Download Report

Amari & Locallo
“Cranes in the air!”
If you work, live in or visit Chicago’s Central Business District (CBD) you cannot help
but notice many construction cranes in the air heralding the beginnings of new real
estate. You might also want to know the Assessor of Cook County noticed the
upsurge of these new structures, as well as the market’s rise in sales prices and
rents that make up the kettle of soup we call market values, assessments and real
estate taxes.
In a recent public address to practitioners in the real estate tax assessment arena,
the Cook County Assessor’s office made mention of the following…
•
•
•
•
•
•
•
•
•
•
They are paying attention to the CBD construction. They know about
all the new constructions.
There have been six 2013 sales ranging from $195 - $325 psf.
They are tracking the West Loop activity.
They are taking a close look at Class A office buildings on Wacker
Drive
They are taking a close look at Michigan Ave hybrid buildings (retail,
office, condo)
They are taking a close look at Oak and Rush Street buildings.
They are taking a close look at buildings that have not filed tax
assessment appeals since 2009.
They are going to be aggressive and equitable with the proposed
assessments.
If there is a sale, provide income before and after the sale to rebut the
sale price.
Luxury Loop apartment buildings will be in a different category than
other apartment buildings.
So begins the 2015 triennial reassessment of the City of Chicago and our concern
that real estate taxes may go as high as some of those cranes. Suffice it to say that
potential increases in assessments of the CBD will affect all property in Cook County.
To know what to expect we have to look at how property is assessed.
1
Amari & Locallo
There are 38 townships in Cook County and each share, or have some of their own,
taxing districts supporting government operations. We “tax” real property to
support our schools, police, fire, water, sewer, libraries and other administers of
government. The measure of tax is based on the value of real property. The agency
responsible for establishing a value for each parcel countywide is the Assessor.
It is mandated that real property located in Cook County will be reassessed every
three years and the county has been divided into the North Suburban Townships,
the South Suburban Townships and the townships located in the City of Chicago.
This year the City’s townships are being reassessed. 1
Because CBD values are substantial any adjustments contribute significantly to the
county’s multiplier each year.
Here is a quick stepladder of the process from assessment to a tax bill.
The Assessment
The assessment is the official act of discovering, listing, appraising, and entering a
value for property on the assessment rolls for real estate tax purposes.
The Assessed Value
The assessed value is the value placed upon property after multiplying its market
value by the level of assessment.
The Level of Assessment
The level of assessment is the percentage of full value at which property is being
assessed. In Cook County assessment ratios (simplified) are 10% for residential and
25% for commercial. All other counties’ (101 of them) assessment ratios are
33.33% of market value.
Equalization
Equalization is the application of a uniform percentage increase or decrease (the
multiplier) to assessed values of various areas or classes of property to bring
assessment levels, on average, to a uniform level of market value. The Illinois
Department of Revenue determines the multiplier each year after the tax appeal
process has concluded.
The Equalized Assessed Value (EAV)
Once determined, the multiplier is applied to each parcel in a county resulting in its
assessment being equalized (EAV). 2
Every year all townships are opened for a time allowing property owners to file appeals. The
Assessor can also reassess any property in a non-reassessment year with proper notice.
2 If the multiplier is positive, it increases the assessment. If the multiplier is negative, it decreases the
assessment.
1
2
Amari & Locallo
The Levy
The levy is money a taxing body certifies to be raised from the property tax to meet
its operating expenses.
The Tax Base
The tax base is composed of the EAV of all locally assessed property, less all
qualified exemptions, plus the value of any state assessed property.
The Rate
The amount of tax due stated as a percentage of the tax base, derived by dividing the
levy by the EAV.
The Extension
The actual tax dollar amount billed to property taxpayers in a district.
Cook County mails to taxpayers of record two real estate tax bills each calendar
year. Real estate tax is paid one year in arrears. 3 The reason for the delay is to
allow for time for the administration of appeals. The first installment tax bill is sent
in February and is automatically 55% of the prior year’s total real estate tax. This
supports the county’s treasury while appeals are being processed and adjustments
made to the tax base. The second installment is normally sent in August. By then,
the assessment rolls are certified, a tax base is established, the Illinois Department
of Revenue (IDOR) determines the multiplier and the local rates are established.
Those familiar with a real estate tax bill may see a “tax calculator” on the second
installment that looks similar to this:
2014
2014
2014
2014
2014
2014
2014
Property Value
Assessment Level
Assessed Value
State Equalization Factor
X
Equalized Assessed Value (EAV)
Local Tax Rate
X
Total Tax Before Exemptions
600,000
25%
150,000
2.6621
399,315
6.832%
$ 27,281.20
Equalization
Increasing or decreasing an assessed value by its multiplier, in turn, increases or
decreases the real estate tax for every parcel in a county 4. The multipliers in Cook
County have all been positive for a number of years.
3
4
In 2015 we are paying the 2014-year’s real estate tax bill.
How the CBD is assessed affects all parcels in the county.
3
Amari & Locallo
A 23year history of the Multiplier in Cook County
Cook County Multipliers
New Triennial
New Triennial
New Triennial
New Triennial
New Triennial
New Triennial
New Triennial
Average
Median
Year
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Multiplier
2.0523
2.0897
2.1407
2.1135
2.1243
2.1517
2.1489
2.1799
2.2505
2.2235
2.3098
2.4689
2.4598
2.5757
2.7320
2.7076
2.8439
2.9786
3.3701
3.3000
2.9706
2.8056
2.6621
2.5689
2.5223
Two significant factors keep the multiplier greater than 1 in Cook County 5
•
•
Its assessment ratios (10% and 25%) are below the mandated 33.33%
Market values assigned by the Assessor, overall, are statistically lower than
the sales data reported to the Illinois Department of Revenue.
Cook County assessment ratios
In Illinois counties that have a population more than 200,000 may classify property
for assessment purposes 6. Cook County is the only county that has adopted an
alternative system. The most recent changes in its classification scheme and levels
of assessment were made to bring more transparency to the assessment process
and make it easier for taxpayers to understand. Their decision to do so, however, is
still overshadowed by the Illinois Constitution and state statutes requiring
equalization in the assessment process. Even if Cook County market values were in
5 Oddly enough, the closer Cook County’s overall market values are, on average, uniform with the
IDOR determination of market value, the multiplier would be closer to 1.
6 The Assessor’s power to classify property comes from Article IX, Section 4 of the Illinois
Constitution.
4
Amari & Locallo
line with the Illinois Department of Revenues IDOR) determinations of value,
because the assessment levels in Cook County (10% and 25%) are less than
elsewhere in Illinois, there would always be a multiplier greater than 1.
Cook County market values can be lower than their sale prices....
In determining market value for commercial/industrial property, Cook County
assessing officers consider a number of determining factors besides its sale price. 7
Just to name a few, they consider any history of actual income, expenses, occupancy,
obsolescence, etc. and always keep “equity” ranges in mind when comparing
similarly situated property not recently sold. Appraisals using three approaches to
value (Cost, Income and Sales) are reviewed and given strong consideration.
The Illinois Department of Revenue (IDOR), however, only reviews actual sales data,
in its determination of the multiplier.
Sampling of eighteen sold properties have assessment 8 levels lower than
33.33%
Sale Date
Actual Sale Price
ASP/AV
69,622,045
Assessor’s
Market Value
$278,488,180
12/15/2011
$386,965,000
18%
1 N. Wacker
80,466,907
$321,867,628
12/1/2011
$298,900,000
27%
20 N. Wacker
18,211,563
$72,846,252
2/9/2012
$125,800,000
14%
200 W. Madison
29,874,999
$119,499,996
9/23/2011
$217,500,000
14%
233 N. Michigan
33,346,851
$133,387,404
5/11/2011
$162,202,355
21%
111 E. Wacker
34,177,406
$136,709,624
1/9/2012
$150,600,000
23%
1 S. Wacker
36,903,939
$147,615,756
12/6/2012
$221,000,000
17%
71 S. Wacker
87,499,996
$349,999,984
12/1/2012
$625,000,000
14%
125 S. Wacker
12,042,494
$48,169,976
12/17/2012
$109,000,000
11%
230 W. Monroe
18,720,524
$74,882,096
8/10/2012
$93,000,000
20%
200 W. Monroe
14,792,000
$59,168,000
7/31/2012
$75,000,000
20%
55 W. Monroe
22,937,497
$91,749,988
12/23/2011
$136,000,000
17%
200 S. Wacker
18,500,002
$74,000,008
6/10/2011
$95,500,000
19%
20 N. Clark
9,736,228
$38,944,912
12/20/2013
$63,750,000.00
15%
200 S. Michigan Ave.
8,000,001
$32,000,004
2/7/2014
$69,000,000.00
12%
300 S. Wacker Drive
14,499,999
$57,999,996
8/19/2013
$112,500,000.00
13%
500 W. Madison
57,044,892
$228,179,568
12/16/2013
$425,000,000
13%
541 N. Fairbanks
15,875,568
$63,502,272
3/31/2014
$79,500,000
20%
Average
17.00%
Address
Total AV
35 W. Wacker
For residential properties, sale prices do take on more significance and mass appraisal techniques
are utilized more often to determine assessments. Commercial and industrial properties appear to
have more divergence between sale prices and proposed assessments.
8 The assessments were taken from the 2014 assessment year information on the Assessor’s website.
7
5
Amari & Locallo
The above sampling of Central Business District sales demonstrates that values
assigned by the local assessing officials to some CBD properties are lower than their
sale prices.
So what does it all mean?
Well, a couple of things. It tells us assessing officials are not necessarily interested
in “chasing” sales and they are receptive to analyzing property values based on
other considerations. Knowing this may be important to investors interested in
purchasing property in Cook County. They should also be aware that deflating a tax
base by administering lower assessment levels and lower market values creates a
positive multiplier.
Each year the Assessor’s call to order demonstrates a willingness to accept appeals
and a desire to receive information that will assist them in the assessment process.
Requests for information should not be ignored or taken lightly. Reports concerning
actual income and expense summaries should be analyzed by tax counsel and
presented to the Assessor in a light most favorable to the taxpayer. Opinions from
experts supported by full narrative appraisals are often necessary for appeals from
proposed assessments. Settlement on a fair and equitable assessment is tantamount
to paying a fair and equitable real estate tax.
Each parcel in the county has the same multiplier to equalize its assessment. Where
you wind up on the “assessment line” will determine your share in the burden of
taxation. Better to be on the lower end than at the top of the list!
Prepared by
Amari & Locallo
Real Estate Tax Practitioners
6