* Let’s go to the substance of Chris Kennedy’s property tax press conference today. I originally had this Crain’s story in another post, but I moved it here…
In the case of Hyatt Center, for tax purposes the building is valued at $160 million by Berrios, but it has a mortgage of $385 million––a solid indication in Kennedy’s view that the building is underassessed, shifting costs to homeowners “in the bungalow belt, and, as a result people are losing their homes.”
Kennedy said his solution bases assessments strictly on property sales, rather than on the “income” basis Berrios uses.
Berrios had no immediate response, but in the past he has suggested that the law requires him to base assessments on how much money a building makes rather than how much it last sold for, which can vary wildly at any point in time depending on market conditions.
Kennedy did not specify whether he would propose legislation to change the system, but said Democrats who long have controlled the General Assembly “did nothing to fix this system.”
Kennedy’s idea may not be as desirable as it sounds. Real estate values tend to be extremely volatile in the commercial market, and taxing bodies such as schools and City Hall need stable sources of finances.
* Kennedy was asked today if he knew why properties are assessed primarily on the income they generate rather than on sales prices and mortgage costs…
I would say that it’s not surprising that occurs around the city. Joe Berrios ignores that data. He says the property’s sales value shouldn’t inform the valuation. He says that the mortgages shouldn’t inform valuation. The fact is every mortgage on anything big is recorded at the Cook County Recorder of Deeds’ office. The information is already in the hands of the county. Why we’re not using it to properly assess our buildings is a question best asked of Joe Berrios.
* From the Cook County Assessor’s office…
Mr. Kennedy demonstrates a woeful lack of knowledge about the assessment process in general, and Illinois law in particular, for commercial buildings – including buildings his family either controlled for decades or still controls.
Because commercial buildings exist solely to generate income, current income is the primary factor in the value of such buildings – as Illinois courts have stated for some 70 years. Sale prices are not primarily driven by a building’s current value. Transaction prices in these buildings are highly speculative and based on future income expected by buyers investing in buildings. They often include significant non-real estate components.
A mortgage for such a building can be based on that speculation and a discounted cash flow analysis but the Assessor, by law, cannot speculate on future income or non-real estate factors.
Mr. Kennedy was quite happy with the current-income-approach-to-value before, during and after his sale of the Merchandise Mart. The prohibition on speculative price valuation in property assessment has been bedrock of Illinois law for 160 years. He should actually become informed on the laws of this state.
To base individual assessment on a sale price is known as “sales chasing.” Sales chasing is prohibited by decisions of both the United States Supreme Court and Illinois Supreme Court as violations of equal protection under the law and the Article IX Illinois Command of uniformity in assessments.
*** UPDATE *** Oh, man, this is so bad for Kennedy. From the assessor’s office…
The Cook County Assessor’s Office assumed Mr. Kennedy would not have the temerity to state a false number, but he did. His claim is wildly inaccurate. The Hyatt Center at 71 S. Wacker is actually valued at approximately $382 million, not the $160M Kennedy falsely stated.
It is not uncommon for large commercial buildings to have multiple Property Identification Numbers (PINs). Evidently, Kennedy checked only two PINs. There are, in fact, seven PINs totaling $382M for the property at 71 S. Wacker (Hyatt Center). Clearly, he does not know how to even calculate a current, accurate assessed value.
By the way, the $382M is the Cook County Board of Review’s figure, reduced from the original, higher Assessor’s Office figure of $396M.
In addition to his failure to properly calculate value, Kennedy demonstrates a woeful lack of knowledge about the assessment process in general, and Illinois law in particular, for commercial buildings. That includes buildings his family either controlled for decades or still controls.
Because commercial buildings exist solely to generate income, current income is the primary factor in the value of such buildings – as Illinois courts have stated for some 70 years. Sale prices are not primarily driven by a building’s current value. Transaction prices in these buildings are highly speculative and based on future income expected by buyers investing in buildings. They often include significant non-real estate components.
A mortgage for such a building can be based on that speculation and a discounted cash flow analysis but the Assessor, by law, cannot speculate on future income or non-real estate factors.
Kennedy was quite happy with the current-income-approach-to-value before, during and after his sale of the Merchandise Mart. The prohibition on speculative price valuation in property assessment has been bedrock of Illinois law for 160 years. He should actually become informed on the laws of this state.
To base individual assessment on a sale price is known as “sales chasing.” Sales chasing is prohibited by decisions of both the United States Supreme Court and Illinois Supreme Court as violations of equal protection under the law and the Article IX Illinois Command of uniformity in assessments.
- wordslinger - Monday, Jan 22, 18 @ 1:58 pm:
I’m not sure a deep dive into property taxes was a good idea for Kennedy.
- Oswego Willy - Monday, Jan 22, 18 @ 2:03 pm:
“Chris Kennedy’s campaign for Assesor of Cook County to a big hit today… “
- Baggs McCoy - Monday, Jan 22, 18 @ 2:05 pm:
So under Kennedy’s plan, a strip mall has a 60% vacancy in a bad economy but was purchased at the height of a good economy should be valued at that higher level? Quick way to hit bankruptcy and then see the detrimental effect on the community and therefore suppress home values as well. Not well thought out.
- Fixer - Monday, Jan 22, 18 @ 2:10 pm:
“Not well thought out” sums up his entire campaign at this point…
- Juvenal - Monday, Jan 22, 18 @ 2:14 pm:
“I blame Mike Madigan’s and the courts he has controlled for the last 160 years.” - Bruce Kennedy
Who is in charge of policy over at Team Kennedy these days?
- RNUG - Monday, Jan 22, 18 @ 2:17 pm:
Hmm.
Can’t do sales chasing? Just about every assessor in the State uses the sales price (aka fair market) to assess the value of single family homes and condos. If sales chasing is only against the law for commercial properties, why are single family rental homes assessed on sales price?
Can’t do future income? If you are using current income, you are assuming that will be the future income also. Remember, incomes can also go down.
I’ve seen houses appraised for mortgages by both the comparable sales method and the rental income basis. Usually the income basis results in a lower value, but not always.
Does that mean I should turn my house into a rental, rent it to myself for $1 a month, and get the assessor to value it based solely on the income it generates?
I don’t know what the proper method is, but it seems to me the property sales price has to be at least a factor in the assessment. Maybe we need to change State law to base the assessment partly on income and partly on sales value. Then the lawyers can still have fun arguing if it should be 50/50, 60/40, or 30/70.
- Precinct Captain - Monday, Jan 22, 18 @ 2:23 pm:
If the Assessor wants to say that the sales pricing of buildings is “highly speculative,” why not have buyers speculate a little more on what their taxes would be based on sales price?
The better argument is made in Crain’s–market volatility. Of course, that also applies to income.
- Rich Miller - Monday, Jan 22, 18 @ 2:35 pm:
===Does that mean I should turn my house into a rental===
No. Cook County has a different way of assessing commercial properties than the rest of the state.
- Just Observing - Monday, Jan 22, 18 @ 2:49 pm:
=== Does that mean I should turn my house into a rental, rent it to myself for $1 a month, and get the assessor to value it based solely on the income it generates? ===
No, transactions (e.g. sales, income, etc.) for assessment purposes have to be arms length transactions. Your example wouldn’t fly, either would selling your home to your child for $100.
- Arthur Andersen - Monday, Jan 22, 18 @ 2:52 pm:
A former local Board of Review member with deep experience in commercial real estate tells me that Assessor Berrios may have a valid point here. I’m still mulling the Crain’s story over.
- RNUG - Monday, Jan 22, 18 @ 2:58 pm:
== have to be arms length ==
I knew that; rent a house to a relative at lower end of market price even though they wanted it cheaper. But it was fun making the argument.
- Keyser Soze - Monday, Jan 22, 18 @ 3:20 pm:
The Cook County method of assessment opens the door for voodoo accounting…..the Chicago way. Elsewhere in Illinois, property values are assessed at what they (would) sell for vis-a-vis fact-based accounting.
- Boone's is Back - Monday, Jan 22, 18 @ 3:40 pm:
===vis-a-vis fact-based accounting.===
What does that mean? And no. Property tax law is set by caselaw and precedent. PTAB’s decisions on market value control for Cook and every other county in the state dude.
- Dirty Red - Monday, Jan 22, 18 @ 3:41 pm:
He went at the King.
He missed.
- wordslinger - Monday, Jan 22, 18 @ 3:44 pm:
To the Update: Yeah, the deep dive into a complex subject — not a good idea.
- Anon0091 - Monday, Jan 22, 18 @ 3:55 pm:
“Chris Kennedy’s campaign for Assessor of Cook County took a big hit today… “
Exactly right.
- Responsa - Monday, Jan 22, 18 @ 3:59 pm:
Just an observation–perhaps on this issue the general public will look at candidates more from the stand point of “that guy seems to be on the little guy’s (my) side with respect to property taxes”, versus “that guy seems to milk or defend the current property tax system to the detriment of the little guy”. At the end of the day the complexity and detail may mean a whole lot less to voters than the perception of fairness and unfairness.
- Anonymous - Monday, Jan 22, 18 @ 4:09 pm:
Man, when he isn’t steppin’ In it, he’s steppin’ on it.
- Chicagonk - Monday, Jan 22, 18 @ 4:16 pm:
Berrios is misrepresenting what the courts have said. Pursuant to Illinois law, real property is to be “valued at its fair cash value, estimated at the price it would bring at a fair voluntary sale.” Chrysler Corp. v. Illinois Property Tax Appeal Board, 69 Ill. App. 3d 207, 211, 387 N.E.2d 351, 355
(1979). Additionally, the courts have stated, “When market value is not conclusively established by a contemporaneous, voluntary, and arm’s length sale of the actual property, then the preferred method of determining value is through the sales comparison approach, based on sales of comparable properties on the open
market.” Omni, 384 Ill. App. 3d at 480-82, 894 N.E.2d at 408
Berrios and the assessor’s office have elected to place more weight on the income based approach. They need to stop blaming the courts.
- charlie wheeler - Monday, Jan 22, 18 @ 4:25 pm:
Point of information/question.
“In the case of Hyatt Center, for tax purposes the building is valued at $160 million by Berrios, but it has a mortgage of $385 million––a solid indication in Kennedy’s view that the building is underassessed, shifting costs to homeowners “in the bungalow belt, and, as a result people are losing their homes.”
Please excuse my ignorance here, but my understanding is that commercial and industrial property in Cook County is to be assessed at 25 percent of its fair market value, as determined initially by the assessor, under the county’s classification ordinance. A property worth $385 million assessed at 25 percent would yield a value for tax purposes of $96.3 million.
If someone could please reconcile for me this apparent difference with Candidate Kennedy’s assertion, I’d be most grateful.
Thank you,
Charlie Wheeler
- Rich Miller - Monday, Jan 22, 18 @ 4:37 pm:
===If someone could please reconcile for me this apparent difference with Candidate Kennedy’s assertion, I’d be most grateful===
Kennedy: the building is valued at $160 million by Berrios
Berrios: The Hyatt Center at 71 S. Wacker is actually valued at approximately $382 million
- Huh? - Monday, Jan 22, 18 @ 4:46 pm:
A deep dive … into a shallow pool? That left a mark.
- Arsenal - Monday, Jan 22, 18 @ 5:02 pm:
==At the end of the day the complexity and detail may mean a whole lot less to voters than the perception of fairness and unfairness.==
OK, great, but that doesn’t make Kennedy’s wrong numbers right.
- Juice - Monday, Jan 22, 18 @ 5:08 pm:
Charlie, both Kennedy and Berrios are talking about the fair market value as determined by the assessor.
The difference is that if you look up 71 S Wacker Dr on the assessor’s website, only two PINs come up.
However, if you look up appeals filed on behalf of “71 S Wacker Drive, LLC” which is the entity that owns the building, you’ll find PINs that also list 25 S Wacker, 33 S Wacker, 300 W Monroe and 77 S Wacker in addition to 71 S Wacker, and all of those addresses are in the same building.
- Arthur Andersen - Monday, Jan 22, 18 @ 5:25 pm:
Is it just me, or does anyone else think that Assessor Kennedy was being cute by using the Pritzker family business HQ as his sample property?
- Thomas Paine - Monday, Jan 22, 18 @ 5:25 pm:
It takes a lot of effort to make yourself look less trustworthy than Joe Berrios. Chris Kennedy just nailed it.
Kennedy should apologize for his blatantly false attack.
- Bob the Skob - Monday, Jan 22, 18 @ 6:13 pm:
Kennedy has run his entire campaign as if he were running for the Doofus of the Year award.
- burbanite - Monday, Jan 22, 18 @ 6:14 pm:
Cook is not unique in how it handles commercial property assessments.
- charlie wheeler - Monday, Jan 22, 18 @ 6:17 pm:
Thank you, Rich and Juice,much appreciated.
Charlie Wheeler