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, foreign investors said they wanted to decrease their commercial property investment in Chicago.
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 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.
The value of income-producing properties is determined by capitalization. This 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 many years, 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 what they were three years ago.
Smaller properties, unfortunately, are in the crosshairs because of the lack of data. As a result, Kaegi is encouraging the owners of smaller commercial properties to appeal valuations so they can be brought to his office’s attention. These appeals can help make future assessments more accurate.
Filing an Appeal
Commercial property owners can appeal inaccurate assessments 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 how the Cook County Assessor decides on an appeal, a commercial property owner can also still appeal to the Cook County Board of Review.