Have real estate values of Magnificent Mile hotels recovered to levels beyond the pre-pandemic era?
According to Cook County Assessor Fritz Kaegi, properties on Chicago’s famous shopping strip are doing better than ever.
Many hotels are valued for property tax purposes this year at twice their previous assessments, Crain’s reported, citing county data. However, these sharp increases come at a time when many hotels and commercial properties are still clawing their way back to pre-pandemic revenue levels.
One of the most notable examples is the InterContinental Chicago hotel at 505 North Michigan Avenue. The 45-story, 792-room hotel’s assessed value skyrocketed to $96.2 million, a 284 percent increase from its final valuation last year. The assessed value of the Omni Chicago, a 347-room hotel just up the street at 676 North Michigan Avenue, jumped to $51.1 million, an increase of 186 percent.
Similar valuation hikes have been recorded for other major hotels along North Michigan Avenue, including the Park Hyatt and Peninsula Chicago.
The industry has shown signs of recovery, particularly in key performance indicators like revenue per available room, but revenue numbers are still slightly behind when adjusting for inflation, according to CoStar Group.
The high interest rate environment has further complicated the recovery, weighing down the overall value of commercial properties across the country. Nonetheless, Kaegi’s office maintains that many hotels along the Magnificent Mile have rebounded faster than expected, helped by reductions in operating costs and relatively strong room rates.
Real estate activity along North Michigan Avenue has reflected this complex environment. Brookfield Properties’ sale of the retail and office building at 605 North Michigan Avenue earlier this year is a case in point. The property sold for $47 million, or $691 per square foot — a 66 percent discount from its 2016 sale price of $140 million, or $2,058 per square foot.
Kaegi’s reassessments have impacted retail and office properties along the Magnificent Mile. Water Tower Place, the vertical mall at 835 North Michigan Avenue, saw a 96 percent increase in its assessed value, despite a 30 percent vacancy rate and a loss of tenants such as Sephora, Macy’s, Banana Republic, Gap and Abercrombie & Fitch.
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The property has struggled to replace anchor tenants since Brookfield relinquished control of the mall to MetLife Investment Management in 2022, yet Kaegi’s office values it higher than last year’s appeal-adjusted figure.
As Kaegi’s office concludes its reassessment of downtown Chicago, property owners are bracing for the potential financial implications and preparing to challenge their assessments through the Cook County Board of Review, hoping to mitigate the financial impact of rising property values amid a still-recovering real estate market.
— Andrew Terrell