Investors are bracing for property tax hikes as the City of Chicago tries to raise revenue to address its fiscal problems and as the assessor’s office continues its three-year reassessment process.
The reassessment of north suburban Cook County last year led to a 74.4% increase in the taxable values of commercial and industrial properties. South suburbs are being reviewed this year before city properties are reassessed in 2021.
The timing presents a problem for investors looking to make a purchase in Chicago because they have no idea what may happen to their taxes. Chicago tax bills based on new assessments won’t come out until 2022.
Worries about property taxes caused commercial property sales to plummet last year. Sales of office, apartment, hotel, and industrial buildings in the city totaled $8.07 billion in 2019. That’s down from the post-recession peak of $16 billion a year earlier, according to Jones Lang LaSalle.
Sales volume dropped the most among office buildings last year, when sales fell to $1.23 billion from $4.68 billion in 2018. Some large deals were pulled from the market after failing to find a buyer.
“There was a lot of weakness because Chicago was exposed to property tax changes coming to Cook County, and all the uncertainty that comes with it,” Jim Costello, senior vice president at Real Capital Analytics told the Chicago Tribune.
“Uncertainty is a killer for investment,” Costello said. “If you don’t know what the rules of the game are, how can you play?”
Even though sales of Chicago apartment buildings fell to $3.21 billion from $5.29 billion last year, developers don’t appear to be deterred. There are plans for more than 10,000 new units to be completed in downtown Chicago by 2022, according to Integra Realty Resources.
For investors looking to buy apartment towers rather than build them, now could be the time to act, said Ron DeVries, a senior managing director at Integra.
“The market has obviously slowed down for investment sales because of things like what’s happening with real estate taxes and what’s happening with our state’s economy,” DeVries said. “But there’s a ton of capital out there chasing deals and I think we might start to see some more transactions in Chicago. The uncertainty, I think, does create some opportunity.”