Cranes in the air! If you work, live in or visit Chicago s Central Business District (CBD) you cannot help but notice many construction cranes in the air heralding the beginnings of new real estate. You might also want to know the Assessor of Cook County noticed the upsurge of these new structures, as well as the market s rise in sales prices and rents that make up the kettle of soup we call market values, assessments and real estate taxes. In a recent public address to practitioners in the real estate tax assessment arena, the Cook County Assessor s office made mention of the following They are paying attention to the CBD construction. They know about all the new constructions. There have been six 2013 sales ranging from $195 $325 psf. They are tracking the West Loop activity. They are taking a close look at Class A office buildings on Wacker Drive They are taking a close look at Michigan Ave hybrid buildings (retail, office, condo) They are taking a close look at Oak and Rush Street buildings. They are taking a close look at buildings that have not filed tax assessment appeals since 2009. They are going to be aggressive and equitable with the proposed assessments. If there is a sale, provide income before and after the sale to rebut the sale price. Luxury Loop apartment buildings will be in a different category than other apartment buildings. So begins the 2015 triennial reassessment of the City of Chicago and our concern that real estate taxes may go as high as some of those cranes. Suffice it to say that potential increases in assessments of the CBD will affect all property in Cook County. To know what to expect we have to look at how property is assessed. 1
There are 38 townships in Cook County and each share, or have some of their own, taxing districts supporting government operations. We tax real property to support our schools, police, fire, water, sewer, libraries and other administers of government. The measure of tax is based on the value of real property. The agency responsible for establishing a value for each parcel countywide is the Assessor. It is mandated that real property located in Cook County will be reassessed every three years and the county has been divided into the North Suburban Townships, the South Suburban Townships and the townships located in the City of Chicago. This year the City s townships are being reassessed. 1 Because CBD values are substantial any adjustments contribute significantly to the county s multiplier each year. Here is a quick stepladder of the process from assessment to a tax bill. The Assessment The assessment is the official act of discovering, listing, appraising, and entering a value for property on the assessment rolls for real estate tax purposes. The Assessed Value The assessed value is the value placed upon property after multiplying its market value by the level of assessment. The Level of Assessment The level of assessment is the percentage of full value at which property is being assessed. In Cook County assessment ratios (simplified) are 10% for residential and 25% for commercial. All other counties (101 of them) assessment ratios are 33.33% of market value. Equalization Equalization is the application of a uniform percentage increase or decrease (the multiplier) to assessed values of various areas or classes of property to bring assessment levels, on average, to a uniform level of market value. The Illinois Department of Revenue determines the multiplier each year after the tax appeal process has concluded. The Equalized Assessed Value (EAV) Once determined, the multiplier is applied to each parcel in a county resulting in its assessment being equalized (EAV). 2 1 Every year all townships are opened for a time allowing property owners to file appeals. The Assessor can also reassess any property in a non reassessment year with proper notice. 2 If the multiplier is positive, it increases the assessment. If the multiplier is negative, it decreases the assessment. 2
The Levy The levy is money a taxing body certifies to be raised from the property tax to meet its operating expenses. The Tax Base The tax base is composed of the EAV of all locally assessed property, less all qualified exemptions, plus the value of any state assessed property. The Rate The amount of tax due stated as a percentage of the tax base, derived by dividing the levy by the EAV. The Extension The actual tax dollar amount billed to property taxpayers in a district. Cook County mails to taxpayers of record two real estate tax bills each calendar year. Real estate tax is paid one year in arrears. 3 The reason for the delay is to allow for time for the administration of appeals. The first installment tax bill is sent in February and is automatically 55% of the prior year s total real estate tax. This supports the county s treasury while appeals are being processed and adjustments made to the tax base. The second installment is normally sent in August. By then, the assessment rolls are certified, a tax base is established, the Illinois Department of Revenue (IDOR) determines the multiplier and the local rates are established. Those familiar with a real estate tax bill may see a tax calculator on the second installment that looks similar to this: 2014 Property Value 600,000 2014 Assessment Level 25% 2014 Assessed Value 150,000 2014 State Equalization Factor X 2.6621 2014 Equalized Assessed Value (EAV) 399,315 2014 Local Tax Rate X 6.832% 2014 Total Tax Before Exemptions $ 27,281.20 Equalization Increasing or decreasing an assessed value by its multiplier, in turn, increases or decreases the real estate tax for every parcel in a county 4. The multipliers in Cook County have all been positive for a number of years. 3 In 2015 we are paying the 2014 year s real estate tax bill. 4 How the CBD is assessed affects all parcels in the county. 3
A 23year history of the Multiplier in Cook County Cook County Multipliers Year Multiplier 1991 2.0523 1992 2.0897 1993 2.1407 New Triennial 1994 2.1135 1995 2.1243 1996 2.1517 New Triennial 1997 2.1489 1998 2.1799 1999 2.2505 New Triennial 2000 2.2235 2001 2.3098 2002 2.4689 New Triennial 2003 2.4598 2004 2.5757 2005 2.7320 New Triennial 2006 2.7076 2007 2.8439 2008 2.9786 New Triennial 2009 3.3701 2010 3.3000 2011 2.9706 New Triennial 2012 2.8056 2013 2.6621 Average 2.5689 Median 2.5223 Two significant factors keep the multiplier greater than 1 in Cook County 5 Its assessment ratios (10% and 25%) are below the mandated 33.33% Market values assigned by the Assessor, overall, are statistically lower than the sales data reported to the Illinois Department of Revenue. Cook County assessment ratios In Illinois counties that have a population more than 200,000 may classify property for assessment purposes 6. Cook County is the only county that has adopted an alternative system. The most recent changes in its classification scheme and levels of assessment were made to bring more transparency to the assessment process and make it easier for taxpayers to understand. Their decision to do so, however, is still overshadowed by the Illinois Constitution and state statutes requiring equalization in the assessment process. Even if Cook County market values were in 5 Oddly enough, the closer Cook County s overall market values are, on average, uniform with the IDOR determination of market value, the multiplier would be closer to 1. 6 The Assessor s power to classify property comes from Article IX, Section 4 of the Illinois Constitution. 4
line with the Illinois Department of Revenues IDOR) determinations of value, because the assessment levels in Cook County (10% and 25%) are less than elsewhere in Illinois, there would always be a multiplier greater than 1. Cook County market values can be lower than their sale prices... In determining market value for commercial/industrial property, Cook County assessing officers consider a number of determining factors besides its sale price. 7 Just to name a few, they consider any history of actual income, expenses, occupancy, obsolescence, etc. and always keep equity ranges in mind when comparing similarly situated property not recently sold. Appraisals using three approaches to value (Cost, Income and Sales) are reviewed and given strong consideration. The Illinois Department of Revenue (IDOR), however, only reviews actual sales data, in its determination of the multiplier. Sampling of eighteen sold properties have assessment 8 levels lower than 33.33% Address Total AV Assessors Market Value Sale Date Actual Sale Price ASP/AV 35 W. Wacker 69,622,045 $278,488,180 12/15/2011 $386,965,000 18% 1 N. Wacker 80,466,907 $321,867,628 12/1/2011 $298,900,000 27% 20 N. Wacker 18,211,563 $72,846,252 2/9/2012 $125,800,000 14% 200 W. Madison 29,874,999 $119,499,996 9/23/2011 $217,500,000 14% 233 N. Michigan 33,346,851 $133,387,404 5/11/2011 $162,202,355 21% 111 E. Wacker 34,177,406 $136,709,624 1/9/2012 $150,600,000 23% 1 S. Wacker 36,903,939 $147,615,756 12/6/2012 $221,000,000 17% 71 S. Wacker 87,499,996 $349,999,984 12/1/2012 $625,000,000 14% 125 S. Wacker 12,042,494 $48,169,976 12/17/2012 $109,000,000 11% 230 W. Monroe 18,720,524 $74,882,096 8/10/2012 $93,000,000 20% 200 W. Monroe 14,792,000 $59,168,000 7/31/2012 $75,000,000 20% 55 W. Monroe 22,937,497 $91,749,988 12/23/2011 $136,000,000 17% 200 S. Wacker 18,500,002 $74,000,008 6/10/2011 $95,500,000 19% 20 N. Clark 9,736,228 $38,944,912 12/20/2013 $63,750,000.00 15% 200 S. Michigan Ave. 8,000,001 $32,000,004 2/7/2014 $69,000,000.00 12% 300 S. Wacker Drive 14,499,999 $57,999,996 8/19/2013 $112,500,000.00 13% 500 W. Madison 57,044,892 $228,179,568 12/16/2013 $425,000,000 13% 541 N. Fairbanks 15,875,568 $63,502,272 3/31/2014 $79,500,000 20% Average 17.00% 7 For residential properties, sale prices do take on more significance and mass appraisal techniques are utilized more often to determine assessments. Commercial and industrial properties appear to have more divergence between sale prices and proposed assessments. 8 The assessments were taken from the 2014 assessment year information on the Assessor s website. 5
The above sampling of Central Business District sales demonstrates that values assigned by the local assessing officials to some CBD properties are lower than their sale prices. So what does it all mean? Well, a couple of things. It tells us assessing officials are not necessarily interested in chasing sales and they are receptive to analyzing property values based on other considerations. Knowing this may be important to investors interested in purchasing property in Cook County. They should also be aware that deflating a tax base by administering lower assessment levels and lower market values creates a positive multiplier. Each year the Assessor s call to order demonstrates a willingness to accept appeals and a desire to receive information that will assist them in the assessment process. Requests for information should not be ignored or taken lightly. Reports concerning actual income and expense summaries should be analyzed by tax counsel and presented to the Assessor in a light most favorable to the taxpayer. Opinions from experts supported by full narrative appraisals are often necessary for appeals from proposed assessments. Settlement on a fair and equitable assessment is tantamount to paying a fair and equitable real estate tax. Each parcel in the county has the same multiplier to equalize its assessment. Where you wind up on the assessment line will determine your share in the burden of taxation. Better to be on the lower end than at the top of the list! Prepared by Real Estate Tax Practioners 6