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Real Estate Investors Face Tax Uncertainties in Chicago

by Bob Tivnan, CMI, Chicago, December 2019

 

New data is supporting the fears that many investors have about the Chicago real estate market. Real Capital Analytics (RCA) reports that single-property commercial sales in the Chicago area fell to $7.7 billion in the first nine months of the year, marking the biggest drop among the top 25 U.S. markets.

 

What’s Wrong in Chicagoland?

 

In the recent article “What’s Wrong in Chicagoland?”, RCA senior vice president Jim Costello questions: “Is it unfunded pension liabilities in Illinois, uncompetitive labor markets, or high taxation driving the change in perceptions? Is it some combination of these and other factors pulling down the whole region?”

 

The article, also summarized in Crain’s Chicago Business, further mentions, many landlords contend one source of the problem is the Cook County Assessor’s Office, which has significantly increased assessments on commercial properties in the county’s northern suburbs. Seeing that as a precursor to big property tax hikes, some investors have decided not to buy in Cook County while others are just making low offers, landlords say.

 

Values Fall

 

Less demand among investors for commercial real estate would ultimately lead to lower property values. Some recent deals and data suggest it already has.

 

An RCA index of commercial property prices in the Chicago area has fallen slightly over the past two years. Chicago was the only market among 32 tracked by RCA where prices fell. Price indexes for the Los Angeles, San Francisco, Houston, and Boston markets all rose more than 10%.

 

“There is nothing wrong with Chicagoland, investors simply hate uncertainty,” Costello writes. “Investment activity is pulling back here as investors are struggling to come to grips with future tax liabilities at the state and local level. Potential sellers will minimize the impact of these liabilities, buyers will overestimate them and in combination, buyers and sellers will move further apart in price expectations.”

 

During these uncertain times, POER is ready to help real estate investors project and frame their future estimated real property tax expenses in Chicago to help alleviate the fear of the unknown.