Chicago’s shaky finances could pose big threat to commercial real estate market

A new report shows Chicago has the worst fiscal health of any large city.

TRD CHICAGO /
Aug.August 01, 2018 10:00 AM

The Chicago skyline (Credit: iStock)

Chicago and Illinois are in a “fiscal death spiral” that could have severe consequences for the city’s booming commercial real estate industry.

Real estate research firm Green Street Advisors issued a report on the risks of investing in commercial property in markets plagued by financial woes, and the news is not good for Chicago, according to a report in Crain’s.

The firm has given the city the worst fiscal health score in the country, and the report said looming financial obligations like underfunded public pensions could make the cost of property investing much higher in the future.

The report said rising property taxes will continue to impact landlords’ bottom lines, and that the situation might get worse if Democrat J.B. Pritzker wins the gubernatorial race in November.

Less directly, the state’s fiscal mismanagement continues to cause residents and corporations to leave in droves — which reduces the demand for retail, office and residential space, the report said.

While developers and investors are likely aware of Illinois’ fiscal problems, the consequences of those problems is not being factored into property deals now, the report said.

“Fiscal health of states and municipalities is an inescapable threat that doesn’t appear to be priced in to property market cap rates, likely because there is much uncertainty over timing and outcomes,” the report said. “But knowing the train will eventually come off the rails should be enough, and market participants would be wise to incorporate this fact into their [pricing] models today.”

Despite a flood of commercial development and corporate relocations, Chicago-area property prices saw their first drop in five years at the end of 2017. That came even as the greater national market continued its upswing.

There are other local factors in play other than the state’s financial morass. The springtime defeat of Cook County Assessor Joe Berrios has big-time investors wondering what will happen with their property tax assessments.

Berrios’ office was accused of undervaluing large commercial properties such as the Willis Tower, which the county valued at $580 million for tax purposes when it sold for $1 billion.

In 2016, large office buildings in Chicago had a median property tax bill of $2.9 million, an increase of $500,000 per building since 2012. [Crain’s] — Joe Ward 


Related Articles

arrow_forward_ios
Managing director of Wanxiang American Real Estate Larry Krueger and CEO of Riverside Investment & Development John O’Donnell

Riverside JV looks to recap or sell 1.2M sf West Loop office tower

Amazon CEO Jeff Bezos and 315 S. Hicks Road in Palatine (Credit: Getty Images, Google Maps)

Amazon nails down another 650K sf worth of Illinois warehouses

Founder and CEO of Level Ex Sam Glassenberg and 180 North LaSalle St. (Credit: Google Maps)

Medical gaming company inks sublease deal in the Loop

Ald. Andre Vasquez (40th) and 5500 N. Wolcott Ave. (Credit: Google Maps)

Ald. Vasquez says Temple Steel campus won’t give way to luxury housing

A rendering of the Target warehouse at 3501 S. Pulaski Road and Target CEO Brian Cornell (Credit: Hilco Redevelopment, Target)

Target takes aim at massive warehouse in Little Village

From left: CEO and founder of CA Ventures Thomas Scott, CEOs of WeWork Sebastian Gunningham and Artie Minson, and a rendering of the building

WeWork has troubles, but it also has a new location in River North

The Bolingbrook property along route 53 and Amazon CEO Jeff Bezos (Credit: Google Maps, Getty Images)

Amazon pays $51M for site of former Chicagoland amusement park

Jeff Bezos and the Old Wrigley gum factory at 3535 S. Ashland Avenue (Credit: Getty Images and Google Maps)

Chew on this: Former Wrigley gum factory pitched as potential Amazon warehouse

arrow_forward_ios
Loading...