The biggest worries of Chicago real estate professionals are the politicians and the taxes.
On a scale of 1 to 5 — with 5 being the most troubling — the top concern was the effectiveness of city leaders, which clocked in at 4.33. That was followed by Cook County property taxes at 4.27 and Illinois state leaders at 4.24, according to a midyear report on the Chicago market by the Real Estate Center at DePaul University. Leaders are failing to adequately address crime and pension liability issues, complicating underwriting decisions, respondents said.
Even so, their outlook is a bit better this year than last, with 36 percent saying they are “bullish” on Chicago property, up from 22.6 percent a year ago. And they are nearly ecstatic about the possibilities of 2022, with 71.4 percent saying they are optimistic.
Participants, including executives and partners from real estate investment companies and banks, focused much of their current ire on the Cook County property tax system, which is in the midst of change after the election of assessor Fritz Kaegi in 2018.
The report said Cook County is the only county in the state where commercial taxpayers are taxed at 25 percent, 2.5 times more than residential taxpayers. Kaegi “awarded significant Covid relief to residential property owners while not affording the same consideration to commercial property owners,” while prices in Chicago area housing were surging, the report said.
Commercial property owners have long been critical of Kaegi, who implemented changes in the property tax assessment process that shifted the tax burden from homes to businesses.
“We have one of the worst property tax burdens in the nation,” said Brian Forde, a partner with the firm O’Keefe Lyons & Hynes, who participated in the survey. “Someone with courage and conviction needs to step up to make a change, or the end result will create a narrower range of investors looking to make acquisitions in Chicago or to explore new development opportunities here.”
Kaegi has said he is still trying to reform a system he describes as flawed and unfair. “When you go into a job like this and try fixing a system so broken and so notorious for clout and stuff behind the scenes, conflict is baked in the cake,” he told The Real Deal in a recent interview.
Participants ranked industrial properties and multifamily assets most favorably and the least likely to encounter distress. Indoor malls were viewed as the weakest assets in commercial real estate.
Changes in consumer behaviors and industrial real estate firms reshaping their supply chains will keep the sector growing, according to the report.
“The pandemic opened our eyes to the challenges of just-in-time delivery,” said Becknell Industrial’s Ben Paolone, in the report. “We’re now seeing some users increase the levels of inventory on demand, and thereby creating greater demand for space. Moving forward this is likely to become a more normalized practice.”
Companies’ stockpiling supplies to avoid supply chain issues and reverse logistics coming from online returns are also factors the report noted as potential for increased demand for industrial space.