Kaegi Slams Commercial Appraisers

It’s a common critique that commercial property owners want to undervalue their properties when it’s time to pay their taxes and overvalue them when it’s time to sell. A study from Cook County Tax Assessor Fritz Kaegi aims to prove that.

In a report released Thursday, Kaegi’s office analyzed 60 commercial properties that sold for more than $2 million within three years of undergoing a private appraisal. It found that among that sample of properties, the median increase from appraised value to sale price was 38 percent.

Kaegi said the findings were not a surprise, and have contributed to what he considers undertaxing of large Chicago-area buildings.

“This analysis puts up evidence to support what we’ve long felt to be the case with commercial appeals submitted to our office,” he said in a statement. “Some appraisals we receive in those appeals undershoot values.”

The report is the latest development in a yearslong saga of finger-pointing over how to manage property valuations and billing so that the local tax burden is not too high on any particular group of taxpayers. Cook County is unique, in that local government bodies such as the city councils and school districts set their budgets before property values are assessed. That means rather than the assessor giving these bodies a target of available property tax revenue to aim for, local governments give the tax base a total dollar amount they’ll extract via taxation.

The assessor’s office, the Cook County Board of Review, the Cook County Treasurer’s office, and real estate industry groups have all weighed in on the topic and found different people and policies to blame when commercial or residential property owners complain that they are sharing too much of the county’s tax load.

The appraisal process is one area of the system that Kaegi said he hopes his latest report will help improve.

Kaegi’s report, which anonymized the private appraisers, found that one of the companies most commonly used by property owners in the data sample appraised nine of the parcels. The median jump from appraised value to sale price among those properties was nearly 50 percent. Another company that appraised 12 properties in the sample set values that jumped a median of 38 percent at time of sale.

Although the assessor’s office ultimately determines every three years what a property’s taxable value should be, private appraisals performed in the interim play a role in that process. They are also presented as evidence during the property tax appeals process, which can result in significantly reduced tax bills for property owners. When a property owner receives such a reduction, it moves the difference in the tax burden to the rest of the tax base.

Appealing for a tax cut is a common practice for large commercial building owners and a lucrative business for attorneys.

When commercial landlords deploy these tactics, it shifts more of the property tax burden on other taxpayers, including homeowners, the press release from Kaegi stated. He has long railed against the Cook County Board of Review’s tendency to grant large properties such reductions of their values through appeals, calling the results unfair to residential property owners who end up shouldering more of the tax cost following the objection process.

Kaegi’s critics

Kaegi, who took office in 2019, has met criticism for his approach to reorienting the county’s tax system through various avenues.

His latest findings come on the heels of other reform efforts including a new policy to close a property tax “apartment loophole” used by owners of some small mixed-use commercial properties.

The practice, identified in a report from the State Inspector General’s office, allowed some buildings that were predominantly commercial to be classified as residential — even in instances where there is one small, makeshift apartment in a building that is almost entirely commercial otherwise. As a result, these commercial property owners pay the county’s residential tax rate rather than its commercial tax rate, which is 2.5 times higher.

At a July public hearing regarding the change to the apartment loophole, several landlords and industry groups spoke out against the policy change, labeling Kaegi’s approach to reform “abrupt” and “unpredictable.”

“The change is particularly harsh for new owners that had no idea this change was coming,” Adriann Moravsky, the local government affairs director for Illinois Realtors, said at the hearing. “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.”

While Kaegi’s office honed in improving the accuracy of mid-size mixed use property classifications, an investigation from The Chicago Tribune and the Illinois Answers Project published this summer found that the assessor had missed $444 million in potential increases of taxable value among properties that had undergone significant construction and renovation since their prior assessment cycles.

Kaegi’s methodology has taken the spotlight in recent months as he completes his assessment of the urban core of Cook County for the first time since 2021, when the full effects of the pandemic on the commercial real estate market were still taking shape.

When his assessments for parts of downtown Chicago were released in November, industry groups blasted the assessor for ignoring the scale of the city’s office market distress.

“The fact that the assessments of office buildings are continuing to increase with no acknowledgment of the impact of the pandemic doesn’t seem objective. It’s not consistent with what’s happening in other markets or what’s happening in our market,” Farzin Parang, executive director of the Building Owners and Managers Association of Chicago, said at the time.

While maintaining or increasing the property tax burden on commercial owners theoretically eases the pain for homeowners, a report from Cook County Treasurer Maria Pappas claimed some of the county’s most vulnerable homeowners are currently facing skyrocketing tax bills due to a variety of factors including population loss.

The South end of the county is assessed first in the county’s three-year assessment cycle. With the 2023 reassessments complete and new tax bills sent out, Pappas found significant jumps in tax bills for the area. The median residential tax bill jumped a record 19.9 percent, the report found.

Kaegi responded by pointing out adjustments from the Cook County Board of Review play a big role in determining the property values of businesses versus homes.

Kaegi’s initial reassessments would have shifted about 1 percent of the overall tax hike burden onto commercial properties but, after the Board of Review was finished, 4 percent of the burden had been shifted away from businesses and onto homeowners, a release from his office stated. It’s not the first time that Kaegi has taken the Board of Review to task, having reversed its decisions before that he deemed too lenient on commercial property owners.

But not all the blame falls on the Board of Review, a separate report from Cook County Board President Toni Preckwinkle released in December found. That study, conducted by Josh Myers Valuation Solutions, highlighted systemic issues, including undervaluation, lack of data-sharing and inconsistent methodologies between the assessor’s office and the Board of Review.

Following the 2024 reassessment of Cook County’s urban core, property owners will see how new values will impact their tax bill this year.

However, some in the real estate community say prospective investors aren’t waiting to find out what those bills will look like to decide whether to make moves in Cook County. Instead, they’re placing bets on suburban counties where the tax environment is perceived as more predictable. The trend was reflected in the superior performance of suburban multifamily transactions over urban transactions in 2024.

“The only risk is our real estate taxes and protecting your margins,” Berkadia’s Pete Evans said at the time. “That’s the biggest challenge in multifamily in general today.”