This article was originally published June 16, 2014When Mesirow Financial Services – a Chicago company that manages millions of dollars in pension funds for the state of Illinois – and its partners wanted to fight the property taxes on their new skyscraper, they called the law offices of Illinois House Speaker Michael J. Madigan.
Madigan’s law firm saved the Mesirow group more than $1.7 million in real estate taxes by persuading Cook County officials to slash the value of the River North building by 60 percent soon after it opened nearly five years ago.
Mesirow no longer owns the building at 353 N. Clark that still serves as its headquarters. But the law firm of Madigan & Getzendanner has continued to save Mesirow money by getting the tax bills lowered for the building’s owner.
Madigan’s firm has gotten Cook County Assessor Joseph Berrios – chairman of the Cook County Democratic Party and a political ally of Madigan, the chairman of the Illinois Democratic Party – to slash the skyscraper’s value, arguing it hasn’t been particularly profitable, in part because of “generous rent abatements” Mesirow agreed to give its tenants, including Mesirow itself.
Over the past three years, Berrios’ assessment cuts have saved the building’s new owner, Tishman Speyer, nearly $15 million in real estate taxes that otherwise would have been passed on, which passes the tax bills on to Mesirow and other tenants, records show.
And another tax cut is on the way. Madigan got Berrios and the Cook County Board of Review to again slash the estimated value of the property early this year. The resulting tax savings won’t be determined until tax bills are calculated later this summer.
Madigan says it wasn’t a conflict of interest for his law firm to win the tax breaks for Mesirow – which has been paid more than $9 million over the past five years to manage state pension funds that now total more than $300 million and another $5.2 million for financial and insurance services to the Illinois State Toll Highway Authority and other state agencies.
The speaker also says he’s done nothing to help Mesirow – where his son Andrew Madigan is a company vice president – get state business. The speaker’s son started at Mesirow as an intern in 2008. Mesirow says he now works in “business development for all lines of insurance,” often involving suburbs including Blue Island, Burbank and Cicero.
Madigan’s six-lawyer firm specializes in getting property-tax cuts for Chicago skyscrapers, hotels, shopping malls, car dealers and many others. Mesirow is one of the few clients that has contracts with the state of Illinois.
Mesirow says Madigan’s firm didn’t represent the company itself but, instead, an affiliated entity, 351 Mortgage Loan Borrower LLC. That company – formed by Richard Stein, a Mesirow senior managing director, to build the skyscraper for Mesirow – has never gotten state business, Mesirow’s Deborah S. Kripes says.
Mesirow has had state contracts for more than a decade.
“Those state contracts have been obtained through a public, competitive-bidding process and approved by the appropriate procurement and agency officials,” Kripes says.
Richard Price, Mesirow’s chairman and chief executive officer, is also an investor in Wrapports LLC, parent company of the Chicago Sun-Times.
Madigan has a longtime relationship with Stein, whose development company merged with Mesirow two decades ago. Stein’s projects have included the redevelopment of the former Glenview Naval Air Station and transforming Maxwell Street into University Village. Stein also sought for years to win state permission to develop a casino in Waukegan.
Madigan says of him: “Mr. Stein is a friend and client.”
Stein created 351 Mortgage Loan Borrower with Albert Friedman, a developer who owned the office tower that Mesirow previously leased, which is across the street from its new skyscraper.
They got financing for the project once Mesirow and the law firm of Jenner & Block signed long-term leases to occupy 63 percent of the 1.2 million square feet of space in the 44-story tower.
Construction began in 2006. In late 2009, Mesirow and Jenner moved in under leases that included $11.2 million in rent abatements for Mesirow and $9.7 million for Jenner, according to records Madigan filed with the county.
Less thansix months later, armed with an appraisal of the building, Madigan’s firm began contesting the real estate taxes. It persuaded then-Cook County Assessor James Houlihan to lower his proposed valuation of $76.8 million, arguing that the building had been largely vacant in 2009 and that, as a result, its expenses exceeded its income.
After appealing to Houlihan and the Cook County Board of Review, Madigan got the building’s market value pegged at $31.3 million. That saved Stein’s company $1.7 million in property taxes for 2010.
On Dec. 15, 2010, Stein’s company sold the building to Tishman Speyer for $385.4 million – a deal that Madigan’s firm says wiped out the equity that Mesirow and Jenner had in the skyscraper.
For each of the past four years, Madigan has filed challenges of the building’s estimated market value with Berrios, who succeeded Houlihan as county assessor in 2010.
Every year, Berrios has said the building is worth at least $330 million. And every year Madigan’s firm has gotten Berrios to slash that estimate, resulting in tax breaks that have averaged $5 million a year, county records show. Tishman Speyer passes along the tax bills to its tenants, so any cut benefits them.
The skyscraper “had essentially no rental income in 2009 and reduced rental income in subsequent years,” says Madigan’s partner, attorney Bud Getzendanner, who successfully argued for the cuts.
Getzendanner won’t say how much the firm has been paid for winning the cuts in property assessment that lowered the building’s taxes. Madigan told the Chicago Tribune four years ago that his firm charges clients an annual fee rather than take a percentage of the tax cuts.
Earlier this year, Getzendanner argued the building was worth no more than $260 million, though its net income hit $36.7 million last year, the highest since tenants first moved in. He noted that 10 percent of the building remained vacant.
Once again, Madigan’s firm got Berrios to cut the building’s estimated value, this time by 20 percent, then persuaded the Board of Review to lower it by another 2 percent.
Mesirow and Jenner each pays about $30 a square foot. That’s about $10 below the market rate, according to Thomas Jaconetty, Berrios’ deputy assessor.
“In our view, that’s low,” Jaconetty says of the rent the two firms pay. “We think the market supports higher rents than they’re paying. The building is not generating what we say it could.”
Asked why, despite that, Berrios has raised his estimate of the building’s worth each year only to back sharply off that figure when Madigan’s firm appeals, Jaconetty says, “This is all value judgments.”