By: Paul Lundstedt, Vice Chairman of Capital Markets
Last week, Cushman & Wakefield Chicago hosted an event for our investor clients around Chicago’s Changing Tax Landscape at Morgan’s on Fulton. We were joined by Cook County’s new tax Assessor, Fritz Kaegi, who provided insight and answered questions from our audience of top investment decision makers from the office, industrial and multi-family sectors about the commercial property tax assessment system and its effect on the commercial real estate industry.
Assessor Kaegi took office in December of 2018 and has promised to provide more transparency to tax payers. He was critical of his predecessor for deviating from purchase prices and politicizing the process. Kaegi pledged to “mark to market” assets, allowing owners to review how their assessments were derived. As part of the triennial assessment process, the Northern Suburbs are being re-assessed this year, the South Suburbs next year and Chicago proper in 2021.
During our discussion, Kaegi responded to questions about the first detailed reports his office has released (North Market assessment snapshot here) and advised our audience of building owners and investors on their options as re-assessments are received.
Key takeaways from the event include:
- Methodology – Commercial properties are valued in “uniformity” of asset type, size, vintage, location and quality. Utilizing available market data (CoStar, Trepp, Brokerage Reports etc.) information is accumulated to determine appropriate rental rates, vacancy and expenses to derive a net operating income. A capitalization rate is then applied based upon sale comparable data and discussions with local brokers and appraisers.
- Reports – Residential and commercial assessment reports are available for each re-assessed township completed to date. Commercial data available in these reports includes assumptions on rent, expenses, vacancy and corresponding capitalization rates for each property type – all of which is useful in appeals.
- Final Tax Bill – A property’s tax bill is dependent on the property assessment, as well as the township tax rate, which is not set by the Assessor’s Office. The tax rate is purely a derivative of the township’s total tax levy (revenue) against the overall assessed value of the township. Often, the amount a tax levy can escalate annually is regulated. So, while your property assessment may go up, your final tax bill will be heavily influenced by the tax rate and ultimately the correlation of an asset’s percentage increase in assessment against the overall percentage increase for the township. Because taxes are paid in arrears, tax rates will not be published until mid-2020.
- Process of Appeal – Once you receive your tax assessment, you have 30 days to submit an appeal. Under Assessor Kaegi, the Cook County Assessor’s Office publicly posted its rules for appeal for the first time.
- New Tax Bill in Springfield – Kaegi has introduced a new tax bill that passed the Senate and is being reviewed in the House. It requires owners of income producing properties to submit income and expense data to the chief county assessment officer. The Bill specifically mandates confidentiality throughout the process, and only allows disclosure after data is anonymized and compiled at a market level. The purpose of the Bill is to provide better data to the Assessor and help alleviate future appeals. Participants were largely in favor of the Bill passing.
Overall, our event prompted a collaborative dialogue between the commercial real estate community and the Assessor’s Office. Participants were encouraged by Kaegi’s thoughtful analysis, transparent approach and his desire to work with the commercial real estate industry to further refine their assessment processes. His ultimate goal of providing clarity in the tax process is seen as a healthy step in allowing owners and investors a more dependable approach in analyzing real estate tax costs going forward.
For more information on Chicago’s Changing Tax Landscape, visit the Cook County Assessor’s Office website.
Paul Lundstedt joined Cushman & Wakefield in late 2018 as Vice Chairman. As part of the firm’s national Capital Markets practice, Paul specializes in serving institutional clients in Chicago and the greater Midwest region. Throughout his 35-year career, Paul has arranged the sale of more than $30 billion of investment real estate totaling nearly 200 million square feet.