Tell us how we can help you.
That was Alderman Walter Burnett’s (27th) plea to the more than 100 real estate professionals who gathered Wednesday for a discussion on Chicago’s increasingly rocky property tax landscape, which one attorney said has investors “terrified” to back projects in the region.
With Cook County Assessor Fritz Kaegi’s new math cranking up the pressure on commercial property owners and new Mayor Lori Lightfoot’s predictions for more tax hikes in this year’s budget, policymakers are in the market for new ideas to keep the development pipeline open, Burnett said.
“We have a blank canvas now, so I think people in y’all’s position should come up with ideas and present them to the city to see what can be incorporated as an incentive,” Burnett told attendees at a luncheon hosted by CREW, a network focused on promoting women in the commercial real estate industry.
“I know we’re going to have to stay attractive in order to be competitive .. .so this is a great time to come up with those ideas,” Burnett added.
The alderman was an architect of a 2017 expansion of the city’s Affordable Requirements Ordinance, requiring developers to set aside up to 20 percent of units in new apartment and condo buildings as affordable housing in exchange for zoning approval. The rule drew a backlash from builders and some investors, who say the requirements are squeezing developers out of gentrifying neighborhoods.
Burnett has defended the controversial program, but he told The Real Deal after the event Wednesday city leaders are now re-examining it.
“The mayor is very concerned about affordable housing being incorporated in the market-rate communities … . Of course, they have to look at other avenues of incentives for those kinds of things to happen,” Burnett said.
The mayor and her new housing commissioner, Marisa Novara, “have some ideas, and there may be some changes” to the policy, Burnett added. He declined to say their specific ideas.
If those changes don’t come, the combination of higher assessments and Cook County’s relatively high tax rates might scare away builders who were still open to working in the area, according to Jennifer Tammen, a real estate consultant in Ernst & Young’s Chicago office.
Tammen said she found one Evanston commercial property that traded hands for $9 million in 2015, whose fair market value the assessor pegged at $2.5 million in 2018. This year, the building’s fair market value increased $8.8 million despite no physical improvements, Tammen said.
“If I’m a developer going in, and instead of 25 or 30 percent of my rent going to taxes, now it’s jumping to 50 or 60 percent, I cannot make that deal work,” Tammen said. “You’re not going to be able to get tenants.”
Property owners are also worried Kaegi’s staff will base its assessments on “intangible” attributes of buildings that add to their income, instead of zeroing in on the “bricks and sticks” of each property’s physical value, said Molly Phelan, a property tax attorney at the firm Siegel Jennings.
“That’s why we have so many investors terrified to come into this market,” Phelan said. “They have no idea what’s going to be happening with property taxes, and it’s absolutely impossible to predict.”
Kaegi is pushing to get county commissioners to beef up his office, which an independent auditor last month called understaffed. The assessor also proposed a state law to mandate commercial property owners report their income, but the bill fizzled in Springfield this spring.
But even before Kaegi took over, assessments in the city were headed for a steep hike. County officials released data last week based on 2018 assessments that will increase Downtown and North Side homeowners’ tax bills by more than 11 percent on average, even as tax rates declined.