What should be good news—that, according to the Association of Foreign Real Estate Professionals survey this year, 71 percent of respondents said they wanted to increase their investment in commercial real estate in the United States—was actually bad news for Chicago’s commercial property community. In that same survey, Chicago was on the list of cities that foreign investors want to decrease their commercial property investment.
New Valuation Methods Still Flawed
The AFIRE survey results could likely stem from the fact that there is a lot of uncertainty this year on how the new Cook County Assessor’s new method will impact commercial property valuations. Fritz Kaegi, who took over from long-time assessor Joseph Berrios earlier this year, is also promoting legislation that would require commercial property owners to turn over financial records and tax returns each year, even if the owner isn’t filing a property assessment appeal. This bill is currently stuck in the legislative process over concerns about how Kaegi’s office would protect the information being requested, including tax returns, rent rolls, and the prior year’s expenses.
For income-producing properties, the value is determined by capitalization, which is basically the net income from real estate divided by a capitalization rate, which calculates the market value. The capitalization rate reflects several factors that include the percentage return on investment and the mortgage interest rate.
Because there are so many commercial properties for assessors to value, the office often relies on mass assessment methods. Kaegi believes that access to these financial records will help his office better assess these commercial properties.
However, because the property tax system in Cook County has been in disarray for years, under the new methods, commercial property owners on the northern suburbs—the first group to see new valuations under this system—are seeing valuations that are anywhere from 250 to 350 percent it was three years ago.
Smaller properties, unfortunately, are in the crosshairs because of the lack of data, so Kaegi is encouraging that group to appeal its valuations to bring it to his office’s attention.
Filing an Appeal
Commercial property owners can appeal the assessment based on incorrect information about the property, such as a building in need of repairs that might not have been part of the equation or misinformation about the property. And regardless of what the decision of the Assessor is, property owners can also still appeal to the Cook County Board of Review.