In a recent editorial, the Tribune Editorial Board argues that “the job of those who assess property for tax purposes is to get the calculations as correct as possible in light of what’s actually happening in the market.”
I agree. Our property assessment system should take accuracy as its North Star, drawing on the best data and working in a spirit of fairness. This ethic guides my team at the Cook County assessor’s office.
However, the editorial board suggests that accuracy, in this case, would be to “appreciate the true horrors” of the downtown office market. In other words, our assessments in the Loop should be lower than they are.
The troubling conclusion, attributed to some in the business community, is that we are deliberately favoring homeowners by shifting the tax burden onto commercial property.
But our assessments are good faith estimates of market value; we freely share data about how we arrive at our conclusions for anyone to access on our website. Rather than selecting a handful of transactions as a stand-in for all of the downtown office market, I’d like to briefly explain how, based on data about market conditions and sales, we arrived at our assessments.
In the Loop, there is a giant gap between the top and bottom ends of the office market. In older, less modern buildings, there are colossal problems with vacancy, falling values and owners in financial distress forced to hand the keys back to beleaguered lenders. These are the victims of the nationwide structural shift in demand.
At the higher end, which constitutes the majority of Chicago’s downtown property tax base, vacancy rates are much lower, and rents are holding steady. Tenants are migrating here, trading up for nicer space. Buildings are in better health.
These distinctions should be reflected in our assessments. Investors certainly pay attention to them. From 2020 to 2023, buyers in Chicago typically paid more than $500 per square foot for the highest-tier downtown office buildings, according to the authoritative database maintained by CoStar, a commercial real estate information company. Individual sale prices ranged widely, from $170 to $970 per square foot.
In our own 2024 assessments, we made ample allowance for a worsening post-pandemic market. We’re valuing that same high-end class of office buildings at approximately $200 to $260 per square foot. We marked most low-tier buildings at around $100 per square foot, but some were even lower.
Yes, commercial assessments in the townships that include the Loop are up by 21%. But these townships extend beyond downtown and include more than just the office market.
Hotels have had a strong recovery since the washout year of 2021. Data centers, which are thriving, can be worth as much as a pre-pandemic skyscraper. Retail corridors in Fulton Market, Wicker Park and Bucktown are in good shape.
The editorial offers as evidence three recent transactions, heavily discounted sales of downtown office buildings. But all three are examples of buildings suffering extraordinary vacancy, much higher than the average Chicago office building. They are clearly in financial distress. The sales themselves might have involved duress, with the owners forced into quick, unfavorable deals. If that’s the case, according to best appraisal practices, they should not be considered true indicators of market value for all properties of their type.
These buildings may be closer to the bottom end of the market than the top. Again, the differences here are stark. At the top end, new leases are being signed and rented out at more than $60 per square foot gross per year. At the bottom end, you could actually buy a building for that amount.
Our assessments reflect these nuances. And importantly, the 21% increase the editorial references is from a baseline set by the Cook County Board of Review, a separate elected office that handles property appeals.
The Board of Review has dramatically reduced my office’s commercial property assessments. Are these cuts appropriate?
A Cook County working group just released a third-party study of commercial assessments by my office and the Board of Review. It looked at nearly a thousand sales of commercial properties between 2021 and 2023, measuring them against our valuations.
The single most important result? Commercial properties in Cook County were found to be underassessed.
Specifically, the report found a tendency for commercial assessments coming out of the Board of Review to be too low. This was true nearly across the board in the suburbs. In the 2021 Chicago reassessment, my office’s assessments were on the money for the highest-value commercial properties, those worth more than $5 million. Appeals with the Board of Review led to a cutting of those assessments by 14%, well below equivalent sale prices.
The study also found that some commercial assessments from my office were too low. But this finding hardly fits the narrative that we jerry-rig our values to curry favor with homeowners.
The study makes several recommendations to improve assessment accuracy in both offices. My staff and I embrace these recommendations, and we applaud Cook County Board President Toni Preckwinkle for her steady determination in tackling the issue.
When I look at the spectacles playing out in Washington and at the federal courts here in Chicago, I’m reminded of how important it is that elected officials make things better for those they serve. It’s what the public needs most from us.
In a property tax system that has been broken for so long, taxpayers should know that Cook County, navigating by the North Star of accuracy, is making much-needed progress.
Fritz Kaegi is Cook County assessor.
Submit a letter, of no more than 400 words, to the editor here or email letters@chicagotribune.com.
