Appeals Temper Kaegi’s Rematch on Downtown Chicago Tax Hikes

Cook County Assessor Fritz Kaegi’s campaign to recoup tax revenue from some of Chicago’s most notable commercial properties was blunted by the city’s struggling office market, sparing landlords and tenants big bumps to their costs.

Kaegi announced in February that he would revert the values of 559 commercial properties, mostly in the city’s central business district, to the 2021 values set by his office. The move meant undoing tax breaks those landlords had already received from the Cook County Board of Review after appealing the figures he previously set.

Almost all those building owners — 551 of them — challenged Kaegi’s reassessments at the higher figures this year, and 439 of them were granted reductions, according to The Real Deal’s analysis of Board of Review data.

The board’s latest decisions cut about $1 billion from the total assessed value of the properties, down to a cumulative $3.6 billion from $4.6 billion. Still, it means that Kaegi did claw back some of the tax base, because not all of the properties got as large of value decreases as they did during last year’s tug-of-war between the assessor’s office and the board. Kaegi’s office previously said the 2021 appeals removed $2.7 billion of taxable value.

The three-member board had its composition remade by an election in between the two tax years as two of its seats changed hands, and Kaegi has now tested both groups’ reactions to the same values, albeit this time during a rising interest rate environment on top of the pandemic-induced drop in office demand and attendance. Usually, the assessor’s office sets a value for a property once every three years, but Kaegi this year went outside that standard to wipe away the reductions landlords notched at the Board of Review last year.

The board’s recent votes on the central business district properties were unanimous.

“Quite frankly, we’re looking at a depression in commercial real estate properties with loan rates being so high, with interest rates being so high,” Board of Review Commissioner Samantha Steele said.

Her staff likely wouldn’t have granted the appeals if not for the state of the office market, she said. Those properties were generating a lot of tax revenue before the pandemic and aren’t now because of the slow pace of workers returning to the office, said Steele, who served on Kaegi’s 2019 transition team when he first took office. She has previously made statements similar to Kaegi’s that large commercial properties were consistently given unnecessary breaks under previous officials.

“We are encouraged that many large commercial properties downtown did not receive the same reductions as they did in the previous year, which would have been inconsistent with current market value. The revised results could lead to lower property tax bills for Chicago residents,” Kaegi’s office, which is still reviewing the appeal results, said in a statement. “Our intent in resetting the value of these properties was to give the new commissioners a chance to take a fresh look at the evidence with their own eyes.”

The five properties that received the biggest tax cuts last year appealed Kaegi’s reversal and got their valuations lowered, some back to the previous level or even lower. Those include Chase Tower at 10 South Dearborn Street, the Aon Center at 200 East Randolph Street and 120 South Riverside Plaza, where the board noted decreased income and rising vacancy.

The other two Board of Review commissioners, George Cardenas and Larry Rogers, did not respond to requests for comment. Cardenas and Steele were elected to the board last year, at the same time Kaegi was re-elected to his second term as assessor.

When the board grants a property owner’s reduction of an assessment, it doesn’t cut the overall property tax burden on Cook County as a whole; rather, those dollars that would have been collected from various local governments on the value that was erased through the appeal must then come from the rest of the property taxpayer pool. (Assessed values on large commercial properties are 25 percent of fair market values.)

Once again, Chase Tower achieved the biggest drop from the assessor’s number. It was returned to $74 million, the same as the result of its 2021 appeal, down from the $153.7 million to which Kaegi had raised it. The assessment of the Digital Realty Trust-owned data center at 350 East Cermak Road followed the same arc, with the board granting its appeal to lower its value back to $65.7 million, from Kaegi’s $133.5 million. The two landlords did not return requests for comment.

The Aon Center’s value dropped even more on the heels of its owner landing a crucial loan extension ahead of its previous summertime debt maturity. The Board of Review gave the 601W-owned building a value of $115.8 million after the most recent appeal, even lower than the $120.6 million it got from the board in 2021. During both years’ tax cycles, Kaegi had put its value at $161.3 million.

That was also the case for 120 South Riverside Plaza, which the Board of Review valued at $23.5 million after assessing it at $30.9 million in 2021. The assessor’s valuation was $66.3 million.

Still, other properties received less of a markdown than they did last year. The 1.1 million-square-foot 300 South Riverside Plaza — which has members of its ownership group who are in default of a debt vehicle tied to the property — was valued at $58.9 million after the most recent appeal. That was up from $46.6 million after last year’s challenge but still down from the assessor’s value of $87.1 million. The building’s income increased to $49 million in 2022 from $46 million in 2021, according to the board.

601W’s Old Post Office building at 433 West Van Buren Street had its value adjusted by Kaegi up to $89.7 million from $63.8 million. The Board of Review landed in the middle, assigning the 2.3 million-square-foot office building a value of about $75.8 million.

The board arrived at its decision based on a review of the property’s income, which increased to $83.5 million in 2022 from $60.7 million in 2021. Its occupancy rose to almost 84 percent from 79 percent.