Ever since Fritz Kaegi was installed as Cook County Assessor, commercial property owners across the county have readied themselves for crushing tax bills. A new report seems to suggest, however, that the hike in taxes may not be as painful as some feared.
The research, conducted by Cushman & Wakefield, cross-referenced the 2019 reassessed value for commercial properties in the north suburbs—the portion of the county first to receive new property valuations as part of a three-year assessment schedule—with actual sale prices. The results confirm what many expected: Kaegi valued office, multifamily, industrial and other commercial properties nearly 75 percent higher than did his predecessor, Joseph Berrios.
The Berrios administration was marked by allegations of corruption and cronyism. Investigations revealed that his office artificially devalued some residential and commercial properties in affluent areas. The result was lower property taxes for those owners, shifting the tax burden to poorer communities.
When Kaegi took office, he did so on a platform of transparency, promising to apply property values in a more fair and accurate manner. He also claimed that higher property values would be offset by lower effective tax rates and that owners wouldn’t be hit by outsized tax bills—an assurance met by skepticism among many in the commercial real estate industry.
The data compiled by Cushman & Wakefiled, however, seems to bear out these claims. The report focused on Evanston as a case study for how higher assessments will impact property taxes in other parts of Cook County. The results were surprising.
“With recent commercial property reassessments coming in very high, our clients are understandably concerned about how a dramatic increase in tax liabilities might affect the long-term value of their investment,” said Cushman & Wakefield vice chair Paul Lundstedt. “But as this guide shows, a higher assessed value doesn’t necessarily translate to a higher tax bill. In fact, because the tax rate is likely to fall as assessments go up, some buildings may not see any tax increase and perhaps a tax reduction.”
The report predicts a 2019/2020 tax rate in Evanston of 5.66 percent—well below the 9.41 percent actual rate that the northern suburb experienced in 2018. A property whose assessed value rose 66 percent between 2018 and 2019 would see no change in property taxes. If the assessed value doubled, taxes would increase by approximately 20 percent, while a 150 percent jump in assessed value would translate to a property tax increase of about 50 percent.
While a 50 percent increase is far below what one might expect from a meteoric property value increase of 150 percent, it’s still a hefty jump. And while Cook County taxes may repel some investors, many local real estate experts suggest that tax uncertainty is a more daunting factor.
“For the past several years, Chicago has been a favorite among investors because of its relative affordability compared with coastal markets, centralized location and deep talent pool, among other attributes,” Lundstedt said. “Yet uncertainty over property taxes has cast a shadow over the market in the eyes of some would-be buyers.”
As property owners in north Cook County speculate about their impending tax increase, it’s important to remember that assessments are just one variable in the property tax equation. The tax rate and levy are also critical, so landlords will have to wait until they receive the second installment of their property tax bills this summer.
As part of the three-year assessment cycle, the south and west suburbs will receive new property figures this year and new assessments will hit properties in Chicago in 2021. While taxes may rise for all of these areas—the increase may not be as elevated as many feared. More importantly, investors will no longer be held back by property tax ambiguity.
“The assessment increases may be unsettling now, but a more transparent assessment process bodes well for the market long term and will undoubtedly pull some investors off the sidelines,” said Lundstedt. “In fact, astute investors have sensed an overreaction to the issue and see it as an opportune time to invest in Chicago.”