The residential real estate market is in a slump and commercial assets are not faring much better, but major firms are already repositioning themselves for the normal cyclical resurgence within the next year, said a panel of industry experts.

Speaking at The Business Ledger’s third Newsmakers’ Forum at the Q Center in St. Charles, the five panelists discussed real estate and construction trends.

“The residential real estate market is nonexistent,” said Anthony Cosaccio, president of Inland Real Estate Development, LLC. “There is an excess of inventory and we won’t see building until the spring of ’08.”

Michael Schulte, commercial real estate relationship manager for Harris, has seen a reduction in residential projects as well.

“A lot of our developers are pushing off residential projects until next year,” said Schulte.

Inland’s Cosaccio said that right now most firms are busy acquiring land to meet this expected rush in “green” areas, or locations that have not seen any prior development.

In a reaction to the underperforming residential market, the commercial market has slowed down as well, he said.

“A lot of retailers have land, but they say the area is too new to develop in,” Cosaccio said. “Unless you give them a super deal, they would rather hold off and wait for the housing market to come back with more development.”

Developers are still waiting to sell their existing family units before more building can begin in the commercial or residential market, said Jerry Lopatka, managing principal of Dugan & Lopatka.

“The commercial market is soft right now, especially in the collar counties,” said Lopatka. “Home builders are still trying to sell their existing units.”

But Lopatka did note that the tear-down market can be lucrative for builders “if they know the business.”

Randy Lindenberg, vice president, project development for FCL Builders, Inc., said that the best market right now is for mixed-use residential and commercial structures that market to baby boomers moving away from the single-family home.

However, one of the main obstacles facing the construction industry is materials costs, said Lindenberg.

“One of the main challenges right now is material costs,” said Lindenberg. “The cost of steel and oil-based products has really impacted the industry.”

With a lack of activity in the development industry, many deals are falling through at the last minute as businesses, particularly public firms, are a bit timid in entering the market.

“A lot of businesses like to hold land, but public companies don’t usually like to,” said Lopatka. “I’ve seen companies pull out of $15 million deals recently.”

However, compared to past markets, rates are still favorable, said Harris’s Schulte.

“Rates are still pretty good,” said Schulte. “They are not what we have been used to the last five years, but they are still good. We don’t have great factors in the market right now, but rates are good.”

While rates still may be good, that has not stopped developers from shopping around to find the slightest edge when entering today’s market.

“Rates are competitive, but clients are shopping around and people will jump ship for as little as half a point,” said Colleen Healy, a partner with Clingen, Callow and McLean in Wheaton.

Healy also stressed the importance of adhering to tight construction schedules to keep costs down. Many deals become more expensive because companies do not complete the contracted work in the originally agreed upon time.

“Negotiations after the contract is signed often end up costing companies a lot more,” said Healy. “Many companies ask for more time to complete jobs. Urge clients to stick to the terms of the original deal and it will help to avoid additional costs.”

It is also a smart move for property management firms to become a limited liability company in order to spread out risk among the numerous properties, she said.

Office condos are another way for some companies to build equity. Many old office buildings are being converted to office condos and, with a new wave of construction poised to begin in a year, options should increase even more.

While office condos are a case-by-case analysis, many business owners have seen value in purchasing an office, rather than renting.

“We are at an office condo in downtown Wheaton and that has turned out to be one of our best investments,” said Lopatka. “We have seen a 100 percent increase in our property value over 23 years. We were way better off investing.”

However, Harris’s Schulte pointed out that, for some businesses, reinvesting into the company’s production would be a wiser move than acquiring real estate.

Office condos could be a solid investment for established firms, but start-ups and young companies may want to invest in the business first.

The hot areas for development are out west in Kane, Kendall and Will counties, but even that is subject to change as towns change opinions about development with elections and new political agendas.

“Some areas that were aggressive have changed their stance,” said Inland’s Cosaccio. “Elections have made it so they stop current growth. Politics change things and it is a constant evolution.”

Cosaccio did not name any specific communities that have become anti-development and acknowledged that there is still great interest in the majority of far west and southwest communities concerning development.

And while the majority of new development will take place further west, there are still pockets in DuPage County that will see increased development in the next few years that will be an economic boon to the area.

“The DuPage Tech Park is slow and coming, but we will see a lot of activity there in the next 24 months and that will be a very impressive addition to the area,” said FCL’s Lindenberg.

The Newsmakers’ Forum was sponsored by Clingen Callow & McLean, Dugan & Lopatka, FCL Builders and Harris.