Cook County Assessor Fritz Kaege shared information about recent rule changes on how mixed-use buildings are assessed at a commercial property tax forum Wednesday morning, previewing how Evanston property values may change in next year's reassessment.
Cook County Assessor Fritz Kaege speaks during a commercial property tax forum at the Robert Crown Community Center on Wednesday morning. Photo by Alex Harrison
At the Robert Crown Community Center, Kaege, along with Cook County Commissioner Josina Morita, spoke to commercial building owners, business district representatives and local politicians from Morita's 13th Township district.
Under the county's three-yearly schedule, a reassessment of the north suburbs won't occur until 2025, but Kaegi said “it's not too early to let us know” information that could help them more accurately assess properties.
Sharing this information could be especially important for Evanston's many mixed-use buildings, which could be reclassified under the new rules and see their tax values soar. Kaege, who has spoken to affected building owners, said he sympathizes with his situation but points out that the real culprit for the spike lies with the county inspector's office.
“We've heard from many of you small businesses who are affected by this change,” Kaege said. “This has been forced upon us. [by the inspector general]It wasn't because we wanted to do something.”
Closing the “apartment loophole”
The rule change would apply to properties in Class 3-18, which is enacted by county ordinance and applies to mixed-use buildings with at least 20,000 square feet of space or at least seven separate units between residential and commercial space. This class of building is assessed (and taxed) overall at the 10% level of residential property, much lower than the typical 25% assessment for commercial space.
Simply put, the county ordinance's vague definition of this class created the “apartment loophole,” which gave buildings with little living space residential assessment rates, essentially providing tax breaks to buildings that were primarily commercial. The county supervisor recommended closing this loophole in late 2022, and while the ordinance's definition was not amended, the assessor's office implemented a new interpretation with two strict new conditions.
The ceiling for this class is currently set at 99,999 square feet, with larger buildings excluded from the overall assessment. At least 65% of the total floor area must be residential, essentially placing a limit on the square footage of commercial space that can benefit from this classification within a given building.
If a building is too large or has too much commercial space to fit into a class, a “split class assessment” will occur instead, with each space assessed separately at the standard tax rate. For properties currently in Class 3-18, this could mean a shift in the taxable value of commercial space from 10% to 25%, potentially resulting in a significant increase in your overall tax bill.
These reclassifications will begin in the south and west suburbs in 2023, are happening now in Chicago, and are expected to begin in Evanston when the north suburbs are reevaluated next year.
Neighbor Example
During Wednesday's forum, building owners in Rogers Park shared examples of how these changes will affect their mixed-use properties.
Mike Sullivan, co-owner of 2Bears Tavern Group, said his company's building at 6408 N. Clark St. was reassessed as split class this year, raising the building's taxable value, and therefore potential tax, from the residential rate of 10 percent to a hybrid tax rate of about 19 percent.
“Just based on the assessments alone, with tax rates and everything else being equal, our taxes will increase by 90 percent,” Sullivan said. “This is the death knell for our business and our building. We will not survive.”
Sullivan pointed to a few factors that put owners in a bind. First, the building is only 8,000 square feet, but it has eight units in total – an apartment, ground-floor retail, and second-floor office space – so it falls under the 3-18 class split assessment. If the same building had six or fewer rentable units, it would be in a different class that would be assessed as a whole at the 10% residential rate. Sullivan noted that this rule effectively penalizes smaller mixed-use buildings with more affordable micro-units, rather than a few larger units that fall within the class cutoff.
The company also received a Small Business Administration (SBA) loan that requires more than half of the floor space to be commercial, which is in direct conflict with the 35 percent threshold established by the Assessor's Office's new interpretation. He said he is “not unique” in being a business owner taking out such loans, but that he feels he is being forced to lose the tax rate his business has been paying “for years.”
Morita said she and her office were unaware of the new policy until the assessor's office sent out the memo last week, but had begun to hear anecdotally about spikes in assessments. [county] The committee called for amending the ordinance to provide relief to owners of mixed-use buildings and the small businesses they rent to.
Cook County Commissioner Josina Morita (from left), Assessor Fritz Kaege and Kaege's multifamily development director John McDonnell attended Wednesday's forum. Photo by Alex Harrison
“People buy properties under the status quo, and when the rules change it has a big impact on people,” Morita said. “When these changes are made, our [elected officials’] We have a responsibility to think about how we can give as much information as possible to the public in advance, so that taxpayers don't just find out in their tax bills.”
Kaegi said, as he noted throughout the forum, there are ways property owners can provide the Assessor's Office with more information to help produce a more accurate assessment. Among many other data points, this includes submitting a Real Estate Revenue and Expense (RPIE) application that shows the value a building actually generates, as well as requesting a site inspection to update the building's physical characteristics.
He said providing this data to his office before or at the evaluation stage might avoid the need to file a separate challenge with the review board, but that would not correct the underlying inaccuracies in the data.
“Instead, get the data right and let us know,” Kaegi said. “It doesn't cost anything, and you can fix your physical characteristics at any time of the year, even if you don't appeal, just let us know.”
Properties 3 – 18 in Evanston
So what does all this mean for Evanston?
Publicly available data from the city's 2022 reassessment shows there are currently 59 individual properties that would be classified under the old rules as classes 3 to 18. Analysis of this data has found that at least 22 could receive split-class assessments under the new rules when the northern suburbs are taken up next year.
Of those, 20 appear to be below the 35% commercial space limit, although that varies from 36% commercial to over 90%. The remaining two are above the new 100,000 square foot limit. If these data remain accurate next year, properties could see a significant increase in their tax burden on their 2026 bills.
Beyond the assessor-level changes, Kaege stressed that his office is only one part of the property tax process, and that tax burdens go up or down depending on other factors, including levies and appeals to the Board of Review. He gave the audience the example of his office trying to raise the assessed value of a large apartment building, only to have it “failed” on appeal to the Board of Review.
“Not just the evaluation method, [also] “How is the system as a whole performing?” Kaegi said. “We try to make sure that everyone is valued in line with the market.”
For more information on how the property tax system works and how Evanston homeowners paid their 2024 taxes, check out the Roundtable's 101 guide.