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Credit, real estate managers keeping close eye on supply chain

Russia’s invasion of Ukraine is expected to exacerbate supply chain disruptions that could make investments in everything from real estate to private credit riskier and pricier.

Supply chain reliability is a risk now because there is a fair amount of metals coming out of Russia, said Gerald Chew, Houston-based managing principal and private markets consultants for Meketa Investment Group.

In light of strong aspirations from companies and governments to transition toward renewable energy, electric vehicles and batteries, it is important to build resilient supply chains that are less impacted by global disruptions, Mr. Chew said. Examples of metals from Russia include titanium and rare earth minerals.

There is an investment opportunity as companies that use these metals to develop domestic capabilities in mining, refining and processing the metals, he said.

Supply chain issues involving the export and import of grain are also likely to arise from the war in Ukraine, a leading grain exporter, Mr. Chew said. But this could create opportunties as well as risks, he added.

“The U.S. is a large exporter of grain,” Mr. Chew said. “With some of the supply issues likely to come out of Ukraine, the U.S. may be positioned well for grain exports for the rest of the world.”

Private credit and real estate managers are keeping their eyes on risks from supply chain disruptions.

“Even before the Russian invasion of Ukraine, we were closely monitoring supply chain issues with our borrowers and rising commodities prices,” said Theodore L. Koenig, Chicago-based chairman and CEO of private credit manager Monroe Capital LLC, in an email.

Monroe has added pricing of raw materials and commodity products to its matrix of key portfolio management reviewed items used to assess a possible investment, along with other measures such as revenues, expenses and gross margin.

“Supply chain was a 2021 priority, and now with the invasion of Ukraine, it is likely to exacerbate an already difficult situation,” said Mr. Koenig, the son of a Holocaust survivor who publicly has taken a stand against Russia’s invasion of Ukraine.

Jon Pharris, Newport Beach, Calif.-based co-founder and president of industrial real estate manager CapRock Partners, expects further supply chain issues to erupt from the war in Ukraine.

“It’s incredibly difficult to say what is going to occur because of the conflict” in Ukraine, Mr. Pharris said. The firm has a value-add real estate strategy as well as an industrial development strategies. Even so, the war could “serve as a way to continue to create supply chain issues” he said.

Supply chain problems would not have a significant impact on CapRock’s value-added business except for investments that involve renovating buildings like lumber, he said.

Russia is the world’s largest lumber exporter and the seventh biggest exporter of forest products, mostly softwood lumber and paper products, according to Wood Resource Quarterly. In 2021, Russia exported forest products valued at more than $12 billion.

Supply chain issues would have a very significant impact on the development side of its business by making construction time longer and costlier, Mr. Pharris said.

“The lead time to order materials for construction has been earlier and earlier in order to maintain construction schedules,” and further supply chain disruptions would make the necessary lead time longer, he said.

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