CHICAGO — As Cook County Assessor Fritz Kaegi completes his first round of suburban reassessments since his election on a reform agenda last year, north suburban commercial property owners are seeing significantly larger increases in valuations than homeowners.
The change means owners of apartment buildings, retail properties and industrial facilities will pay a larger share of the county's total property tax burden. Although taxpayers in several townships have already seen higher assessment values for residential properties, the far larger growth in commercial and industrial valuations will result in some homeowners paying smaller tax bills despite higher home values and tax rates.
A key factor in this year's higher commercial assessments is the assessor's use of lower capitalization, or "cap," rates compared to his predecessor, Joe Berrios. The rates reflect the amount of income landlords receive from properties after paying tax. The assessed values are determined by dividing the property's net operating income by the cap rate — the lower the rate, the higher the assessed value.
Scott Smith, chief communications officer for the Kaegi's office, said the new cap rates are far more reflective of market conditions.
"The cap rates that were used in 2016 were out of sync with what most financial analysts would say were accurate cap rates at the time," Smith said, citing data from commercial real estate firms. He said the methodology used by Berrios' office during the prior reassessments remained a mystery.
"There was no significant record of how that work was done," Smith said.
Berrios, the former chair of the Cook County Democratic Party, faced criticism for his role in a regressive property tax assessment system that left poorer homeowners to pick up more of the burden than richer ones while favoring tax appeal attorneys — he filed a lawsuit and a failed appeal in an attempt to toss out ethics rules prohibiting him from taking campaign cash from the lawyers ahead of his defeat in the March 2018 primary.
Kaegi, an Oak Park financial manager, has argued the new cap rates used in this year's north suburban reassessment are much closer to market valuations. The assessor told Crain's Chicago Business the changes to the reassessment formula would produce a system that is "less risky and more predictable" for real estate investors.