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Supply chains normalising, but labour still problematic for private debt purveyors
Private lenders are still dealing with the after-effects of the pandemic and the damage it caused to supply chains in the building industry, but labour supply remains the key issue, according to Phil Green, founding partner at multi-strategy investment manager Alceon.
Green, whose group invests in lending across real estate, private equity, credit and liquid strategies across Australia, said many of the supply chain issues have been alleviated in the last year as restrictions have eased in the wake of the pandemic, making construction on major projects significantly easier than it was in the preceding two years.
Broader economic problems in the Australian labour market, however, and specifically in construction, still persist.
“I don’t think the labor market’s normalised,” Green (pictured) told the audience during a fireside chat at The Inside Network’s Alternatives Symposium in Melbourne.
“Generally, the supply chain is improving, there’s no doubt about that. And some of the costs are going down or flatten have leveled out,” he said. “But I think availability of skilled labor is still a big issue.”
The pandemic’s broad effects still linger across the major construction projects that private equity players deal in, Green said, with a significant time lag embedded across the sector.
“Development timeframes [have] been the big change post-COVID,” he explained. “I don’t think there’s a development that we’ve seen that’s not taking at least six months longer than what was originally contemplated.”
Timeframes have “blown out” from 18 months up to 30 months, Green revealed, which is pushing backers like Alceon to change the direction of projects they back.
“If it’s a construction of a multilevel apartment building, then the builder’s capacity to deliver is critical. That’s why in the last two years, we’ve done a lot more land subdivision than we’ve done high rise; construction risk is much lower,” he said.
While difficulties in the labour market are a leading factor in this, he said, and supply chain issues do still exist, a more frustrating contributor to development timeframes is the lack of expeditiousness in getting statutory approvals on projects.
“It’s just crazy,” Green said. “I mean, [the delay] is just inexcusable, in my view. It’s just ridiculous. Non-responsiveness, whether it’s people working from home or half as hard as they should be…”
Nevertheless, the investment stalwart sees the economy holding up well, and the market for private debt likely to provide fertile ground in the short to medium term.
“There’s bound to be some more disruption over the next 12 months or 18 months or maybe even two years… but I think I’m as surprised as Philip Lowe as to how resilient the economy is at the moment, and particularly in the residential market.”
