Under the Cook County Assessor Fritz Kaegi, commercial property values have soared and many commercial property owners feared a tax increase this year. However, the Board of Review has been correcting many of the over aggressively increased assessed values on commercial and industrial properties in seven townships reassessed last year by Kaegi’s office.
Why Valuations Differ
In 2018, when Kaegi came in, the northern suburbs were the first to fall under the new reassessment process. The total assessed value of all commercial and industrial real estate rose 74.4 percent that year, which was almost five times the 15.6 percent increase for all residential property in those same suburbs that year.
Kaegi philosophically believes commercial and industrial properties in Cook County are under-assessed and under-taxed, and he investment tools applied to the assessment process will correct a tax burden inbalance. Kaegi uses a lower capitalization rate as the key metric in the valuation process, which translates into higher values. The cap rate is a rate of return that investors and appraisers use to value commercial properties. It represents a property’s net operating income divided by its price.
However, the Board of Review, which is the body to which property owners can appeal their assessments and which is charged with correcting Assessor errors, disagrees with the lower cap rate. After granting appeals, the Board of Review has estimated the assessed value down 32 percent from where Kaegi’s office put it, at $3.29 billion from $4.83 billion.
This means those property owners will end up paying less in taxes than they otherwise would have if the Board of Reviews hadn’t made those adjustments.
Part of the reason for the discrepancy between the Assessor’s valuation and the Board of Review’s is that the later favors a “loaded cap rate,” which takes into account potential for future property taxes by using a higher cap rate. By leaving off the “loaded rate” in his calculations, it seems as if the Assessor believes property taxes play no role in a potential buyer’s deliberations when developing their bidding price for a property.
What This Means for Residential Properties
Because the amount each taxing district levies to collect is a predetermined amount, all property owners will pay higher taxes on their properties whenever an assessment is lowered on another property in the district. Residences that are overassessed will pay more than their reasonable share of the final tax burden if they do not similarly cause their overly high proposed assessments to be reduced.
For either a commercial or residential property owner who feels the assessment of the property is incorrect, the appeals process can provide a remedy. The assessment is supposed to reflect the market value of a property. A taxpayer should never have to pay for more than a property is worth.