26.679 --> 0:12:28.679 You've got a useful life of a. 0:12:28.640 --> 0:12:31.760 Few years ago, it was three years for these GPUs. 0:12:32.200 --> 0:12:34.959 Now some of them are using six years. If you're 0:12:34.960 --> 0:12:38.640 doing straight line amortization over three years taken about a 0:12:38.640 --> 0:12:41.840 third off over six years, it's obviously less than that, 0:12:42.160 --> 0:12:45.400 and so you have much less amortization depreciation expense on it. 0:12:45.720 --> 0:12:47.320 That helps your ranks for sure. 0:13:03.320 --> 0:13:06.240 What's your impression of how private credit lenders have been 0:13:06.280 --> 0:13:10.400 handling the GPU aging problem so far, Like, are they 0:13:10.440 --> 0:13:13.040 conscious of it or are people still kind of basing 0:13:13.080 --> 0:13:16.880 a lot of their expected cash flows off of GPUs 0:13:16.920 --> 0:13:19.480 that last, you know, longer because they were previously being 0:13:19.559 --> 0:13:21.559 used in cloud computing or something like that. 0:13:21.760 --> 0:13:25.160 Yeah, so they're very aware of it, particularly because if 0:13:25.240 --> 0:13:27.880 you look at the new in video had the H 0:13:27.960 --> 0:13:30.200 one hundreds and the H two hundreds that had come out. 0:13:30.640 --> 0:13:33.920 Then it was the Blackwell the B one hundreds two hundreds, 0:13:34.120 --> 0:13:36.600 and now Reuben's going to come after that, right, So 0:13:36.760 --> 0:13:40.720 every two to three years you have these new chipsets 0:13:41.040 --> 0:13:43.920 and that it's almost like, do I want to be 0:13:44.280 --> 0:13:46.680 financing these laptops that you've got in front of me 0:13:46.800 --> 0:13:50.840 for six years or seven years? What's the replacement cycle 0:13:50.880 --> 0:13:52.760 on that? So when do I need to get repaid 0:13:53.200 --> 0:13:57.360 on my debt? The interesting part that comes into it 0:13:57.400 --> 0:14:00.839 is it's not just one laptop. We're talking about entire 0:14:00.920 --> 0:14:04.600 data centers full of these things, and that's in the 0:14:05.120 --> 0:14:08.120 tens hundreds of millions of dollars. So how are you 0:14:08.200 --> 0:14:12.080 actually going to get your cash flow back when maybe 0:14:12.080 --> 0:14:14.240 those aren't going to be used for training the same way. 0:14:14.880 --> 0:14:18.480 The reality though, is the useful life of these and 0:14:18.520 --> 0:14:23.240 the economic life is not just that initial usage. 0:14:23.280 --> 0:14:25.040 You can use it for other things. 0:14:25.120 --> 0:14:28.960 So starting out with training, needing to get trained done 0:14:28.960 --> 0:14:32.040 as quickly as possible. If the data center is well 0:14:32.080 --> 0:14:36.760 located in Virginia or another Tier one location, maybe there's 0:14:36.880 --> 0:14:40.440 inference if it's close to a city or other location. 0:14:40.960 --> 0:14:44.960 And then for the CPUs data centers that have those, 0:14:45.040 --> 0:14:48.200 you can use them for compute and analytics and other 0:14:48.840 --> 0:14:51.840 technologies and use cases that maybe that one what you 0:14:51.960 --> 0:14:55.160 originally underwrote, but you knew that that was coming down 0:14:55.200 --> 0:14:55.680 the line. 0:14:56.000 --> 0:14:58.680 Since you mentioned Virginia, can you talk about where we 0:14:58.720 --> 0:15:02.200 are in twenty twenty five with data center siting and 0:15:02.360 --> 0:15:06.120 picking locations. So I know that there's tons around northern Virginia, 0:15:06.520 --> 0:15:08.480 and I know that there's some huge projects in the 0:15:08.480 --> 0:15:10.800 middle of nowhere in Texas where they're not going to 0:15:10.800 --> 0:15:13.840 offend any neighbors or whatever, etc. But what are the 0:15:13.920 --> 0:15:17.120 big themes that companies are thinking about right now when 0:15:17.120 --> 0:15:18.440 they think about location. 0:15:18.840 --> 0:15:21.760 Yeah. So one of the great things about Virginia is 0:15:22.280 --> 0:15:26.080 connectivity to the subse cables, so getting to Europe, getting 0:15:26.120 --> 0:15:29.480 to Africa, getting to other locations and the rest of 0:15:29.520 --> 0:15:33.600 the United States. There's a great regulatory environment there in 0:15:33.680 --> 0:15:37.960 terms of power, in terms of actually building out the 0:15:38.040 --> 0:15:41.240 infrastructure there and other data centers so that you can 0:15:41.360 --> 0:15:44.000 have I hate to use the word co located, but 0:15:44.480 --> 0:15:48.080 connectivity within other data centers makes it very attractive. The 0:15:48.160 --> 0:15:52.240 problem is it's saturated. It's a very saturated market. And 0:15:52.320 --> 0:15:55.480 so if you want to build that next large giant 0:15:55.560 --> 0:15:59.240 data center and you need power, or you need water, 0:15:59.440 --> 0:16:01.960 or you need other parts of the infrastructure, and you 0:16:02.000 --> 0:16:04.720 need to do it quickly, You're often going to look elsewhere. 0:16:04.920 --> 0:16:06.960 That's one of the reasons that Texas and ur God 0:16:07.000 --> 0:16:08.080 have become so attractive. 0:16:08.400 --> 0:16:08.640 Yeah. 0:16:08.640 --> 0:16:10.880 So one of the things we hear constantly is that 0:16:11.120 --> 0:16:14.040 chips and financing are not necessarily the big choke points 0:16:14.080 --> 0:16:16.960 for doing this. It's more the power. And I guess 0:16:17.000 --> 0:16:19.680 I'm curious, is it really a power shortage problem or 0:16:19.720 --> 0:16:22.960 is it more the distribution of power is not in 0:16:23.000 --> 0:16:25.800 the places where these data centers you know, want to 0:16:25.840 --> 0:16:29.440 be because of convenience, like colocation. It's you can say 0:16:29.480 --> 0:16:30.160 both as well. 0:16:30.480 --> 0:16:33.800 Yeah, it definitely is both. I will say though that 0:16:33.880 --> 0:16:38.440 with power its interconnection. It's getting that actual permission both 0:16:38.560 --> 0:16:42.120 for the load, so the data center itself is drawing 0:16:42.160 --> 0:16:45.400 power from the grid and for the generation and those 0:16:45.400 --> 0:16:49.280 are two separate interconnections on these larger facilities that you're 0:16:49.320 --> 0:16:52.520 going to be getting at relatively the same time. And 0:16:52.560 --> 0:16:54.800 if you can't have both, then you're probably not going 0:16:54.840 --> 0:16:58.080 to be able to support such a large facility. So 0:16:59.120 --> 0:17:02.640 on the generationation side, if you're trying to get interconnection, 0:17:03.400 --> 0:17:07.200 you go through a long process potentially with FURK and 0:17:07.280 --> 0:17:10.320 with your ISO or rto you know, ERCOT if you're 0:17:10.359 --> 0:17:14.760 in Texas to do typically at this scale, like the 0:17:14.920 --> 0:17:18.879 large data center scale, like a five year process in 0:17:19.040 --> 0:17:23.000 order to get that generation approved and interconnected, and. 0:17:22.920 --> 0:17:25.639 It's that's just the approval five years and then you 0:17:25.680 --> 0:17:27.200 have to actually do the connection. 0:17:27.359 --> 0:17:28.399 Yeah, and then you got to build it. 0:17:28.440 --> 0:17:28.800 Wow. 0:17:29.320 --> 0:17:31.960 The fun part about that is that timeline. A lot 0:17:32.000 --> 0:17:34.000 of people walk in and they think, oh, I've heard 0:17:34.000 --> 0:17:36.720 that it's going to be eighteen to thirty six months 0:17:36.760 --> 0:17:39.440 in order for me to get this done. And then 0:17:39.680 --> 0:17:41.800 a month or two goes by and they get a 0:17:41.840 --> 0:17:44.000 new date and it's been pushed out. And then a 0:17:44.000 --> 0:17:46.280 few months go by and they get a new date 0:17:46.400 --> 0:17:49.080 and it's been pushed out. And one of the analogies 0:17:49.080 --> 0:17:51.000 we use is like you're waiting in the airport to 0:17:51.040 --> 0:17:52.120 get on the plane. 0:17:52.280 --> 0:17:55.840 And they call I fly United all the time. 0:17:55.840 --> 0:17:59.439 They're like, oh, it's Global Services, okay, Global services, go forward, 0:17:59.760 --> 0:18:03.639 and now armed services okay, armed services and people with 0:18:03.680 --> 0:18:06.600 young children, and you just you realize that that first 0:18:06.600 --> 0:18:10.080 class ticket that has you know, boarding group one, doesn't 0:18:10.160 --> 0:18:11.880 mean that you're getting on first. 0:18:11.680 --> 0:18:13.080 Well, you all get there at the same time. 0:18:13.080 --> 0:18:13.520 At least. 0:18:13.520 --> 0:18:15.000 This is how I cause you know, I don't like 0:18:15.040 --> 0:18:16.399 waiting there either, but I was like, you know what 0:18:16.440 --> 0:18:18.480 I'm getting. I'm going to arrive at the destination the 0:18:18.480 --> 0:18:21.400 same as all these people with children everything, So that's 0:18:21.400 --> 0:18:24.080 hot anyway. You know, there was a story recently Core 0:18:24.160 --> 0:18:26.600 we have one of the big neocloud companies sort of 0:18:26.600 --> 0:18:30.920 lowered a growth forecast because of delay and the third 0:18:31.119 --> 0:18:33.760 party data center project, which is exactly sort of what 0:18:33.800 --> 0:18:35.960 you're talking about these things. How does that affect the 0:18:36.000 --> 0:18:40.480 financing this uncertainty of when you can actually plug these 0:18:40.480 --> 0:18:43.200 things in or when they're going to get approved, because 0:18:43.720 --> 0:18:46.360 that sounds very frustrating and time is money, and so 0:18:46.400 --> 0:18:48.840 how does that interact with the credit component? 0:18:49.080 --> 0:18:51.919 Yeah, so you kind of have three categories in the 0:18:51.960 --> 0:18:55.680 timeline of one of these projects. You have your development 0:18:55.760 --> 0:19:00.080 capital that's often equity funded. You have your construction but 0:19:00.160 --> 0:19:02.680 also you get a big construction loan once you've got 0:19:02.680 --> 0:19:06.440 your permits and your power, and then after that's been completed, 0:19:06.920 --> 0:19:10.680 then you do your takeout finance. Okay, that maybe the securitization. 0:19:10.040 --> 0:19:10.480 And the like. 0:19:10.920 --> 0:19:14.720 Has the regulatory I guess political environment does it feel 0:19:14.760 --> 0:19:17.040 like it's significantly changed in the last six months, So 0:19:17.080 --> 0:19:19.400 you talk about like, you know, very few people were 0:19:19.440 --> 0:19:22.840 talking about water. My impression is that the water component 0:19:22.880 --> 0:19:25.399 specifically is very overrated based I think, except right, But 0:19:25.920 --> 0:19:28.159 it obviously is a matter. But you know, the public 0:19:28.240 --> 0:19:31.040 is really concerned about water. The public is clearly concerned 0:19:31.040 --> 0:19:33.959 about electricity prices. People are showing up to town halls 0:19:34.000 --> 0:19:37.080 to protest or to voice their opposition to new data 0:19:37.080 --> 0:19:39.679 center projects in the areas where they live. Does it 0:19:39.720 --> 0:19:42.960 feel like the environment today when we're talking in December 0:19:42.960 --> 0:19:45.320 twenty twenty five, is meaningfully different than it was at 0:19:45.320 --> 0:19:47.800 the start of the year in terms of public awareness 0:19:47.840 --> 0:19:48.479 of all this stuff. 0:19:48.560 --> 0:19:53.040 So politically, absolutely right. I think that the community organizers, 0:19:53.080 --> 0:19:55.760 and there are a lot of organizations that kind of 0:19:55.840 --> 0:19:58.879 make their money based on outrage around these types of things, 0:19:59.160 --> 0:20:00.880 they've realized that this this is a great. 0:20:00.720 --> 0:20:01.760 Opportunity for them. 0:20:01.800 --> 0:20:04.560 And if you look at the sustainability reports of a 0:20:04.560 --> 0:20:08.080 lot of the hyperscalers and others, they talk about being 0:20:08.160 --> 0:20:11.160 water positive. It doesn't mean that they're just happy about water. 0:20:11.480 --> 0:20:13.800