Cook County Assessor Fritz Kaegi’s recent comments on the commercial real estate market is heightening angst among property owners awaiting their first post-pandemic property tax assessments.
Kaegi suggested that public sentiment regarding plummeting property values in Chicago’s urban core may be overstated, according to his office, Crain’s reported.
Kaegi’s remarks come as his office prepares to release assessments for West Chicago Township, which encompasses a significant portion of downtown. This reassessment marks the first comprehensive evaluation of downtown properties since 2021 and will gauge the impact of factors like rising interest rates and diminished demand for office and retail space.
Downtown office and retail markets continue to grapple with the pandemic’s aftermath, with vacancy rates reaching historic highs. Downtown office vacancies exceeded 25 percent for the first time ever, while Loop retail vacancies have hit a record-high 30 percent, according to CBRE and Stone Real Estate’s respective studies.
While acknowledging these concerns, Kaegi emphasized that not all office landlords are equally affected. Higher-tier properties have shown more resilience, buoyed by ongoing demand for premium office space in light of evolving workforce needs driven by the remote-work era.
Kaegi noted that mid- and lower-tier office buildings, Class B and C properties, have experienced declines ranging from 20 to 40 percent from the last rounds of valuations in 2021.
Kaegi is facing criticism for the comments. Landlords have seen significant losses in property values, particularly in downtown office sales, according to the Chicago Building Owners & Managers Association. Recent sales data reveals losses in value ranging from 50 to 89 percent, the outlet reported.
One major hurdle for Kaegi’s office has been determining fair market values at a time of subdued sales. Of the few commercial transactions that have occurred in recent years, many have been distressed sales. The sluggish sales period will pose challenges to Kaegi given that reassessment focuses on comparable transactions to accurately reflect market conditions.
Analysts warn that significant drops in office property values could shift a larger share of the tax burden onto residential properties. A recent analysis by the Mansueto Institute for Urban Innovation and the Center for Municipal Finance estimates that if the tax value of downtown office buildings drops by 20 percent compared to previous valuations, the average residential property tax bill could rise from $5,244 to $5,424.
Kaegi sought to reassure commercial property owners, indicating that downtown Tax Increment Financing districts could mitigate some of these impacts by absorbing fluctuations in office property values. In addition, he highlighted the strength of other commercial sectors, such as data centers and industrial properties, in offsetting weaknesses in the downtown office and retail markets.
—Quinn Donoghue
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