Landlords, real estate lobby voice concerns with new approach to mixed-use taxes

Chicago landlords and real estate lobbyists are starting to organize pushback against Cook County Assessor’s Fritz Kaegi’s rollout of a new way to tax midsize mixed-use properties.

“The misadministration and growing cost of the Cook County property tax system has become a mess for both the county’s residents and businesses,” the Chicagoland Chamber of Commerce’s Brad Tietz said.

The county’s former policy — which a 2022 report from the state Inspector General called a loophole — allows property owners of many mixed-use commercial properties to be taxed as residential properties, rather than commercial. 

In most cases, the residential classification significantly decreases a property’s overall total tax bill, since commercial properties are assessed at 2.5 times the residential rate. Now, Kaegi is rolling out a new system to give such properties “split assessments,” that will assess the commercial and residential components of the properties separately, resulting in a higher rate for the commercial portion of the property.

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. The Inspector General recommended the assessor’s office to carry out the change.

However, industry groups began decrying the new policy at a Cook County Commissioners’ Legislation and Intergovernmental Affairs Committee meeting on Monday. 

“The change is particularly harsh for new owners that had no idea this change was coming,” said Adriann Moravsky, the local government affairs director for Illinois Realtors. “It also is unfair for property owners to receive a completely different assessment level when their properties have been taxed at a certain level for many years.”

Some local landlords said it wasn’t feasible to pass the property tax increase to longtime tenants who were paying relatively low rent.

“Owners will be left with the difficult decisions with what that increased tax burden will cause because mom and pop businesses cannot afford higher rents,” Roman Viere, a landlord in Chicago’s Austin neighborhood, said. “So should we raise rents? Or should we convert those spaces into residential units, or maybe we should just sell the properties altogether, which will go to out-of-town investors?”

The potential loss of local businesses was a main concern expressed by the Building Owners and Managers Association of Chicago, a lobbying group representing Chicago’s office landlords.

“We all know that If we want to avoid drastic property tax increases, we need more development and more growth. But our current systems, high taxes and unpredictability scare away potential businesses and investors in addition to our residents,” said Amy Masters, director of government and external affairs for BOMA. 

At least one speaker at the meeting was a proponent of the change.

“I am a real estate investor. I’m a private lender. I’ve been in real estate for 42 years. I’m not crying about the taxes that I have to pay,” Mark Wallace, a local real estate investor, said. “But what I am upset about is that hundreds of millions of dollars have been shifted on to homeowners on the South Side and south region of Chicago for decades by wealthy property owners who have money to pay attorneys to get tax cuts, that the homeowners have to pay and subsidize wealthy property owners downtown.”

The commissioners did not discuss the new policy but voted to approve scheduling a hearing with Kaegi so that he could answer questions about it. Although the agenda item states the hearing will take place in July, a specific date has not been set yet.