Kaegi to face commissioners on “apartment loophole” in Monday hearing

Cook County Tax Assessor Fritz Kaegi’s crackdown on a so-called apartment loophole in the property-tax system rang alarm bells among landlords and lawyers after valuations spiked by as much as 200 percent in the latest assessment cycle. 

Kaegi will face questions about his approach to the methodology change from the Cook County Commissioners’ Legislation and Intergovernmental Affairs Committee in a hearing on Monday, July 22, at 2:30 p.m. 

The loophole, which precedes Kaegi’s time in office, allowed some buildings that are predominantly commercial be classified as residential — even in instances where there is one small, makeshift apartment in a building that is almost entirely commercial otherwise. 

Commercial buildings are assessed at a higher rate — 25 percent of their market value — than homes and midsize multifamily buildings, which are assessed at 10 percent of their market value. As a result, these mid-sized mixed-use commercial buildings with a residential component were benefiting from substantially lower property taxes than buildings considered purely commercial.

Under Kaegi’s new methodology, business owners are seeing some or all of their properties taxed on 25 percent of their value rather than 10 percent. In most cases, the properties receive “split classifications,” that tax the residential and commercial components separately under their respective rates. 

The change was spurred by recommendations in a 2022 report from the Cook County Office of the Independent Inspector General. It found that multiple assessor’s office employees were concerned about how some parcels got classified as residential at a substantial tax reduction.

The assessor’s office sent letters to property owners stating that properties between 20,000 and 99,000 square feet with more than 35 percent of their space dedicated to commercial use now have the “split classifications.” 

The change was necessary to fairly assess owners of different property types, Cook County Assessor’s Office spokesperson Christian Belanger previously told The Real Deal.

“We made this clarification to ensure equity in commercial assessments across Cook County,” Belanger said.

But some local officials questioned whether Kaegi’s efforts to notify business owners were effective. 

Patrick Hynes, the assessor for southwest suburban Lyons Township, previously told TRD that he felt the rollout could have been handled better. 

“Commercial taxpayers need stability and predictability from our property tax system to thrive. We are not getting that with this administration. It is very frustrating,” he said.

The assessor started introducing the change that boosted such tax bills in the southern suburbs of Cook County last year. Now it is starting to hit Chicago landlords, as Kaegi’s office sets values for the city this year and moves on to the northern suburbs next year.

As the change hits the city of Chicago, thousands of properties could be affected, based on data showing how many owners of this mixed-use asset class have appealed their taxes during recent reassessment years.

The committee hearing can be live streamed at this link or attended in person at the Cook County Board Room at 118 North Clark Street.