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Kaegi to cut assessments on homes, condos by 8 to 12 percent
The Cook County assessor has unveiled his plan to reduce the tax burden on most residential and commercial properties to account for the coronavirus pandemic.

Thursday, May 28, 2020
Crain's Chicago Business
by Alby Gallun

After hiking assessed property values in Cook County to reflect a strong economy and real estate boom, Cook County Assessor Fritz Kaegi now is cutting them to account for the coronavirus.

The assessor’s office is lowering assessed values of single-family homes and condominiums in south and west suburban Cook County by 8 to 12.2 percent, citing the negative impact of the pandemic, according to a report the assessor released today. Kaegi also is reducing values on apartments, office buildings, shopping centers and other commercial properties in the south and west suburbs, part of a broader plan to ease the burden of the health and economic crisis on all property owners.

Amid soaring unemployment, many Cook County residents are struggling to pay their mortgage or their monthly rent. Many hotels are mostly empty or shut down completely. With stores closed all over, a lot of retailers aren’t paying their rent, and their landlords are falling behind on loan payments. Investors are bracing for a big drop in property values.

“Record-breaking unemployment, widespread loss of rental income, and significant downturns in commercial sectors all demonstrate a clear need for our office to include COVID-19 market effects in our assessments,” Kaegi said in a statement.

Without the adjustments, the property tax burden would shift onto property owners who don’t appeal their assessments, “which is the majority of people in the county,” he said. That “could include those who are dealing with illness, family concerns, or business issues related to COVID-19. All of this would create inequality in the property tax system.”

But Kaegi’s office is taking a stab at a question most real estate professionals still can’t answer. Less than three months since government officials imposed severe restrictions to slow the spread of the virus, it’s too early to know how much real estate values will fall. Property values are a lagging indicator.

The most reliable measure of single-family home values in the Chicago area, the Case-Shiller Index, rose 1.5 percent in March from a year earlier. Data for April won’t be available until late June, and it could be several months before the index reflects the true impact of the pandemic.

But Kaegi’s office is forecasting a major drop in home values due to rising unemployment. The assessor calculated an expected unemployment rate for each of Cook County’s 1,319 census tracts and used that to estimate the change in residential property values. Depending on a property’s location, the office will apply an 8 to 12 percent “COVID-19 Adjustment” to single-family homes and condos in the south and west suburbs.

The assessor will also reduce the value of two- to six-unit apartment buildings by 10 percent to 15.2 percent, according to the report. Kaegi is starting with the south and west suburbs; he plans to adjust the values of all properties in north suburban Cook and the city of Chicago in the coming months.

The process for commercial properties is more complicated. The assessor’s office is accounting for the COVID impact by changing capitalization, or “cap,” rates, a key figure used to value commercial properties. A cap rate is essentially a rate of return, representing a property’s income divided by its value. An investor who knows a building’s net operating income and cap rates for similar properties can estimate its value. The lower the cap rate, the higher the value.

To calculate a COVID adjustment, Kaegi’s office is raising cap rates it uses for different commercial properties. Some hotels, shopping centers and restaurant properties, which have been hit especially hard, will receive an upward cap rate adjustment of 2 percentage points—representing a roughly 25 percent decline in value. But grocery stores, which have flourished during the pandemic, and medical office buildings won’t receive any adjustment.

Assessments are a key variable used to calculate property taxes, determining how the tax burden is distributed among millions of taxpayers in the county. The county multiplies the assessed value by a tax rate for each relevant local government—from villages to school districts—to determine how much each taxpayer owes.

Until the coronavirus spread to the Chicago area, Kaegi was facing criticism from commercial landlords for jacking up their assessments, setting them up for a big property tax hike. His COVID adjustments could either placate them or attract more howls of protest—and a flood of appeals.

But the adjustments won’t help anyone this year. Cook County property owners will receive the second installment of their real estate tax bills in about a month, and those taxes are based on 2019 assessments. Kaegi’s changes will only apply to 2020 assessed values, used to calculate 2021 taxes.



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