THE DISTILLERY: US restoration

The US commercial property market took an enormous body blow during the global financial crisis from which it is still recovering. But it is recovering, writes The Age’s Adele Ferguson after speaking to former Centro boss Glenn Rufrano, who has a bird’s eye view of the sector. Closer to home, the same newspaper’s Tim Colebatch has thrown his support behind Ted Baillieu for lining up the enormous wage inflation in the construction industry that is pricing Victoria out of crucial apartment developments and infrastructure upgrades. Also this morning, one commentator says M2 had a seasoned M&A player overseeing the Primus Australia purchase, while another finds cost cuts at Paladin Energy backfiring.

Firstly, however, The Age’s Adele Ferguson speaks to former Centro chief executive Glenn Rufrano, now boss of commercial property and real estate services firm Cushman & Wakefield, about the outlook of the US commercial property market. Rufrano reveals that private equity is playing a big role in the sector.

"Property is at an interesting inflexion point in the skittish global recovery. According to the latest figures from Cushman and Wakefield, if there was any doubt that global real estate was climbing out of the abyss of the global financial crisis, just look at the figures. Global commercial sales – including office, retail, industrial and commercial property – reached $US808 billion in 2011, with the Asia-Pacific region accounting for nearly half that, Europe recovering to 2006 transaction levels and the US reaching $US200 billion. It is still a far cry from the global pre-GFC peak of $US1.2 trillion – and the situation in Europe is still fragile – but it is a long way from the dark days of 2009 when global commercial sales hit $US398 billion. Sitting in his office in New York's Avenue of the Americas, Rufrano is in the box seat to get a feel for the commercial property market.”

The Age’s economics editor Tim Colebatch says Ted Baillieu should be congratulated for targeting the extraordinary wage inflation in the construction industry. Victoria, Colebatch argues, is going to need a lot more infrastructure to facilitate the next few decades and at the moment tradie wages are putting much of it out of reach.

"No one pretends that there is only one problem to fix. But one problem must be fixed if infrastructure and medium-rise housing are to be affordable. The culture of Victorian building sites must become productive – and not, as at Wonthaggi, one of extorting wages and perks that are out of line with those of the workers who pay the bill. Construction consultants Napier and Blakeley report that on building sites general labourers cost $75 an hour – including overheads – and high-value tradesmen $85 an hour. They work 36-hour weeks, receive 26 rostered days off on top of normal leave, and when it's wet or hot, they walk off on full pay. And they've just won a pay rise of 27 per cent over four years – with no trade-off to lift productivity.”

The Australian Financial Review’s Chanticleer columnist Michael Smith acknowledges the rumblings that M2 has overpaid for Primus Australia in a desperate bid to remain relevant in a scaled-up NBN world.

"Despite this, M2’s founder and chief operating officer, Vaughan Bowen, has a strong track record of successful mergers and acquisitions. New chief executive Geoff Horth was in the driving seat for this deal but Bowen was still heavily involved, leading the commercial elements. Both have been instrumental in driving a wholesale strategy that has delivered strong returns for shareholders. Horth, who joined M2 to lead the integration of the People Telecom business in 2009, likes to use the expression getting ‘match fit’ as he prepares the company for the NBN, or whatever survives from that proposal if the opposition wins the next federal election.”

And, The Age’s Peter Ker says Paladin Energy has brought itself undone through cost-cutting.

"Paladin Energy's aggressive cost-cutting campaign has backfired, after a switch to cheaper chemicals hampered production at one of the company's key uranium mines. Despite delivering more uranium oxide than ever before, production at Paladin's Kayelekera mine in Malawi suffered a 6 per cent setback after a new chemical reagent performed badly. The failure was one of several setbacks across Paladin's two mines that ensured the company missed its production target for the three months to March, and reinforced its reputation for missing targets.”

There’s a lot of company news around in this morning’s business commentaries. The Age’s Eric Johnston says ANZ Bank is battling the perception that its existing mortgage holders are being tapped to subsidise its next generation of customers.

In resources, The Australian Financial Review’s Matthew Stevens runs through some of the conspiracy theories floating around about Elena Egorova, the mysterious Russian citizen that has brought the takeover of Flinders Mines by Magnitogorsk Iron and Steel to an apparent standstill. Fairfax’s Insider columnist Ian McIlwraith reports that TRUenergy has begun registering sparkling new logos in anticipation of its rebranding for the planned $3 billion float later this year. Such confidence will be music to the market’s ears.

The Australian’s John Durie says M2 could become a niche player in a post-NBN world dominated by a handful of major movers, while the same newspaper’s Tim Boreham takes a look at M2, as well as Castlemaine Gold, Lynas and Prima Biomed in his Criterion column.

Elsewhere, The Sydney Morning Herald’s Michael Pascoe argues that the arguments against the construction of a second Sydney airport are precisely backwards. And the same paper’s Ian Verrender delivers another attack on claims by the banking industry that higher funding costs are forcing higher interest rates.