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Is Willis Tower worth $1.24 billion? Fritz Kaegi thinks so.
In a now-familiar pattern, the Cook County assessor has jacked up assessments on Willis Tower, Aon Center and other trophy properties in downtown Chicago.

Tuesday, October 19, 2021
Crain's Chicago Business
by Alby Gallun

The owners of some of the biggest and best-known high-rises in downtown Chicago received unpleasant, but not unexpected, news in the mail this month: Their assessments shot up this year, potentially setting the stage for big property tax hikes in 2022.

Cook County Assessor Fritz Kaegi estimated the market value of Willis Tower, the city’s tallest building, at $1.24 billion, up 78% from 2020. The value of the Aon Center more than doubled, to $886 million. He valued the apartments in Aqua Tower at $95.4 million, up 30%.

 

The recent assessment notices for a big section of downtown Chicago may rankle some landlords who feel picked on by Kaegi, but they mostly represent a continuation of his campaign to shake up the assessor’s office that began when he took office in 2018. He hit owners of commercial properties in the suburbs with big assessment increases in 2019 and 2020 and moved on to the city this year.

Kaegi contends he’s just trying to fix a broken assessment process and correct the mistakes of his predecessor, Joe Berrios, who drastically undervalued commercial properties. Landlords gripe that rising assessments—and property taxes—are chasing investors out of Chicago and imperiling the region’s business climate.

“It’s not objective, and it makes no sense,” says Farzin Parang, executive director of the Building Owners and Managers Association of Chicago. “It’s very political to us. He’s constantly pitting business versus residents.”

Kaegi’s office recently wrapped up its job where the stakes are the highest, in downtown Chicago, the location of the county’s biggest and most valuable properties. In the township of South Chicago, which includes downtown south of the Chicago River, the total assessed value of residential properties rose 10.5% from 2018, the last time they were assessed, according to Kaegi’s office.

But the total assessed value of nonresidential properties jumped 82.6%. As a result, owners of apartments, hotels, office buildings and other commercial properties will shoulder more of the property tax burden. Nonresidential properties now account for 85% of the total assessed value in South Chicago Township, which stretches from the river past Pershing Road to the south and Pulaski Road to the west. That’s up from 78% in 2018.

But homeowners should be happy. Their share of South Chicago tax burden fell to 15% from 22% in 2018.

What makes no sense to Parang is that Kaegi’s office has hiked assessed values for office buildings during a pandemic that has pushed the downtown office market into its worst slump in decades. The downtown office vacancy rate rose to a record high of 20% in the third quarter, according to CBRE.

Kaegi’s critics grouse that Kaegi is hiking commercial assessments to curry favor with homeowners, a key constituency as he seeks re-election in 2022. In the zero-sum math of property taxes, if more of the tax burden shifts onto commercial landlords, property taxes for homeowners could rise only slightly next year and possibly even fall for some. Residential property taxes rose 1.3% this year, but commercial taxes jumped 6.2%.

But Kaegi’s office says it’s focused on one thing: accuracy. Downtown commercial assessments are rising so much today because Berrios assessed them at a fraction of their true market value in 2018, partly because he was too cozy with property-tax appeals attorneys, according to Kaegi supporters. Scott Smith, a spokesman for the assessor, dismisses the criticism from Parang.

“Lobbyists tend to see most things as politically motivated or favoring one group over another,” he said. “But the days of favoritism in the assessor’s office are over. We have a team of data-driven professionals who have made our work more accurate than before. Third-party studies and reporting, including Crain’s, supports the accuracy of our work.”

An examination of some trophy buildings in downtown Chicago illustrate his point. When Berrios assessed the Willis Tower in 2018, his office assigned the skyscraper a final market value of $697 million.

Yet Blackstone paid more than twice that amount, $1.5 billion, when it bought the 110-story building at 233 S. Wacker Drive three years earlier. Since then, the big New York investment firm has spent another $500 million in a major redevelopment of the high-rise. So a 78% increase in value, to $1.24 billion, doesn’t seem excessive.

Moreover, the new value also is still well below its 2018 appraised value of $1.78 billion in 2018, when Blackstone refinanced the building, according to securities filings. Even if the property has lost value during the pandemic, Kaegi’s estimate of $1.24 billion seems low, not high.

A Blackstone spokeswoman declined to comment.

Kaegi also jacked up the value of the 474 apartments in Aqua, the curvy 82-story skyscraper in the Lakeshore East development. But the assessor’s estimate of $95.4 million is still well below its value in 2019, when it last sold. Los Angeles-based Ares Management acquired the building in a deal that valued it at about $254 million, nearly three times what the assessor says it’s worth.

The owner of the Aon Center, however, may have a case if it chooses to appeal its assessment. A venture led by New York-based 601W paid $712 million for the 83-story building in 2015. The property at 200 E. Randolph St. was appraised at $824 million when 601W refinanced it in 2018. With an estimated value of $886 million, Kaegi’s office may have missed the mark on the high side.

That’s what the appeals process is for. In the coming weeks, attorneys for downtown landlords will be busy trying to get assessed values reduced by filing appeals with the assessor’s office. If they’re not satisfied there, they can appeal to the county Board of Review, which has slashed assessments in suburban Cook County, or to the Illinois Property Tax Appeal Board. As hard as he is trying to change the way the county assesses properties, Fritz Kaegi doesn’t have the final say on what they're worth.

Kaegi isn't finished assessing Chicago. His office has wrapped up five out of eight townships in city, including North Chicago, which encompasses downtown north of the Chicago River. Then, under the county's triennial assessment process, he'll move on to north suburban Cook County in 2022. He'll also be busy with another job: his campaign for re-election.



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