Real estate pros beg Lightfoot, Kaegi for “clarity” on possible higher tax bills
Investors can more easily stomach rising costs if they know what’s coming, developers and brokers said
A wide cast of real estate leaders had a message for Mayor-elect Lori Lightfoot and Cook County Assessor Fritz Kaegi: If you’re planning to increase tax bills, do what you have to do, but make it quick.
“The fear is almost is almost always worse than the reality,” said Matt Fiascone, president of developer Habitat Companies. “So the sooner we can get to reality, the better off we’ll be.”
Fiascone was one of more than a dozen developers, lenders, brokers and real estate attorneys who spoke at a Connect Chicago conference Tuesday, sizing up how strong an impact they’ll feel from the new political winds swirling at the city, county and state levels.
Real estate pros, who say they’re still reeling from Mayor Rahm Emanuel’s steady drumbeat of tax increases, are suddenly staring down an inevitable round of fresh tax hikes as the city faces up to a nearly $1.7 billion pension payment due next year. And Kaegi alarmed some corporate landlords this year with his first round of property tax assessments in the city’s north suburbs, where some high-end apartment buildings saw tax valuations more than double.
Skittish investors might flee the higher costs by packing up and targeting other cities, but David Bradley, manager of Marcus & Millichap’s Chicago office, said he’s “cautiously optimistic” many others will stick around or enter the market if they know how much it will cost them.
“When we have clarity on what the taxes are going to be, then people can make solid investment decisions,” Bradley said. He added developers weighing costs have to include a “fudge factor” for potential future taxes, creating “one of the bigger hindrances for more capital coming into Chicago.”
Industry leaders are also keeping an eye on Lightfoot’s approach to zoning. The city could be in for a major shift if Lightfoot follows through on her campaign promise to curtail “aldermanic privilege,” the unwritten rule that gives alderman the power over any new development in their ward.
The mayor-elect reached a compromise with aldermen allowing them to keep most of their power over zoning, while City Hall will take control of licensing and permitting, the Chicago Sun-Times reported Tuesday.
That arrangement isn’t likely to sit well with Alan Lev, chairman of the condo development firm Belgravia Group, who on Tuesday blamed local control over zoning for stifling new development. He took a shot at Alderman-elect Byron Sigcho-Lopez (25th), who has promised to raise the benchmark for affordable housing in new apartment buildings past the 20 percent that’s already mandated in gentrifying parts of the city.
“If we let the neighborhoods run the 50 wards like their own private fiefdoms, then we’re going to get places like Pilsen, where … they’re saying they want 30 percent” affordable units, Lev said. “And I’m all for affordable housing, we should all build it everywhere in the city — but when you say you want 30 percent in a neighborhood, you get 30 percent of zero.”
But Lev and other builders also offered praise of some city programs they hope to see continued, like the Neighborhood Opportunity Bonus system Mayor Rahm Emanuel created in 2016. The program lets developers exceed height limits set by Downtown zoning districts, as long as they pay into a fund that bankrolls grants for businesses on the South and West sides.
Developer Jeff Shapack, whose firm Shapack Partners has been one of the most active builders in Fulton Market since 2011, called the bonus program “brilliant” and a win-win for investors and “neighborhoods of need” in the city.
“They’re selling us [height allowances] that we couldn’t have before, and they’re selling it at a much lower basis than we could buy from our neighbors,” Shapack said. “I think that’s a great recipe, and I’m very hopeful that there’s nothing Mayor Lightfoot would change in that recipe.”
Other developers, like DL3 Realty Managing Director Leon Walker, said they hope Lightfoot and the newly-constituted City Council introduce some new measures to turbo-charge the city’s 135 Opportunity Zones. Those could include waiving permit fees or expediting approvals for construction proposed inside the zones, he said.
“There are some quick fixes that could go in right away, that would stimulate interest in the zones,” Walker said.