Developers and property owners complained last year higher assessments in Cook County were hurting the real estate market, driving up rents and chilling job creation.
But a report issued Wednesday by a leading brokerage said essentially: Never mind!
The report by Cushman & Wakefield said while owners of commercial property indeed are getting sharply higher assessments, they won’t necessarily translate into huge increases in tax bills. It supports Cook County Assessor Fritz Kaegi’s use of techniques to arrive at what he says are more accurate estimates of commercial property values.
“While potentially painful at first, Kaegi asserts that over time, his approach will increase transparency and predictability in Cook County taxes, improving the state’s investment climate and reputation,” the report said. It said data from last year’s reassessment in the northern suburbs support Kaegi’s reforms.
Cushman said commercial properties in that region saw an average 74.4% increase in their assessments. Even with that increase, properties that sold fetched an average price 20% higher than their assessed value, an indication Kaegi was not overshooting his mark, the report said.
“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 Paul Lundstedt, vice chairman at Cushman. “In fact, astute investors have sensed an overreaction to the issue and see it as an opportune time to invest in Chicago.”
Much of the report is a refresher on how Cook County property taxes are computed. It notes when assessments increase substantially, the tax rate needed to raise the money that local governments request generally declines. Using Evanston as an example, it estimates a new tax rate of 5.66% vs. 9.41% in 2018.
Therefore, an Evanston property could sustain a 66% increase in its assessment and not see a higher tax bill, the report said. For an assessment that doubled, the tax bill would rise about 20%, it said.
Scott Smith, a spokesman for Kaegi, said, “We have a very complex property tax system in Cook County. We really need third-party data and analysis like this that shows the importance of our work.”
Noting several major commercial sales occurred later in 2019, Smith said investors are shopping for deals in Chicago. He also said his office has been in ongoing dialogue with investors and underwriters and posted a Chicago-specific tax rate simulator tool. “We think this is making a difference when it comes to investor confidence,” Smith said.
Among major recent deals is Sterling Bay’s decision to sell its headquarters at 1330 W. Fulton St. to German investor Commerz Real for a reported $175 million and Beacon Capital Partners’ acquisition of 190 S. La Salle St. for a reported $230 million.
“There are some astute investors that when they dig into it, they see that the situation here is not as draconian as a lot of people are saying,” Lundstedt said.
A major change Kaegi instituted was to recalculate “cap rates,” the expected rate of return from a property sale. Kaegi has said his predecessor, Joseph Berrios, used unreasonably high cap rates, leading to lower estimates for property values.
Lundstedt said Kaegi has made the system more transparent and property investors will overcome their natural fear of such a change.
Cook County property in the western and southern suburbs will be reassessed this year. Chicago’s turn comes in 2021. The report said the same pattern is likely to continue, with large increases in assessments but with lower tax rates cushioning the impact on actual bills.
The report is called “What’s Next: Breaking Down Chicago’s Changing Tax Landscape.” Cushman said it will be updated at mid-year.