Homeowners on track for property tax bumps thanks to office struggles
A 40% drop in downtown office value would cause 10% tax hike for homeowners
OCT 5, 2023, 1:53 PM
By
Chicago homeowners might be blaming the vacancy-plagued downtown office market for their next big jump in property taxes.
As the value of downtown office buildings continues to plunge, homeowners may bear a larger share of the tax burden, Crain’s reported, citing a study by the Mansueto Institute for Urban Innovation and the Center for Municipal Finance at the University of Chicago.
If the tax value of downtown office buildings drops by 20 percent, which some experts believe is a conservative estimate, the average Chicago home’s property tax bill could rise from $5,244 to $5,424. In the event of a 40 percent decline, homeowners could see a nearly 10 percent increase, with the average residential bill reaching $5,723, assuming taxing authorities maintain their current levy rates.
This situation presents a challenge for Mayor Brandon Johnson, who aims to freeze the city’s annual property tax levy while simultaneously proposing an increase in real estate transfer taxes for all property sales of $1 million or more, which could further impact declining property values.
About half of downtown office towers are in financial trouble, leading to mortgage defaults, foreclosures and other distress-related symptoms, according to Farzin Parang, executive director of the Building Owners and Managers Association of Chicago. Some downtown property values have fallen by as much as 80 percent, Parang told the outlet.
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The study highlights the interconnectedness of Chicago’s property tax system. When owners in one real estate sector pay less in taxes due to reduced property value, owners in another sector may have to cover the difference unless their values have also decreased.
The outcome will largely depend on how tax assessment officials respond to downtown’s soaring vacancy rate, which currently sits at a record-high of more than 25 percent. Cook County Assessor Fritz Kaegi has previously raised downtown valuations, and thus the tax costs for landlords and their tenants, but the Board of Review has often reversed or limited the severity of these increases.
All of Chicago is scheduled for a reassessment in 2024, and tax bills due in 2025 will be adjusted based on new valuations. However, individual building owners can request new valuations annually, potentially putting Kaegi in a challenging political situation as commercial properties depreciate and shift more responsibility for funding governments to homeowners.
